CNX Resources Corp. — Q1 2024 Form 10-Q
Business context and reporting period: CNX is a natural gas producer with Shale and Coalbed Methane segments, plus midstream and other activities. This unaudited report covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Financial amounts below are in U.S. dollars.
Financial performance and position
- Revenue: Total revenue and other operating income was $384.6 million, down from $1.276 billion. Natural gas, NGL and oil revenue was $326.0 million, down 28%; gas revenue fell 31%, primarily due to lower realized prices.
- Earnings: Net income was $6.9 million, or $0.04 per diluted share, versus $710.4 million, or $3.61 per diluted share. Q1 2023 included an $823 million unrealized derivative gain; Q1 2024 included a $47 million unrealized derivative loss. The effective tax rate was (8.4)% versus 23.4%.
- Production and margins: Sales volumes were 140.4 Bcfe, up 4.5 Bcfe. CNX’s non-GAAP production margin was $144 million, or $1.02/Mcfe, versus $169 million, or $1.24/Mcfe. Production costs were $237 million, or $1.69/Mcfe, compared with $226 million, or $1.66/Mcfe.
- Cash flow and investment: Operating cash flow was $185.1 million versus $248.7 million. Capital expenditures were $168.2 million, resulting in approximately $16.9 million of operating cash flow after capital expenditures. Investing cash outflow was $159.7 million; financing cash outflow was $23.9 million.
- Liquidity: Cash was $2.0 million. Current assets were $460.4 million and current liabilities $874.1 million; these include substantial derivative balances. CNX had $1.231 billion of unused availability under its revolving facility, and CNXM had $508.7 million available under its separate facility. Both entities were compliant with their financial covenants.
- Debt: Total debt carrying value, excluding issuance costs, was approximately $2.279 billion. CNX issued $400 million of 7.25% notes due 2032 and repurchased $350 million of 7.25% notes due 2027, recording a $7.0 million extinguishment loss. The $331 million principal amount of 2.25% convertible notes due 2026 was classified as current because holders could convert during Q2 2024.
- Capital returns: CNX repurchased and retired 2.385 million shares for $48.3 million, averaging $20.14 per share. The company reported no common dividends declared.
Material changes versus Q1 2023
- Reported earnings fell sharply, largely reflecting the swing from a large unrealized commodity-hedge gain in the prior-year quarter to an unrealized loss in Q1 2024, as well as lower commodity prices.
- Natural gas sales price was $2.17/Mcf versus $3.22/Mcf. Cash settlements on commodity derivatives were a $54.7 million gain versus a $61.0 million loss, partly cushioning lower realized prices.
- Sales volumes increased, mainly from wells brought online during 2023 and Q1 2024 and higher ethane recoveries; normal production declines partly offset the increase. CBM volumes declined 8.7%.
- Operating cash flow declined $63.7 million. Capital expenditures were nearly flat year over year.
- Q1 2024 included a $26.3 million loss on sale of a non-core pipeline and a $7.0 million debt extinguishment loss; the prior-year quarter included a net gain on asset sales.
Outlook, management commentary and risks
- 2024 outlook: CNX expects production of 540–560 Bcfe and capital expenditures of $525–$575 million. Q1 production was 140.4 Bcfe and capex was $168.2 million.
- Hedges: As of April 4, 2024, reported 2024 gas hedges were 431.7 Bcf, including 101.1 Bcf of actual settlements; 2025 hedges were 374.4 Bcf. Reported fixed-price hedge volumes and prices vary by period and instrument.
- Liquidity assessment: Management expects operating cash flow, asset sales and borrowing capacity to cover working capital, planned capital spending and scheduled debt service for the current fiscal year, while noting sensitivity to commodity prices, operating costs and other factors.
- Risk exposure: Commodity-price volatility, production and reserve uncertainty, inflation, interest rates, pipeline and processing access, regulation, environmental matters, and legal claims could affect results. Open derivatives were a net liability of $79 million; a hypothetical 10% increase in future gas prices would reduce their fair value by $498 million, with the opposite effect from a 10% decrease.
- Unusual items and contingencies: CNX recognized a $75 million settlement payable over five years relating to a UMWA pension-plan claim and a corresponding receivable from CONSOL, which CNX considers probable of recovery and is pursuing through litigation. Other pending claims are accrued as immaterial, though the company says aggregate future losses could ultimately be material and cannot be reasonably estimated. CNX also reported $1.577 billion of future purchase obligations, primarily for firm transportation and processing.
- Other developments: CNX reported $13 million of Q1 environmental-attribute sales. After quarter-end it announced a CNG/LNG collaboration with NuBlu Energy and a joint venture with Deep Well Services for automated flowback technology; anticipated commercial benefits are forward-looking.
Important facts for investors to verify
- How commodity prices, hedge settlements and derivative mark-to-market changes affect realized revenue, earnings and cash flow; distinguish cash settlements from unrealized gains and losses.
- Whether full-year production and capital-spending guidance remains achievable, and how production volumes and per-unit costs trend in subsequent quarters.
- The timing and treatment of potential conversion or cash settlement of the $331 million convertible notes, including the effect on liquidity and share dilution.
- Debt maturities, borrowing-base availability, facility covenant headroom and exposure to higher interest rates.
- Whether the $75 million CONSOL indemnification receivable is collected, and developments in the UMWA and other legal matters.
- The durability of environmental-attribute revenue and the commercial and financial commitments, if any, arising from the announced technology initiatives.