Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CNX Resources Corp (CNX, Financial) reported Q2 volumes in line with annual projections, achieving 4.5 Bcf, which is on the higher end of their guidance range.
- The company saw an increase in other revenue and operating income, driven by higher environmental attribute sales and strong water revenue from third-party fracs.
- The deep Utica wells are meeting expectations on both cost and performance, indicating potential for future growth.
- CNX Resources Corp (CNX) is developing new technologies, such as AutoSet and CNG, which are expected to contribute meaningfully to revenue and cash flow starting in 2025.
- Service costs have remained flat in the first half of the year, and projections indicate they will stay flat for the remainder of the year, providing cost stability.
Negative Points
- The new technologies division's revenue contributions for 2024 are not expected to be material, with significant impacts anticipated only from 2025 onwards.
- The company is not curtailing any additional production but is cautious about growing production next year due to uncertain pricing developments.
- The impact of the 45V hydrogen tax credit on coal mine methane projects is still uncertain, with guidance expected in Q3 or Q4, delaying potential project implementations.
- Hedge book activity has decreased, with a lower percentage of future production hedged compared to previous years, potentially increasing exposure to market volatility.
- Despite positive developments, the company has not provided specific details on the financial impact of third-party CNG sales, leaving some uncertainty about future revenue streams.
Q & A Highlights
Highlights from CNX Resources Corp (CNX) Q2 2024 Earnings Call
Q: The new tech division's performance in Q2 was above the run rate for the full year guide. Is this still ramping up, or is it leveling out?
A: Ravi Srivastava, President - New Technologies: The volume in Q2 aligns with our annual projection of 15 to 18 Bcf. The volume was on the higher end, and pricing was slightly better. Our annual free cash flow guidance remains around $75 million, with volume staying in the 15 to 18 Bcf range.
Q: Can you provide details on the deep Utica wells compared to Marcellus wells, such as well costs or one-year cumulative production?
A: Alan Shepard, Chief Financial Officer: The wells are early in their lifecycle but are meeting expectations on both cost and performance. More detailed information will be provided in the next few quarters.
Q: What drove the increase in other revenue and operating income this quarter?
A: Alan Shepard, Chief Financial Officer: Higher environmental attribute sales and increased water revenue from third-party fracs contributed to the revenue increase.
Q: Can you provide details on the third-party CNG opportunities and potential revenue impact for the second half of the year?
A: Ravi Srivastava, President - New Technologies: Third-party opportunities exist across various sectors, but the revenue impact for 2024 is not material. We will provide more details on the 2025 guidance as the business develops.
Q: Are the new tech offerings to customers trial runs or actual paid engagements? Will they impact financials significantly in 2025?
A: Ravi Srivastava, President - New Technologies: Both businesses solve key problems and have been tested internally. We expect customer sales in the back half of this year, with more meaningful contributions to revenue and cash flows starting in 2025.
Q: Are you curtailing any production currently?
A: Alan Shepard, Chief Financial Officer: We are not curtailing any additional production. We are running just above our hedge book with a margin of safety. Decisions on production growth will be based on pricing developments.
Q: What is the timeline for coal mine methane projects under the 45V hydrogen tax credit?
A: Ravi Srivastava, President - New Technologies: We expect guidance on the 45V tax credit in Q3 or Q4. Project timelines will depend on the favorability of the guidance.
Q: Can you provide insight into the pricing range for Tier 1 credits?
A: Ravi Srivastava, President - New Technologies: The range for Tier 1 REC values has been between $33 to $36 per megawatt hour this year. We expect this range to remain stable for the next two quarters.
Q: What is your strategy for hedging beyond the first 80% of the book?
A: Alan Shepard, Chief Financial Officer: We aim to be roughly 80% hedged for any upcoming year and have been shortening the duration of the hedge book beyond that first 80%.
Q: What are you seeing in terms of service costs from vendors and materials?
A: Alan Shepard, Chief Financial Officer: Service costs have remained flat for the first half of the year and are projected to stay flat for the next half as well.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
