CNX Resources(CNX) - 2024 Q1 - Quarterly Report

GLOSSARY OF CERTAIN OIL AND GAS TERMS PART I FINANCIAL INFORMATION ITEM 1. Unaudited Condensed Consolidated Financial Statements CNX Resources Corporation presents its unaudited condensed consolidated financial statements for Q1 2024 and 2023, covering income, comprehensive income, balance sheets, equity, cash flows, and detailed explanatory notes Consolidated Statements of Income | Metric | 3 Months Ended March 31, 2024 ($ thousands) | 3 Months Ended March 31, 2023 ($ thousands) | | :----------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Natural Gas, NGLs and Oil Revenue | 325,972 | 455,639 | | Gain on Commodity Derivative Instruments | 7,528 | 762,167 | | Total Revenue and Other Operating Income | 384,553 | 1,275,977 | | Total Costs and Expenses | 378,234 | 348,021 | | Income Before Income Tax | 6,319 | 927,956 | | Net Income | 6,851 | 710,395 | | Basic Earnings per Share | 0.04 | 4.22 | | Diluted Earnings per Share | 0.04 | 3.61 | Consolidated Statements of Comprehensive Income | Metric | 3 Months Ended March 31, 2024 ($ thousands) | 3 Months Ended March 31, 2023 ($ thousands) | | :------------------------------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net Income | 6,851 | 710,395 | | Actuarially Determined Long-Term Liability Adjustments (Net of tax) | 81 | 72 | | Comprehensive Income | 6,932 | 710,467 | Consolidated Balance Sheets | Metric | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :---------------------------------------- | :--------------------------- | :------------------------------ | | ASSETS | | | | Total Current Assets | 460,442 | 421,788 | | Total Property, Plant and Equipment—Net | 7,361,560 | 7,342,633 | | Total Other Non-Current Assets | 834,640 | 862,236 | | TOTAL ASSETS | 8,656,642 | 8,626,657 | | LIABILITIES AND EQUITY | | | | Total Current Liabilities | 874,102 | 822,998 | | Total Non-Current Liabilities | 3,473,220 | 3,442,642 | | TOTAL LIABILITIES | 4,347,322 | 4,265,640 | | Total Stockholders' Equity | 4,309,320 | 4,361,017 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 8,656,642 | 8,626,657 | Consolidated Statements of Stockholders' Equity | Metric | December 31, 2023 ($ thousands) | March 31, 2024 ($ thousands) | | :-------------------------------------- | :------------------------------ | :--------------------------- | | Total Equity (Beginning of Period) | 4,361,017 | 4,361,017 | | Net Income | — | 6,851 | | Issuance of Common Stock | — | 109 | | Purchase and Retirement of Common Stock | — | (48,282) | | Shares Withheld for Taxes | — | (17,830) | | Amortization of Stock-Based Compensation Awards | — | 7,374 | | Other Comprehensive Income | — | 81 | | Total Equity (End of Period) | 4,361,017 | 4,309,320 | - Total equity decreased from $4,361,017 thousand at December 31, 2023, to $4,309,320 thousand at March 31, 2024, primarily due to common stock repurchases and shares withheld for taxes, partially offset by net income and stock-based compensation[55] Consolidated Statements of Cash Flows | Cash Flow Activity | 3 Months Ended March 31, 2024 ($ thousands) | 3 Months Ended March 31, 2023 ($ thousands) | | :---------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net Cash Provided by Operating Activities | 185,065 | 248,738 | | Net Cash Used in Investing Activities | (159,660) | (159,511) | | Net Cash Used in Financing Activities | (23,860) | (107,749) | | Net Increase (Decrease) in Cash | 1,545 | (18,522) | | Cash and Cash Equivalents at End of Period | 1,988 | 2,799 | - Net cash provided by operating activities decreased by $63,673 thousand YoY, while net cash used in financing activities significantly decreased by $83,889 thousand YoY, leading to a net increase in cash for Q1 2024 compared to a decrease in Q1 2023[59] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited consolidated financial statements, covering accounting policies, EPS, revenue, assets, taxes, debt, derivatives, and segment reporting NOTE 1—BASIS OF PRESENTATION Unaudited consolidated financial statements are prepared under GAAP for interim reporting, with Q1 2024 results not indicative of future periods, and the December 31, 2023 balance sheet derived from audited statements - Unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q, including normal recurring accruals[89] - Operating results for the three months ended March 31, 2024, are not necessarily indicative of future periods[89] - The Consolidated Balance Sheet at December 31, 2023, is derived from audited statements