Hello and welcome to the CNX Resources' Third Quarter 2024 Q&A Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. This conference is being recorded. I would now like to hand the call to Tyler Lewis, Vice President of Investor Relations. Please go ahead.

Thank you and good morning to everybody. Welcome to CNX's third Q&A conference call. Today, we will be answering questions related to our third quarter results. This morning we posted to our Investor Relations website an updated slide presentation and detailed third quarter earnings release data such as quarterly E&P data, financial statements and non-GAAP reconciliations which can be found in a document titled 3Q 2024 Earnings Results and Supplemental Information of CNX Resources. Also we posted to our Investor Relations website our prepared remarks for the quarter which we hope everyone had a chance to read before the call as the call today will be used exclusively for Q&A. With me today for Q&A are Nick DeIuliis, our President and CEO; Alan Shepard, our Chief Financial Officer; Navneet Behl, our Chief Operating Officer; and Ravi Srivastava, President of our New Technologies Group. Please note that the company's remarks made during this call including answers to questions include forward-looking statements which are subject to various risks and uncertainties. These statements are not guarantees of future performance and our actual results may differ materially as a result of many factors. A discussion of risks and uncertainties related to those factors in CNX's business is contained in its filings with the Securities and Exchange Commission and in the release issued today. With that, thank you for joining us this morning. And operator, can you please open the call for Q&A at this time?

Today's first question comes from Bert Donnes with Truist.

Hey, good morning team. Just wanted to start off on the full year 2025 capital disclosure. It looks like it maybe got removed from your press release and your presentation. Is that $550 million no longer accurate? Maybe there are some moving parts on your turn-in line schedule. So is that moving up or down, or is inflation impacting that? Any color there would be helpful.

Yes, great question. So I think the way to think about 2025 is next quarter, we're going to provide everyone with kind of the full production volumes we're going to target and the associated CapEx with that. That'll be entirely a function of what we see developing in the pricing for next year. We do still retain the 11 DUCs that we had deferred earlier in the year, so we have pretty significant flexibility in terms of what production profile we want to hit. But again, that all comes back to where we see pricing headed for next year. So the removal of the disclosure is really just about, we're close to next quarter and we’ll provide the exact numbers then.

Okay. Maybe not as a disclosure, but is the efficiency still similar, or is it just a matter of moving parts? Just want to make sure that was part of the question.

Yes, the efficiency is similar or better. It's just a matter of moving parts and setting the exact number we want to target as sort of a function of gas prices.

Perfect, makes sense. And then the second part, I know it's certainly way too early for new tech, for exact numbers on 2025 and beyond. There are some moving parts on the CMM volumes and pricing and AutoSep looks like it might have slid in the right direction. Do you have any views on 2025 and 2026 versus the $75 million? Am I just thinking directionally upwards or downwards?

Yes, again, we'll provide the detailed view on that next quarter. As of right now, we're just trying to defer to what's in the commentary on this.

Got you, and was the AutoSep pushed to the right on the, I think the prior disclosure just implied you were going to do some third-party work in the second half but just want to make sure that was either the case still or no longer the case.

Yes, that's still a possibility. The focus right now on AutoSep is working with our JV partner to develop some additional units in that fleet. Right now, the existing unit we have is fully deployed on our internal operations, so there's potential for some third-party work this year. But the focus of that right now is building that fleet. We're seeing really good interest from customers, and it's still in the early stages. So that's why we'll, again, we'll talk about an export where we see the full year guidance for that business, but I think it's still looking good there.

The next question comes from Zach Parham with JPMorgan.

Thanks for taking my questions. First, I just wanted to ask on the new tech business. You mentioned in the prepared remarks, you're still waiting on some regulatory clarity for 45V and potentially 45Q. Could you talk a little bit more about the opportunity set if you do get some regulatory clarity? How much more Coal Mine Methane could you potentially capture, and what's the associated CapEx spent with that capture of incremental volumes?

Yes, thanks for the question, Zach, and the short answer is we don't know, and we can't say right now because we don't know enough about how the market is going to develop. In our commentary, we have laid out there are four different pathways that we're pursuing. The first one being the ATS program where the states are looking to produce their CO2 emissions and look at alternate energy resources for electric generation. Then we have the 45V pathway for hydrogen production generation and now we have this 45Q opportunity for CO2 sequestration and greenhouse gas emission reduction opportunity, and we're also pursuing private sector transactions. So that's the opportunity set, and while the ATS pathway is defined and sets the stage for what our opportunity to capture right now is, as well as the cash flow guidance they are providing, the other pathways, while we're very excited about, are still taking form. Once these markets crystallize, we'll be in a better position to provide our view on how we could play a role in serving these markets. Right now it's just too premature until these pathways for the markets become more definitive.

