CNX Resources Corporation

Q2 2021 Earnings Conference Call

7/29/2021

spk_0: the morning and welcome to the see on act resources second quarter twenty twenty one earnings conference call all participants will be in with and only mode should you need assistance please ignore conference specialist by prepping the dark he followed by the row after today presentation there will be an opportunity to off question to ask a question you a probe far than one on your touch tone down to withdraw from the question que puede dar them to greet note this event is being recorded i were no way to turn the conference overtly tyler wheeler vice president and bathtub relation please go ahead
spk_1: thank you very good morning everybody we're to see santa cruz second quarter conference call we have in the room for a new julius or president and ceo don't rush or chief financial officer tried griffith or chief operating officer and yummy a can you bay or chief excellence officer today we were discussing or second quarter results this morning we posted an update of five presentation to our website also detail second quarter earnings release data such as quarterly in p data financial statements and non gaap reconciliations opposed to to our website in a document titled to queue twenty twenty one earnings results and supplemental information of cnx resources as a reminder any for looking statements we make or comments about future expectations are subject to business russ which we have laid out for you and are press release today as was in our previous securities and exchange commission filings will begin our call today with prepared remarks by nick followed by yummy and then dawn we will then open up the call for q and a were chad will participate as well with that when they turn to convert a eunuch like tyler good morning everybody i'm going to keep my remarks breed this morning is we had a nother simple clean easy to understand quarter and our investment thesis remains intact
spk_2: if you look at slide to and our deck the theme that i'd like to highlight once again is that a steady execution and that's the same thing that we've been hitting upon in recent prior quarters so for sure second quarter is another quarter highlighted by successful execution of the long term plan we laid out in april twenty twenty the second quarter much the six consecutive quarters significant free cash flow generation will reproduce the hundred and seventeen million dollars we use that free cash flow to continue doing what we said we do you would reduce net that by eighty nine million dollars and opportunistically bought back twenty three million dollars worth of shares it what we consider to be attractive prices we currently have approximately two hundred fifty million dollars left in our existing stock repurchase program and as we said the past we're going to continue to use the future free cash flow to reduce absolute that until we achieve a leverage ratio of on one and half times in while we're doing that a four star continues to traded to discount will have the wherewithal to repurchase shares a long way while reducing that which is what we've been doing since the fourth quarter of twenty twenty and will utilize both are liquidity and timing flexibly and you the flexibility to adjust the free cash flow allocation between that pay down and share repurchase weightings week by week i will look at that month by month and will look at a quarterback quarter little goddess it'll be the math of the risk adjusted returns and per share value that's what we'll use when we decide how and when we change our weightings also in the quarter or we increased our twenty twenty one free cash flow guidance again by another twenty five million dollars to four seventy five or two dollars and eighteen cents per share this compares to the previous guidance of four hundred fifty million or two dollars and four cents per share
spk_1: so looking at the cliff notes version of we're at a for the second quarter free cash flow that we cash local was up that was reduced sure your was reduced and then for twenty twenty one are free cash flow guidance was raised now it's your from getting
spk_3: i think the morning i'm going to focus my attention on the topic of the f t to highlight on leadership effort as well as a significant opportunities we see for free cash for generation and per share value creation in this area
spk_1: last week released or and annual corporate responsibility report that provide comprehensive look into our unique he has to accomplishment and our strategy moving forward
spk_2: i want to take a minute today too high like this company's value and are iraqi leadership not just in the oil and gas space but in corporate responsibility across all america
spk_4: if you haven't already i encourage you to take a deep dive into the full report which can be found it by on our website and responsibility that cnn dot com
spk_1: in a world where similarly every public companies racing to announce the net zero target years into the future cnx has not only achieve net zero but net negative status today and i've highlighted on our flight three we believe this is the first among natural gas upstream and midstream company when you
spk_4: look at the amount of methane would prevent from be invented into the atmosphere from the extraction of still making call on an annual basis which is approximately three hundred thousand metric tons of third party methane we kept your around seven times more c o two equivalent to mission that we produced by our scope one and
spk_3: ooh a mission for footprint from daily upstream and mainstream operations combined additional opportunities exist to further deepen our net negative scope one and two emissions profile by continuing to eliminate fugitive emissions from oil and gas operations making additional investments in coal mine met in a big men for third party and leverage leveraging i extensive surface a great footprint for tentative ah
