CNX Resources Corporation

Good morning and welcome to the CNX Resources Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Tyler Lewis, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning to everybody. Welcome to CNX's third quarter conference call. We have in the room today Nick Deulius, our President and CEO, Alan Shepard, our Chief Financial Officer, Navneet Beale, our Chief Operating Officer, and Ravi Srivastava, President of our New Technologies Group. Today, we will be discussing our third quarter results. This morning, we posted an updated slide presentation to our website. Also, detailed third quarter earnings release data, such as quarterly E&P data, financial statements, and non-GAAP reconciliations are posted to our website in a document titled 3Q 2023 Earnings Results and Supplemental Information of CNX Resources. As a reminder, any forward-looking statements we make or comments about future expectations are subject to business risks, which we have laid out for you in our press release today, as well as in our previous Security and Exchange Commission filings. We will begin our call today with prepared remarks by Nick, followed by Alan, and then we will open the call for Q&A, where Nav and Robbie will participate as well. With that, let me turn the call over to you, Nick.

Hey, thanks, Tyler. Good morning, everybody. Third quarter of 2023, it marks our 15th consecutive quarter of free cash flow generation, despite experiencing what I would call extremely challenging in base and pricing. And our continued execution of our long-term strategy, which started back in 2020, it's generated approximately $1.8 billion in free cash flow. It's reduced outstanding debt by approximately $385 million, and it's allowed us to repurchase and retire 31%. of our outstanding shares at deeply discounted prices. And we remain on pace to exceed our original goals supported by our sustainable business model that has and will continue to generate significant long-term per share value for our owners. And all of that, you know, might sound like a broken record because we've been stringing out this theme for these metrics for a couple of years now, which is sort of the point. And that's the consistent execution And clinical capital allocation, those things drive the creation of meaningful per share value over the long term. During the quarter, our operations team, it continued to execute efficiently. In fact, the team's been successful in further improving cycle times and accelerating activity. And Alan will go into some more of those details in a minute and how it impacts our full year production outlook and capital timing. More specifically, one thing I'd like to highlight during the quarter is that we brought online four new wells beneath the Pittsburgh International Airport's runway. And these latest wells highlight our public-private partnership with the airport. And we achieved this, by the way, with zero safety incidents and zero environmental impacts. These four new wells are projected to generate almost $70 million in royalty revenue for the airport through 2042. And about $20 million of that will be over the next four years. And this is on top of a similar amount of royalty revenue that the airport's already received from our partnership that was created back in 2013. So our historic partnership with the Pittsburgh International Airport, it's created a sustainable fuel hub utilizing locally sourced, lower cost, lower carbon intensity natural gas. And it's a perfect example of our Appalachia First Vision driving tangible results. Let's shift now to the new technologies group, very exciting part of our business. And we continue to expect around $75 million with up to potentially $100 million in free cash flow in 2024 associated with the New Technologies Group. We're just getting started with New Tech, and we think this business has the potential of being an even bigger free cash flow growth driver for the company moving forward. The near-term New Tech free cash flow growth is through our ability to monetize environmental attributes tied to our waste methane abatement operations in Virginia. And our new tech effort is poised to lead the charge into the hydrogen economy with the Atoms for Clean Ammonia project, where we expect to provide ultra-low carbon intensity feedstock and carbon capture and sequestration services. The DOE recently announced the funding of this project as part of the ARCH2 Hydrogen Hub application. And while we certainly applaud the funding announcement and inclusion of ARCH2 in the award, we're also eagerly awaiting implementation guidance regarding the related hydrogen production tax credit or the 45V provision of the IRA. And that's going to materially impact the project economics. So the intent of the hydrogen production provision of the IRA, of course, was to incentivize the creation of low carbon intensity hydrogen and to reduce emissions and to enhance U.S. energy security and to create jobs and economic activity in energy communities. And I'll tell you, the ADAMS IV project squarely aligns with all those objectives. So we're monitoring developments with the 45E guidance closely, and we're hopeful that DC will follow the intent of the law and help us make this important West Virginia project and others like it, frankly, a reality. I'd also like to highlight that we reached our 2023 methane emission reduction target of 70,000 tons of carbon dioxide equivalent by the end of the third quarter of this year, which was awesome. So that, of course, is a quarter ahead of schedule. And our team is still hard at work with regard to making further adjustments and improvements to reduce emissions further. Great accomplishment by our regulatory reporting and operations teams. And by the end of this year, we expect a cumulative effect of our reduction efforts to have reduced methane emissions on a carbon dioxide equivalent tons basis by about 49% since 2020. So almost a 50% reduction in a very short period of time. Our methane reduction goals for 2023 were focused mostly on pneumatic devices and liquids unloading. Those were the two biggest opportunity sets. And we invested $7 million of capital for specific projects, and the teams got the work. Year to date, we've changed out over 700 pneumatic devices, and they came in at a cost, a low cost, actually a very sort of competitive one, at $3 of CO2 equivalent per tonne. And we now plan to add an additional 160 or so devices to our plan for the rest of the year because we're ahead of schedule due to that fantastic pace that the team has set. And in addition, the team's been working on our liquids unloading processes, as I just mentioned, which also contributes significantly to our methane emission reduction of the 70,000 tons of CO2 equivalent. So we set difficult but yet achievable targets, and we do what we say we're going to do. So we're not going to be in the game, you're not going to see this from us, of setting goals that are decades away to sort of avoid accountability. Our focus is always going to be on the tangible and the impactful and the local type of actions. Now, last but certainly not least, we continue to have conviction that our shares are materially undervalued. During the quarter, we bought back an additional 1% of our shares outstanding. Our compound annual growth rate, or CAGR, for our share repurchase program over the past three years, since the peak share count around third quarter of 2020, is approximately negative 11%. And we think that's top tier across the capital markets and that it compares favorably to the classic best-in-class share repurchasers like AutoZone as an example, where AutoZone's retired shares at about a minus 8% CAGR over a 25-year period. So we believe that our share repurchase program provides an opportunity to create incredible value for our long-term like-minded owners who are going to benefit as their per share value continues to grow meaningfully over the coming years. Now let's hear from Alan.