Thanks for that. My follow-up, I just wanted to ask about the buyback. The stock has moved quite a bit higher. It's higher than where you all bought back in the past. I'm just curious how you're thinking about the buyback going forward with the stock now in the mid-30s. Do you still consider it a good value to be buying back stock? At some point, do you consider pivoting to a dividend? Just curious how you're thinking about cash return from here in general.

Yes. We continue to see a very attractive opportunity over the long term for CNX, and we look out into the future prospects of the business. But I wouldn't read into that in terms of short-term allocation decisions. It's sort of counterproductive for us to provide near-term guidance on those activities. What I will say is I'll point everybody back to, fundamentally, our capital allocation process is the same regardless of what the share price is. The share price is just an input into that process to continue to follow that process and the results that it spits out. The other thing I'd note there is we have significant flexibility just in terms of where our balance sheet is and with our hedge book. All capital allocation opportunities are open to us.

The next question comes from Leo Mariani with ROTH Capital.

Hi. I just wanted to follow up a little bit more here on the guidance. It looks like you guys removed five turn-in lines from the schedule in 2024. Just curious if maybe those kind of slid to the right, or are you pairing back some activity? Obviously, gas prices have not been great here over the last couple of months, so just trying to get a sense if you're being a little more cautious on overall activity on the drilling side or perhaps maybe those just slid a tiny bit into early 2025 on the turn-in lines.

Yes, it's more of the latter. Those were scheduled for late December and kind of slipped across the year-end line. So it's a bit artificial if you think about it from that perspective. So there's no change in the activities from what we indicated back in the spring when we deferred those 11 DUCs.

Okay, that's helpful. And then just wanted to follow up on the 45Q, 45V potential tax credits here. Could you just give us a sense of roughly what type of federal tax credit is being contemplated under 45Q? I guess from a CO2 perspective, it's around $85 per ton. Is that something similar that you think could occur for methane? Under the 45V rules, is there potentially some kind of multiple of that number in terms of the tax credit? Just trying to get a sense of what you think is being contemplated right now and any high-level timeframe as to when you think a decision could be made under those potential bills?

Yes, thanks for the question. On the 45Q side of things, I think the number that's been floated out there in the draft lane is around $60 per ton. But at the same time, there's a lot of moving parts to understand like what's going to qualify and what won't. So I think it's too early to say which volumes will qualify for that. I think we'll have to wait until the final language is out. On the V side of things, it talks about tax incentives for producing hydrogen. I think the most you can get is around $3 per kilogram. How that translates into what incentive it would be for Coal Mine Methane, I think it's going to require a very rigorous exercise of understanding the specifics of what the guidance is going to entail. So it's very difficult to say at this point in time what that will be. So stay tuned once the guidance is out. I think we'll be able to provide more color. And as for the timing, I think I can say at least on the 45V side of things, what we've heard from the Treasury is that it's expected before the end of the year in Q4.

The next question comes from Nitin Kumar with Mizuho.

Hi. Good morning, guys, and thanks for taking my question. You've given us some color on the 45Q and 45V, but I'll try something maybe a little different. On the 45Q, the Treasury has been a little prescriptive in terms of what equipment qualifies. They have a date of, I think, 2018 and a 12-year sunset. Could you walk us through your current operations in CMM? What is the average life of that equipment today, and is this being replenished or renewed every few years?

I would say that again, it's too early to say unless the language for the 45Q draft language as it pertains to methane capture is finalized. It will just be a hypothetical exercise. So once the language is cleared, I think we'll be able to provide better guidance.

Okay. Fair enough. And then I want to just circle back to Zach's question. I understand you can't talk about plans to increase CMM, but do you have a sense of what is the F&D cost today of, forget about 45V or 45Q, what is the cost of maybe implementing new systems on mines, and what is the opportunity set for CNX? I think you do about 17 to 18 Bcf a year. How much can you grow that?

Yes, I think, I mean, it circles back to the same question, Nitin, where like in the absence of guidance in terms of what's going to qualify and what won't, it'll be too premature to talk about what qualifies and how much qualifies. So I would say stay tuned until we have better information available for us so we can provide better guidance on the matter.