spk_4: energy and of a cop carbon a bit men project each of the three avenues offer new exciting opportunities for free casual generation and per share value creation most importantly certain of this tangible drivers of our net negative carbon footprint are practically non replicable and they are unique only to see an axe an energy company that is carbon negative may seem counterintuitive but we accomplish through the same values and priorities that have driven our business and allowed it to thrive in this region for generations it is important to note that yannick has not changed on the contrary the world has changed around us and began prioritising the year few friendly work we have been doing for decades the methane abatement operation that led to a net carbon negative started are the same operations we have been perfecting for many decades and i have led to the birth of the company you see today though
spk_1: from innovative leadership on the environmental front that has potential to have the potential to translate into significant pressure value for shareholders less favorite over to the social front which is a hallmark of are tangible impactful local yeah you brat we have led and we are took were determined to continue to lead i'll end the three and a broader corporate community there as well that's why in addition to initiatives within the company designed to foster an inclusive corporate culture we have challenge yourself with an aggressive diversity target for internal workforce or forty percent over the next five years we will tackle this challenge to strategic
spk_4: to that will tackle this this challenge through strategic opportunities to increase the diversity of our workforce rather than one size fits all policy designed to simply need a target will believe we believe a diverse workforce yield innovative ideas an important diversity of bought an opinion the internal initiative tied directly to the thirty million philanthropic commitment we have made through the stanek foundation as well as the mentorship academy were working to establish for young adult into the advantage areas by investing in urban and rural underserved communities and population in our foot rain will generate return for the company through an expanded the verse hiring pool and return for the entire region to privatization of the empowerment of the most marginalized among us encouraging progress in our communities while at the same time increase in the local pool or the of diverse talent is what sustainability mean to cnn
spk_1: beyond a signature items of our net carbon footprint and our diversity leadership many of our tangible impact for local iraqi accomplishment were continuation from prior years we were the first mover in the adoption of an all electric fact spread and we recycle over ninety percent of a produce
spk_2: water i'll employees worked the entire year accident free death by the operational challenges up a pandemic he enacted that delivered family sustaining media a compensation level that exceeded over one hundred and fifty thousand per year top among pittsburgh we region public company
spk_4: half of the direct report of the c o r diverse we are a large net provide of tax revenue to the local community and a state government long term focused optimize an interesting approach your value been the low cost producer of our product and pay for performance culture or the guidepost of a board of directors and are
spk_1: corporate governance again i encourage you to review our corporate responsibility report and see for yourself how we continue to position cnx alone at intersection of iraqi leadership and performance low cost operation astute capital allocation and profitability that presents the best in class option for us to focus investors thank you are kind of the dog thanks yeah me in the morning everyone i'm gonna splurge on flagged for the to the slab we have shown before and compare some of our main financial metrics to the for in the sea is listed on the page
spk_5: as you can see the next screams very well across the board
spk_1: flood five highlights are caught advantage relative to our peers which is structural and gives us an advantage vs are peer group
spk_5: and given that the an actor the low risk free cash flow annuity that is supported by our low cost advantage as a base and heads book we believe that we're trading at a significant relic a discount in terms of free cash flow you which is highlighted on the bottom right graph is nick highlighted we will continue to pay down debt
spk_1: and reduce our shares under these conditions and over the past three quarters we were bought back eighty four million dollars worth of shares
spk_5: blood six highlights our core structure by quarter as expected or second quarter costs rob slightly do to to shirley penned by a wet pads coming online in the quarter however as you can be we continue to expect or four year twenty twenty one fully barton cache cause to be around one dollar five cents per i'm cfp also i think that is worth noting that if you look at our income statement for the quarter you will see that we had a loss on commodity derivative instruments of negative five hundred and thirty nine nine dollars lives consisted of an unrealized lot of five hundred and twenty nine nine dollars and i realize loss of just ten million dollars and quarter remarked market our entire heads mortgage period and with the recent increase in future gas prices this has resulted in a loss for the period what the vast majority of it being on realized
spk_1: blood seven highlights the plan and action what six six consecutive quarters of free cash flow generation in the books we have a high degree of confidence he continued to execute er long term three plus billion dollar free cash flow plan that we laid out last year
spk_5: the confidence is supported by are low cost structure heads book and operational proficiency body highlights or balance sheet strength as you can be we pay down approximately eighty nine million dollars and that that this quarter we have a significant runway and a lot of flexibility before nearest term bonds mature and twenty twenty six and we have only approximately three hundred and twenty million dollars
