CNX Resources Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 9, 2023. This is an annual filing, not a standalone fourth-quarter report, and the supplied filing text does not provide separate Q4 results. CNX is an Appalachian Basin natural gas and midstream company, primarily operating in the Marcellus and Utica shales, with coalbed methane operations in Virginia.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Reported revenue and other operating income | $1.261 billion | $756.8 million |
| Net loss attributable to CNX shareholders | $142.1 million; $(0.75) per diluted share | $498.6 million; $(2.31) per diluted share |
| Cash from operating activities | $1.235 billion | $926.4 million |
| Capital expenditures | $565.8 million | $465.9 million |
| Production | 580.2 Bcfe | 590.2 Bcfe |
| Proved reserves at year-end | 9.807 Tcfe | 9.626 Tcfe |
Reported revenue includes commodity-derivative fair-value effects. Natural gas, NGL and oil revenue was $3.652 billion before derivative effects; cash settlements on commodity derivatives were a $1.813 billion loss, and unrealized derivative losses were $851.0 million. Management’s non-GAAP sales measure, including cash settlements, was $1.839 billion, up from $1.645 billion.
Production costs, as defined by CNX’s non-GAAP measure, were $930 million, or $1.60/Mcfe, versus $928 million, or $1.57/Mcfe. Production margin was $909 million, or $1.57/Mcfe, compared with $717 million, or $1.22/Mcfe. Total sales volumes declined 1.7%; management cited operational delays, normal declines and a plugged shale well, partly offset by new wells.
Cash used in investing was $528.3 million and cash used in financing was $689.0 million. Operating cash flow less capital expenditures was approximately $669 million. CNX repurchased 33.5 million shares for $568.1 million during 2022.
Debt and liquidity
Year-end long-term debt was $2.206 billion on the balance sheet, or approximately $2.220 billion principal excluding debt issuance costs. Cash was $21.3 million. CNX had no borrowings under its senior secured revolver, with $1.129 billion of unused capacity after letters of credit; the separate CNX Midstream Partners facility had $153.7 million drawn and $446.3 million unused. CNX reported covenant compliance at year-end.
Open commodity derivatives were a net liability of approximately $1.905 billion, versus $976 million at year-end 2021. These mark-to-market liabilities are separate from reported debt and contribute to earnings volatility. Total stockholders’ equity was $2.950 billion, down from $3.700 billion.
Changes, outlook and notable items
- Higher commodity prices lifted unhedged realized gas prices: $6.27/Mcf versus $3.55/Mcf. However, larger cash hedge losses reduced the average total sales price including settlements to $3.17/Mcfe, from $2.79/Mcfe.
- The net loss narrowed substantially, partly because the unrealized derivative loss was smaller than in 2021. CNX recorded no proved-property or goodwill impairment in 2022 or 2021; 2020 included goodwill and property impairments.
- Management forecast 2023 production of 555–575 Bcfe and capital expenditures of $575–$675 million. It cited inflation in steel, diesel and labor as a cost risk and said guidance could be updated as activity is evaluated.
- As of January 5, 2023, hedges and physical transactions covered about 429.7 Bcf of estimated 2023 production at an average $2.47/Mcf, with additional volumes hedged through 2027. Hedging can limit benefit from higher prices as well as reduce downside exposure.
- Material risks include commodity-price and Appalachian basis volatility; pipeline, processing and transportation capacity dependence; inflation and service availability; environmental, climate and pipeline regulation; and operational, water-disposal and reserve-estimation risks.
- CNX disclosed royalty-accounting and climate-related litigation, among other claims. It said accrued pending-claim amounts were immaterial, but possible aggregate future losses could be material and could not be reasonably estimated. A Coal Act case involving CNX and CONSOL Energy is being defended on the merits; CNX said loss was possible but not probable and recorded no accrual.
Important facts for investors to verify
- How the 2023 production and capital-spending outlook compares with subsequent results and updates.
- Hedge coverage, settlement prices and derivative liabilities, including the impact on realized prices and cash flow.
- Liquidity and covenant headroom, debt maturities and the distinction between CNX obligations and non-guaranteed CNX Midstream Partners debt.
- Whether production declines, operating costs, pipeline access and reserve revisions affect the economics of the development plan.
- Developments in royalty, climate and Coal Act litigation, and any related changes to accruals or indemnification recoverability.
- The durability of cash generation relative to substantial share repurchases and planned capital expenditures.