CNX Resources Corporation — Q1 2022 Form 10-Q
Business context and period: The filing reports unaudited results for the three months ended March 31, 2022, compared with Q1 2021. CNX primarily produces pipeline-quality natural gas through its Shale and Coalbed Methane segments.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Natural gas, NGL and oil revenue | $744.6 million | $381.2 million |
| Net income (loss) | $(922.9) million | $98.0 million |
| Diluted earnings (loss) per share | $(4.62) | $0.43 |
| Cash from operating activities | $336.4 million | $219.6 million |
| Capital expenditures | $122.3 million | $123.4 million |
- Derivative impact: Commodity derivatives generated a $1.726 billion loss in Q1 2022, including a $1.456 billion unrealized mark-to-market loss and $270.8 million of net cash paid in settlements. The 2021 quarter recorded a $33.4 million derivative gain. This fair-value volatility was the principal reason reported results swung to a large loss.
- Underlying production economics: Sales volumes increased 7.3% to 150.9 Bcfe. CNX’s non-GAAP production margin, including cash settlements, rose to $245 million from $165 million; margin per Mcfe increased to $1.62 from $1.17. Gas, NGL and oil revenue rose with higher prices and volumes, partly offset by adverse hedge settlements.
- Balance sheet and liquidity: At March 31, cash was $8.6 million, total debt was approximately $2.244 billion before unamortized issuance costs, and stockholders’ equity was $2.570 billion. CNX’s revolver had $1.021 billion of unused capacity; CNXM’s had $389.8 million. CNX reported compliance with debt covenants.
- Cash uses: Financing activities used $228.5 million, including $152.5 million of share repurchases and net repayments of $96 million on CNX’s revolving facility. CNX declared no common-stock dividend and reported no dividend payments since 2016.
Changes versus the prior comparable period
- Production revenue increased by $363.4 million, reflecting higher realized commodity prices and 10.3 Bcfe higher total sales volumes.
- The derivative result shifted from a $33.4 million gain to a $1.726 billion loss, largely due to unrealized fair-value changes. Derivative liabilities, net of derivative assets, were approximately $2.432 billion at quarter-end, versus $976 million at December 31, 2021.
- Operating cash flow increased by $116.7 million, despite the reported net loss; noncash derivative and deferred-tax adjustments materially affected the reconciliation.
- Interest expense declined to $27.1 million from $36.4 million, partly because adoption of ASU 2020-06 ended noncash interest expense associated with the convertible notes’ former equity component.
Outlook, risks and unusual items
- Management outlook: CNX expected 2022 production of 575–605 Bcfe and capital expenditures of $470–$500 million. As of April 7, 2022, it reported 473.9 Bcf of 2022 hedged volumes, net of purchased swaps, and 402.5 Bcf hedged for 2023. Hedge prices and volumes may limit participation in market price increases.
- Liquidity view: Management expected operating cash flow, asset sales and borrowing capacity to meet working-capital needs, planned capital spending and scheduled debt payments. It cautioned that materially lower commodity prices or higher costs could reduce cash flow and liquidity.
- Convertible notes: The $345 million principal amount of 2.25% convertible notes due 2026 was classified as current because holders could elect conversion during Q2 2022 under the indenture’s stock-price condition. CNX stated its current intent was to settle principal in cash.
- Legal contingency: The UMWA 1992 Benefit Plan’s Coal Act lawsuit seeks retiree health-benefit obligations. The court denied defendants’ motions to dismiss on March 29, 2022; CNX is defending the case. CNX considered a loss possible but not probable and recorded no accrual. CONSOL agreed to indemnify CNX for coal-related liabilities, though collection is not assured.
- Other exposures: Risks include natural-gas price volatility, hedging effects, inflation and operating-cost pressure, pipeline and midstream dependence, environmental and regulatory matters, and uncertainty around litigation. Management reported no material change in risk factors from the 2021 Form 10-K. Contractual purchase obligations totaled approximately $1.952 billion; total contractual obligations were approximately $5.298 billion.
Key facts for investors to verify
- How the large derivative mark-to-market loss and cash hedge settlements compare with realized production revenue and future hedge coverage.
- The status and settlement implications of the convertible notes classified as current, including any conversion activity after quarter-end.
- Revolver availability, covenant headroom and liquidity under lower-price or higher-cost scenarios.
- Progress against the 2022 production and capital-spending ranges, and the effect of inflation on planned costs.
- Developments in the Coal Act litigation and the scope and collectability of CONSOL’s indemnification obligations.