spk_1: drawn on our credit facilities which equates to around two or three quarters of expected free cash flow generation
spk_5: given our track record of free cash a generation of a clear path to further deliver the balance sheet
spk_1: i'll wrap things up on flatlined which hits on some got is updates as well as some information on catch taxes
spk_5: there are no changes to production and capital guidance for the year however we did mark to market gas and ngl price assumptions which improved from or last update maple at such we increased or for your a buddha a free cash flow guidance by twenty five million dollars and as you can see due to our share repurchases and or increased in annual free cash flow expectation we increased our free cash flow per share guidance to two dollars and eighteen cents per share
spk_1: few final items with respect to taxes we currently have a federal an oil balance of approximately one billion dollars and an on utilized odyssey deductions of approximately nine hundred and forty five million dollars as a result of these to balance is available we do not expect to be a material cash taxpayer during our seven year free cash will plan through twenty twenty six was that out on a back over to tyler
spk_0: next on an operator if you can open the line up for questions as the factories we will now begin the question and answer session to ask a question you may price star then mind on your couch downtown if you are using a speaker phone please pick up your hands happy for passing a key to withdraw from the question here please faster than tail
spk_6: the first question is firmly out marianne any of keybank please go ahead
spk_1: one guys i'm hoping you could talk it through a little bit on that the pace of activity here aren't you know for the rest of the year after she had kind of fourteen well arbitrary mother to bring all mine aren't you know in the second quarter do we see that's or to drop off by you know quite a bit here and in the second half
spk_6: i'm trying to get dances that is a low point and with china mind going to be you know for que en also was hoping you could help with a little bit with with cap acts in terms of kind of match in that up to try to get a sense on the cap acts you to get help us out in terms of how that child trends over the next few quarters as well and anything you can quantify
spk_1: i would be great your thanks for the question this is chad ah out i'll third on that maybe dog join at the end of is a the only about ah my think i think what you're seeing ah in the capital program i remember we're generally a wondering if one cracker program right but we we did add a little bit activities being initiated take advantage of men gl prices are we added a pad i am with that ultimately ended up doing is it sort of it as some cap on the first half a year and as a couple killed in the queue to ah but i think is a raft of the year is where back that one rig one frac reprogram and so it's really just a matter of looking at their the guns numbers for the for the for we're ah and taking out what we've done to date and to sort of dividing by two
spk_5: gets real close to our to the mark on on what to expect in the neck to borders on a on on production on capital i am and tells yeah know just to decide on it i chatted at the easy way to think about a cute que three key for should be fairly similar so odd considering capital and us would prop
spk_6: in between each one of them and i can sort i can take got instance or a with those numbers are
spk_5: gates are number turn a mind is pretty even and intrigue you and work use that we take the the guide of kind of thirty seven tell them just to track the first half pills pretty much kind of gives us there is it with
spk_6: but yeah i mean it again the day chat mention the one rate one track ruin a deal turning a lot one week earlier when we played could put you on edges of quarter's but not that as far as the you know the number like the capital numbers in the production numbers to three to four be similar look i know that's helpful and then just in terms of your your dna got in here everything on your your chart here on paychecks you guys are talking about full year i cashed in a and twenty one of eleven cents per am ah budget know anything you kind of came out at fifteen cent in the first cast it seems like it's implying a pretty large second half reduction in twenty one on on
spk_7: cash teenage any color kind of around that
spk_5: the summer is some of it
spk_6: the advantages mechanical around what that what kind of rolls through as far as the are the key wanting to do in regards to how the the equity and stick stuff for transition across the world always looking to optimize the business in the company metaphor but the the quarter variability as more mechanical nature okay to the timing of some of the expenses aren't know that how book obviously you guys decided to accelerate webcast activity which seems to have made a lot of fans did given that the really high ngl prices if we continue to see i n g prices can be feel a bit more that you know later this year in terms of bring it some of ease
spk_8: yeah liquids rich pad savagely you know ngl have done it incredibly well and than just you know lastly in a similar vein obviously the twenty two strip looks great now at this point where you could you guys consider something of the maintenance mode for next year
spk_1: yeah if up start on the liquid side you know normally are we looking at timing of of pads and timing of of the the activity we're also looking at how to optimize are planning production not through the midterm system we own in southwest a where were we have a lot of flexibility with where we deliver those volumes you know we have them some damn ourselves volumes you've got to drive with a eunuch volumes