but does not include all notes required for complete financial statements[90] NOTE 2—EARNINGS PER SHARE Basic EPS is net income per weighted average share, while diluted EPS includes potential dilutive shares, with convertible notes being anti-dilutive in Q1 2024 - Basic earnings per share is computed by dividing net income by weighted average shares outstanding[105] - Diluted earnings per share includes additional shares from stock options, restricted stock units, performance share units, and convertible notes, if dilutive[105] - The Convertible Notes were excluded from diluted EPS calculation for Q1 2024 as their effect was anti-dilutive, but were included in Q1 2023 as dilutive[107] Basic Earnings per Share | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :---------------------------------------------- | :---------------------------- | :---------------------------- | | Net Income ($ thousands) | 6,851 | 710,395 | | Basic Earnings Available to Shareholders ($ thousands) | 6,851 | 710,395 | | Diluted Earnings Available to Shareholders ($ thousands) | 6,851 | 711,827 | | Weighted-Average Shares of Common Stock Outstanding | 153,364,652 | 168,452,107 | | Weighted-Average Diluted Shares of Common Stock Outstanding | 156,151,721 | 197,144,874 | | Basic Earnings per Share | $0.04 | $4.22 | NOTE 3—REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue is recognized upon transfer of control, primarily from natural gas, NGL, and oil sales, with a significant portion being short-term or variable, and long-term fixed-price contracts totaling $24,247 thousand as of March 31, 2024 - Revenue is recognized when control of promised goods or services is transferred to customers, reflecting the consideration expected[123] - A significant portion of natural gas, NGL, oil, and purchased gas revenue is short-term (one year or less) or variable, utilizing practical expedients for disclosure[72][73][81] Revenue by Source | Revenue Source | 3 Months Ended March 31, 2024 ($ thousands) | 3 Months Ended March 31, 2023 ($ thousands) | | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Natural Gas Revenue | 279,237 | 403,810 | | NGL Revenue | 44,865 | 46,056 | | Oil/Condensate Revenue | 1,870 | 5,773 | | Total Natural Gas, NGL and Oil Revenue | 325,972 | 455,639 | | Purchased Gas Revenue | 14,277 | 36,812 | | Gain on Commodity Derivative Instruments | 7,528 | 762,167 | | Other Revenue and Operating Income | 36,776 | 21,359 | | Total Revenue and Other Operating Income | 384,553 | 1,275,977 | - For long-term fixed-price natural gas, NGL, and oil contracts, $24,247 thousand of transaction price was allocated to remaining performance obligations as of March 31, 2024, with $16,089 thousand expected in the next 12 months[88] NOTE 4—ACQUISITIONS AND DISPOSITIONS CNX recognized a $20,296 thousand net loss on asset sales in Q1 2024, primarily from a non-core pipeline sale, contrasting with a $9,482 thousand net gain in Q1 2023 Loss (Gain) on Asset Sales and Proceeds | Metric | 3 Months Ended March 31, 2024 ($ thousands) | 3 Months Ended March 31, 2023 ($ thousands) | | :-------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Loss (Gain) on Asset Sales and Abandonments, net | 20,296 | (9,482) | | Proceeds from Asset Sales | 8,524 | 10,517 | - A net loss of $20,296 thousand on asset sales and abandonments was recognized in Q1 2024, primarily from a $26,265 thousand loss on a non-core pipeline sale, compared to a $9,482 thousand net gain in Q1 2023[128] NOTE 5—INCOME TAXES The effective tax rate for Q1 2024 was (8.4)%, a significant decrease from 23.4% in Q1 2023, with total uncertain tax positions increasing to $105,250 thousand Effective Tax Rate and Income Tax | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :----------------------------------- | :---------------------------- | :---------------------------- | | Effective Tax Rate | (8.4)% | 23.4% | | Income Tax (Benefit) Expense ($ thousands) | (532) | 217,561 | - The effective tax rate for Q1 2024 was (8.4)%, differing from the U.S. federal statutory rate of 21.0% primarily due to equity compensation, federal tax credits, and state taxes[129] - Total uncertain tax positions increased to $105,250 thousand at March 31, 2024, with a $5,332 thousand increase from federal tax credits anticipated for the 2024 federal tax return[138] NOTE 6—PROPERTY, PLANT AND EQUIPMENT Net property, plant, and equipment increased slightly to $7,361,560 thousand at March 31, 2024, with increases in intangible drilling costs and gas wells, and minor