Despite what Nick DeIuliis, president and CEO of CNX Resources called “extremely challenging” Appalachian Basin pricing, the company reported a 15th consecutive quarter of free cash flow (FCF). However, the $19 million missed some analysts' expectations and the company reported higher spending and costs.

The company is looking toward its New Technologies business segment to strengthen FCF in 2024.

“We expect this quarter to mark the trough of our free cash flow generation, as the confluence of lower capital, higher expected gas pricing and growth in our New Tech cash flows, solidifies our confidence in achieving robust free cash flow generation in the quarters ahead,” Alan Shepard, CNX’s CFO, said during an Oct. 25 earnings call.

The E&P reaffirmed in 2023 FCF guidance of $325 million.

“While CNX's 3Q release disappointed on the back of higher spending and costs, and the stock responded accordingly (-2% versus the group's -0%), you wouldn't know it from the conference call with the New Tech segment dominating Q&A,” Truist Securities analysts wrote in an Oct. 25 report. “While there were few new details given, from what we know we remain confident in CNX's ability to hit the FCF target in '24, and quickly grow this number in '25+, providing a rate of change to CNX that not many peers will be able to replicate.”

Nevertheless, back-to-back capex increases may concern investors that want a more predictable core business along with the new venture upside, Truist said.

CNX free cash flow
(Source: CNX)

CNX’s management said its New Technologies group will be a cash flow driver, with the company’s predicting FCF of up to $100 million from the segment next year.

Shepard said the New Technologies group continues to deliver tangible results in both positive FCF and environmental impact.

“During the quarter, we recorded approximately $13 million in free cash flow, primarily associated with sales and environmental attributes from our waste methane capture activities, which brings our year-to-date free cash flow from New Tech to approximately $19 million,” he said.

Much of CNX’s growth is tied to its waste abatement operations in Virginia. The company’s Adams Fork Energy clean ammonia project is expected to provide ultra-low carbon intensity feedstock and carbon capture and sequestration (CCS) service. The Department of Energy announced the funding of the project is a part of the ARCH2 hydrogen hub application.

“We continue to expect around $75 million, with up to potentially $100 million in free cash flow in 2024 associated with the New Technologies Group,” DeIuliis said. “We're just getting started with New Tech, and we think this business has the potential of being an even bigger, free cash flow growth driver for the company moving forward.”


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As a result of the combined efforts of their operations team and New Technologies group, CNX reached their 2023 methane emission reduction target of an equivalent 70,000 tons of CO₂ by the end of the third quarter—a full quarter ahead of schedule. By the end of this year, management expects to reduce methane emissions on an equivalent CO₂ ton basis by about 49% since 2020.

Free cash flow slows

Despite pricing challenges, executives pointed to the company’s ability to improve cycle times and accelerate activity, enabling them to bring online 11 of their remaining 13 fields in the quarter. The company also brought online four new wells under a runway at Pittsburgh International Airport.

“These four new wells are projected to generate almost $70 million in royalty revenue for the airport through 2042, and about $20 million of that will be over the next four years,” DeIuliis said during the earnings call.

The four wells were brought online without any safety incidents or environmental impacts. Natural gas from the wells will be converted into alternative fuel for the planes and serve as a sustainable fuel hub for the area.

Due to CNX’s operational success, Shepard predicted a “significant decline” in capex because the company has pushed far ahead of schedule for many of its projects.

“We've kind of had to slow down to almost idle to frac crew, because we've been ahead of schedule. And we don't want to push volumes into this market, given current prices. So we are just way ahead of schedule and you will see a big drop in Q4 capital next quarter,” he said.

The long-term strategy deployed by CNX has been the company’s modus operandi since 2020. CNX has generated about $1.8 billion in FCF since 2020, reduced outstanding debt by $385 million and allowed the company to repurchase and retire 31% of its outstanding shares at deeply discounted prices.

Looking to next year, Shepard expects those results to continue.

“As a result of our accelerated pace, we now have both now expect both annual production and capital trend towards the higher end of the ranges provided,” Shepard said. “Looking ahead to 2024, we expect to average annual production volumes of approximately 580 Bcfe, and as we discussed last quarter, we also expect total capital expenditures to fall beginning in 2024 through 2025 to around 500 million.”