spk_5: we have the option either blended together and sell it as dry gas where we can reroute the damn ourselves why and to processing extract and she often and receive premium we do that analysis really on a daily basis and try to optimize that existing production stream extracted much cash as possible
spk_8: certainly ngl prices are up but so are gas prices and so to off it's really are of at about the relative spread between ngl and gosh i and so we have moved some volumes some incremental criminal to processing to extend to take advantage of that breaks spread but the that relevant strength and gas has really kept us from going for
spk_1: they're all in on on that move local gas prices sort of recovered and very strong and to you a lot of blood volume blend going to some and trial it on the dnc activity you're adding incremental or ship they activate or web play those why the summer map we look at you know all in sort of risk adjusted rates return on where want to spend our dnc capital we have additional well that we can go back to and really pens borough take advantage of strong ngl prices but we have to look at the return of that activity relative to the returns that we have on and chrome or actor our our base dry gap planet we haven't up as the eye on the we're looking at that there's there's a couple factors the the price of continual move certainly the construct your huge opportunity opportunities is relevant but there were looking we're looking at how to optimize the schedule go going for based on how combining prices are changing
spk_6: they they're going to pick your second question yet you had a second question on
spk_1: yeah we could try to get at you know did the a look at it twenty two and of gas days really strong and three pit the do you guys you know still want to stay in and maintenance mode is due to the participation of of get a down or their kids the maybe do a little better than maintenance mode of gap is really strong next year
spk_5: the and and the you know that think lot of towns where we've sort of talked about the and we think about it in terms of like more production sculpting as opposed to just you know purely called additive added work so if you look across the forge drip and the where we've talked about it forward drip moves up meaningfully i think he couldn't think through things like that nature but as far as like period appeared seasonality is are just one year yeah we'll try to squeeze as much production is as you can into the on a high price points with that's more just call it trying to get things on the land a little bit quicker versus a little bit slower button sort and that that not looking for a brand new activity religious gonna try to pull things up a little
spk_6: better like we've done in the past if it goes the other direction what will delay things a little bit it just try to get on that that front wheel six months of of production into the best pricing environments a hm
spk_0: that's great thank you
spk_1: the next question and from the back part of jp morgan please go ahead the go on the last several quarters you've used a majority the free cash flow to reduce the but also bought back from shares can use talk about what else you need to see the game little more aggressive with about out in the path that they get talked about one afternoon leverage target
spk_5: yeah but with your has brought you rarely locked in a lot of future revenue to get to that level two are you still waiting on hitting that target before getting more aggressive really just an ecology a better yeah i think yeah we've we've talked about this a lot a lot historically we've we've gone more aggressive historically in certain quarters and as far as well will do going for there's a lot of different factors that are will will impact that and i think to your point i mean that the more hard the closer you get to the target in the more for visibility the cash was
spk_1: that is what a locked in the the more you could lean entered the things as opposed others
spk_9: with recognize that you know gas prices are very unpredictable more equity still sort of trades unpredictable whenever our free gosh lizard are pretty much locked and it it's can always been puzzling to me personally so we're trying to be called thoughtful imprudent and and do both at the same time though the weightings will will vary by quarterback situation in the on that
spk_5: that is is that
spk_1: the balance sheet that keeps coming down to get closer to the targeted clearly have more our ability to to push more towards shareholder returns as the balance you get closer both just mechanically as of like the quarter where and plus the know the casual certainty that we have or keeps growing to as well as will air and edges
spk_10: yeah that they collect color of the one more for me yeah you talking about your work you see in our local paper and and your exposure there
spk_1: and if the mvp iguana further delay policy that impacting basis within within debate
spk_6: yeah thanks to the question is a chat again i'm so certainly that mvp timing risk is is certainly very relevant and based pricing are we sort of saw the regulatory challenges them are coming along that pipeline
spk_1: ah know at least a year ago we got aggressive on the in dayton hedging back in the last year coming into the beginning of this year we got pretty aggressive on the and basin hedging we got your generally aren't programmatic heads we try to keep bases and and nymex pretty blocked the your in lockstep matched up but we saw through the risk having with the mvp and potential tightness in the and based the market and so we leaned into the
spk_10: the in basin hedging program and got out ahead of it ah well that basis price was was fairly was pretty good eye and now we're sitting at a at a point where we're over ninety percent had on in based pricing exposure through to the end of twenty twenty four i and will continue to layer on additional hedges beyond that where we see attractive opportunities do
spk_0: use so