The next question is from Michael Scialla with Stephens.

Good morning, everybody. Yes, I wanted to ask, on the deep Utica play, obviously some very high rates there. Anything, if the gas prices improve next year, would there be anything that would constrain that play? Any infrastructure issues? Or is it still too early on the cost side to know if you really want to push the pedal down there if the market looks like it needs more gas?

I mean, it's maybe the first question first. We're extremely happy with the performance on the cost side and just the overall execution of our team. In terms of ramping volumes, those wells are super prolific early on, so you certainly have that optionality. We don't have any kind of near-term major constraints. It's really just a function of pricing. In any ramp-up situation, as we've seen in the past, you do need some lead time to do it, but there's nothing I would point to right now that would prevent us if we were to keep receiving that market price signal.

Great. Is it too early to discuss the cost aspect, or can you provide some estimates? Would $100,000 per day be a reasonable figure for drilling, and could we think of a one-third, two-thirds breakdown for completion?

I think I can give you, Michael, the cost side. So far, like we put in our guidance here, we've gotten a drilling down to under 50 days. That's a 23% improvement over 2023. And on the current set of wells that we've just completed, we've improved even more. So I am very pleased with the progress we've made, but not anywhere close to satisfying on where we should be. So we will keep continuing to make progress on both cost and drilling performance. Just to kind of give you an example on drilling performance, our all-in cost has been driven down by almost 31% from 2023, and drilling has been the major driver for that cost coming down. Drilling costs have dropped almost 38% from 2023, which was around $1,200 per foot, down to about $750 per foot. We are making progress continuously as we speak.

Great. Is it fair to say it competes with your Marcellus right now, or is it still kind of a little bit of a higher cost play?

It's actually absolutely competing; it's in the mix in the capital allocation process for sure.

And just to kind of give you an idea of like these are highly prolific wells. For example, a 10,000-foot Utica well compared to a Southwest PM Marcellus well will produce about 20 Bcf seven times faster than the Southwest PM well, right? So these are highly prolific, high-rate of return wells. We are really excited about the play.

The next question is from Jacob Roberts with TPH.

Good morning. Maybe for Ravi, stepping away from the financial outlook on the 45Q and 45V changes. If we think about the 18 Bcf of Coal Mine Methane today, should we be viewing those potential changes under 45Q and 45V as mutually exclusive opportunities, or is there a way to benefit from both?

I hate to repeat, but until the guidance is out, I don’t know. We don't know whether that 18 Bcf will get that treatment. Once we have a better idea, we’ll be able to provide more color on how that 18 Bcf gets treated under the two programs.

Fair enough. As a follow-up, just given the equity appreciation, has that changed any conversations around the M&A market and what opportunities might be out there? More specifically, do you think there are opportunities that exist that would align more with the new technology segment?

Yes, I would just refer back to the earlier commentary. I talked about our capital allocation process, and one of the things that gets considered throughout that process is M&A, both oil and gas and potentially other sectors as you alluded to, but nothing specific is common at this point.

The next question comes from Kevin McCurdy with Pickering Energy Partners.

Hey, good morning, guys. Can I ask for a little clarification on the well cost on the Utica side? I think you mentioned earlier that costs were down 31% from 2023. Where does that put you on dollars per foot for this latest round of wells?

Yes, so I think the number I have in mind is around $1,800 per foot that we are targeting after 2024.

Got you. Okay. That's helpful. And then I appreciate all the updates on the new technology side, and I know that you're limited on what you can say. But can you just confirm for us on the CMM volumes that this year, I think you're at 17 to 18 Bcf, that's not capped at that rate, right? You could potentially increase that over the next few years if there was an incentive to do so?

Yes. It's all going to be a function of the incentive program we talk about. We enjoy the ability to grow the portfolio, but until we see final regulations, we can't analyze how and which projects would come online over time.

Any thoughts on the total capacity that you could grow to?

Again, without the details of the program, you can't make that estimate.

Thank you. This concludes our question and answer session. I would now like to turn the call back over to Tyler Lewis for any closing remarks.

Great. Thank you again for joining us this morning, and please feel free to reach out if anyone has additional questions. Otherwise, we'll look forward to speaking with everyone again next quarter. Thank you.

The conference is now concluded. Thank you for your participation. You may now disconnect your lines.