CNX Resources Corporation — Q1 2021 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2021, compared with the same period in 2020. CNX produces natural gas, NGLs and oil and reports Shale, Coalbed Methane (CBM) and Other segments. CNX completed its acquisition of the remaining public interest in CNX Midstream Partners in September 2020; CNXM is now a wholly owned subsidiary.
Key financial and operating metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue and other operating income | $473.1 million | $416.4 million |
| Net income (loss) attributable to CNX shareholders | $98.0 million | $(329.1) million |
| Diluted earnings (loss) per share | $0.43 | $(1.76) |
| Cash from operating activities | $219.6 million | $267.4 million |
| Capital expenditures | $123.4 million | $152.0 million |
| Cash, cash equivalents and restricted cash at period end | $35.4 million | $38.0 million |
Natural gas, NGL and oil revenue was $381.2 million, up from $251.5 million. Total sales volumes increased to 140.6 Bcfe from 134.4 Bcfe. The company’s non-GAAP natural gas, NGL and oil production margin was $165 million, or $1.17 per Mcfe, versus $121 million, or $0.90 per Mcfe. This measure excludes certain corporate and other costs and is not a GAAP profit measure.
At March 31, current assets were $277.4 million and current liabilities were $457.9 million, a working-capital deficit of approximately $180.5 million. Reported debt, including current maturities and excluding unamortized issuance costs, was approximately $2.394 billion. Cash was $29.6 million, excluding restricted cash. CNX’s revolving facility had $1.426 billion of unused capacity; CNXM’s separate facility had $363.0 million unused. CNX reported compliance with debt covenants and a 2.56-to-1 net leverage ratio; its CNX facility maximum net leverage covenant is 4.00-to-1.
Material changes versus the prior comparable period
- Revenue increased 13.6%, principally reflecting higher natural gas prices, greater production volumes and higher NGL prices. Natural gas sales volume rose 6.5%; the average natural gas sales price increased 42.1%, while NGL sales volume declined 22.1% and its gross price rose 110.7%.
- CNX swung to positive earnings, but the comparison is substantially affected by prior-year noncash impairment charges: $473.0 million for goodwill and $61.8 million for E&P properties in Q1 2020. Neither impairment recurred in Q1 2021.
- Commodity derivative gains reported in revenue fell to $33.4 million from $115.1 million. Q1 2021 included a $31 million unrealized commodity derivative gain; cash settlements were $2.4 million, compared with $96.2 million in Q1 2020, excluding prior-period hedge monetizations.
- Operating cash flow declined by $47.7 million despite the earnings improvement. Cash flow reflects, among other factors, derivative settlements, deferred taxes and working-capital movements. Capital expenditures decreased by $28.6 million.
- Interest expense fell to $36.4 million from $49.0 million, primarily reflecting debt repurchases in 2020, lower revolver borrowings and gains on interest-rate swaps.
Outlook, management commentary, risks and unusual items
Management said it expects cash from operations, asset sales and borrowing capacity to fund working capital, anticipated capital expenditures and scheduled debt payments for the current fiscal year. This expectation is subject to operating performance, commodity prices, economic conditions and other risks; the filing does not provide a specific earnings or production forecast. CNX reported no significant direct COVID-19 operational disruption in the quarter, but said future effects remain uncertain.
As of April 7, 2021, the company reported 489.5 Bcf of 2021 gas hedges, including 155.0 Bcf of actual settlements. Its hedge table separately lists 385.1 Bcf of 2021 fixed-price volumes at a weighted average $2.46/Mcf, excluding purchased swaps. For 2022 it listed 402.4 Bcf at $2.34/Mcf. CNX noted that hedges can limit gains from higher prices and expose it to other risks; a hypothetical 10% rise in gas prices would reduce the fair value of open derivatives by $382 million as of March 31.
The company repurchased 1.46 million shares for $18.0 million during the quarter at an average $12.26 per share; $237.3 million remained under its $900 million authorization. CNX declared no dividend. Long-term purchase obligations totaled $2.170 billion, primarily firm transportation and processing commitments.
CNX and CONSOL Energy are defending a UMWA 1992 Benefit Plan lawsuit alleging joint Coal Act liability for retiree health benefits. CNX says the loss is possible but not probable, has recorded no accrual, and says CONSOL agreed to indemnify it; the filing cautions that CONSOL’s ability to meet indemnification obligations is not assured. Other lawsuits and claims are accrued when probable and estimable; current estimates were described as immaterial, although future aggregate losses could be material and are not reasonably estimable.
Principal disclosed risks include volatile commodity prices, drilling and reserve uncertainty, transportation and midstream dependence, environmental and climate regulation, potential asset or goodwill impairments, financing and covenant risks, COVID-19 uncertainty, and litigation. Management reported no material change to the risk factors in its 2020 Form 10-K.
Most important facts for investors to verify
- How much of the earnings recovery reflects sustainable realized prices, production and cost performance versus impairment and derivative accounting differences.
- The cash-flow outlook and funding needs relative to the working-capital deficit, capital spending, debt service and substantial transportation commitments.
- Hedge volumes, prices, settlement profile and sensitivity to changing gas prices, including the effect of purchased swaps.
- Debt structure and covenant headroom, including the distinction between CNX obligations and debt at CNXM and other subsidiaries.
- Developments in the Coal Act lawsuit, indemnification exposure and other contingencies; the filing does not quantify a reasonably estimable potential loss.