spk_11: gonna take a look at people to be
spk_5: the next question is from neil gaiman a through it please go ahead more money and off can you say i'm you imagine that potentially the buy more stock that you talk about what this you need to do so
spk_4: the as far as the me we haven't given any public gardens on exactly or by back plan so we've been buy back shares a while back about eighty five million dollars with the shares over the last three quarters and your the next cometary out of the gates and we will go where we're trading you can expect us to continue to the do two things
spk_11: we'll pay down debt and mean buy back shares in clearly as we said before the hired a free as real them the more you give the faster you want to do it and you know the college balance like order will will change on like order but you know that that the ability to to do both in neil not do both sometime in the future but returning capital shareholders
spk_4: today i think it's fairly the relative to a lot of folks and i do to eat expected to continue going forward
spk_8: yeah they're great great outlet i was a try to determine you know a quarter to quarter so you decide which way to go he do have a great free cash flow and then just one follow maybe maybe more for tat just tell a new met earlier about taken advantage of the year but and yelled angela continue to be you know quite high obvious you've got a great footprint to be able to do so
spk_1: well going forward for you talk about you know would you do more pads on that length of just was kind of like a similar mapped out there are no you have certainly on availability do so yeah try to touch on that a little bit earlier and i a family and quite get at are clear but when we look at that we look at the we have to look at the return of that next pad and a when area versus that next patch in a dry area and gas prices with the gas price strength and the ability to hedge that gas price for multiple years in the first several
spk_5: here's the that new path production you know you look at the risk adjusted rate of return when you look at those two opportunities strongest market with the about a hedge and a strong and the market with less of a billionaire hedge a lot a lot of times that the sort of the scale don't land in favor of that drive had but but
spk_11: weren't we're looking at it continuously as the prices in the footsteps of valve we we update our numbers and we suffer the schedule around awkwardly to to bring forward
spk_0: the best risk adjusted rates return a first
spk_12: burger think that
spk_13: the next question is from north park that to a brothers please go ahead
spk_14: a good morning
spk_15: on a great
spk_16: i have a couple thing
spk_14: i was a period
spk_15: as you're talking about
spk_14: your your first hair activity level in taking advantage of bomb and yell protrude being stronger and i get and thinking and in sort of a bowl case for gas and inferior about to service availability in in the bacon and whether we're in and a consumable
spk_15: your danger our
spk_17: by having a capacity the issue that i get them through wondering you know what the frac brandon their capacity out pair
spk_6: pittsburgh you know high quality effective cruise and equipment
spk_5: yeah when you look it when you look at rig like current rig deployment lower forty eight current frac redeployment lower forty eight were roughly
spk_8: a third and a half below prior peak so that you know it's still good cruz still good rig available
spk_5: i think a lot of availability of the cruise
spk_2: equipment where in on down the supply chains you would rather talk about san or chemicals or even labor and side know it's it's it's fairly readily available and we're gonna play male activity
spk_16: and then know with with our position on
spk_18: the as the reagan frac program that we've laid out where we're in great shape with respected the been contracted and covered on on the cost of as services we don't see any any pinch points with respect our ability to to continue to execute like we have great bag and up my number one album
spk_14: the actually concern me up
spk_19: to canada
spk_15: become more and more on
spk_17: on investors mine
spk_14: i'm curious for be a private operators around you do you have any say of sort of the the state of there
spk_10: work on our investment in him
spk_15: you're working on their methane emissions unfortunately that that is one
spk_4: area where you know even though the really conscientious companies with being powered by the the brasher started the the worst that years out there so or were never any insight you have on that yeah it's hard to do can't tell about them
spk_1: private companies and but like you said the sg umbrella is is widespread right now everybody's working toward that are you just get nugget with information on a few private companies here they're working to reduce their you know we difficult one called you know scope to as well by other two cats
spk_2: guy a very clear picture as to what they're doing that if hard to tell because again and it got their private is only my way interacting with them and he opened by sharing ideas that when we get some some insight as to what they're doing
spk_14: the think that the the regulatory environment it is moving in and direction we're obviously the that the rigor and the stringency of methane emissions is only getting tighter so to a large extent that that's not a secret of course within the base and i think many of the the different operators private or public or
spk_0: trying to develop plans and and operating plans and processes that there will be ready for that but like emmy said it's it's tough to to gauge individually and in company by company
spk_1: bank that helpful little from it
spk_0: if concluded our question and answer session i would like to turn the conference back over to tyler louis for closing remarks
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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