decreases in gas gathering and unproved gas properties Property, Plant and Equipment - Net | Category | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :---------------------------------------- | :--------------------------- | :------------------------------ | | Intangible Drilling Cost | 5,988,091 | 5,902,498 | | Gas Gathering Equipment | 2,622,296 | 2,631,110 | | Gas Wells and Related Equipment | 1,553,256 | 1,513,945 | | Proved Gas Properties | 1,380,126 | 1,374,685 | | Unproved Gas Properties | 724,281 | 724,401 | | Total Property, Plant and Equipment | 12,662,876 | 12,537,118 | | Less: Accumulated Depreciation, Depletion and Amortization | 5,301,316 | 5,194,485 | | Total Property, Plant and Equipment - Net | 7,361,560 | 7,342,633 | NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill remained at $323,314 thousand at March 31, 2024, while other intangible assets, primarily customer relationships, had a net carrying amount of $68,800 thousand amortized over approximately 17 years - Goodwill, attributed to the Midstream reporting unit within the Shale segment, had a carrying value of $323,314 thousand at both March 31, 2024, and December 31, 2023[141] Other Intangible Assets (Customer Relationships) | Other Intangible Assets (Customer Relationships) | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :----------------------------------------------- | :--------------------------- | :------------------------------ | | Gross Amortizable Asset | 109,752 | 109,752 | | Less: Accumulated Amortization | 40,952 | 39,314 | | Total Other Intangible Assets, net | 68,800 | 70,438 | - Amortization expense for other intangible assets was $1,638 thousand for both Q1 2024 and Q1 2023, with an estimated annual expense of $6,552 thousand for the next five years[142] NOTE 8—REVOLVING CREDIT FACILITIES CNX's Credit Facility commitments increased to $1,350,000 thousand with SOFR adoption, showing $75,000 thousand outstanding borrowings and $1,231,397 thousand unused capacity as of March 31, 2024, with both CNX and CNXM in compliance with covenants - CNX Credit Agreement elected commitments increased to $1,350,000 thousand in 2023, with LIBOR replaced by SOFR[143] CNX Credit Facility | CNX Credit Facility (as of March 31, 2024) | Amount ($ thousands) | | :----------------------------------------- | :------------------- | | Borrowings Outstanding | 75,000 | | Letters of Credit Outstanding | 43,603 | | Unused Capacity | 1,231,397 | | Weighted Average Interest Rate | 7.18% | CNXM Credit Facility | CNXM Credit Facility (as of March 31, 2024) | Amount ($ thousands) | | :------------------------------------------ | :------------------- | | Borrowings Outstanding | 91,350 | | Unused Capacity | 508,650 | | Weighted Average Interest Rate | 7.46% | - Both CNX and CNXM were in compliance with all financial covenants as of March 31, 2024[153][167] NOTE 9—OTHER ACCRUED LIABILITIES Total other accrued liabilities decreased to $213,616 thousand at March 31, 2024, from $233,214 thousand at December 31, 2023, driven by decreases in royalties and accrued interest, partially offset by increased transportation charges Other Accrued Liabilities | Category | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :------------------------------------- | :--------------------------- | :------------------------------ | | Royalties | 88,011 | 100,847 | | Accrued Interest | 29,624 | 44,227 | | Transportation Charges | 21,854 | 17,824 | | Deferred Revenue | 16,475 | 15,831 | | Accrued Other Taxes | 12,739 | 9,343 | | Accrued Payroll & Benefits | 6,862 | 6,619 | | Short-Term Incentive Compensation | 3,333 | 10,961 | | Purchased Gas Payable | 84 | 1,002 | | Other | 24,827 | 16,777 | | Current Portion of Long-Term Liabilities | | | | Asset Retirement Obligations | 7,897 | 7,897 | | Salary Retirement | 1,910 | 1,886 | | Total Other Accrued Liabilities | 213,616 | 233,214 | NOTE 10—LONG-TERM DEBT CNX's total long-term debt increased to $1,942,508 thousand at March 31, 2024, including new $400,000 thousand Senior Notes and reclassification of Convertible Senior Notes to short-term, alongside a $7,045 thousand loss on debt extinguishment Long-Term Debt Category | Long-Term Debt Category | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :---------------------------------------------------- | :--------------------------- | :------------------------------ | | Senior Notes due January 2029 at 6.00% | 500,000 | 500,000 | | Senior Notes due January 2031 at 7.375% | 494,881 | 494,692 | | CNX Midstream Partners LP Senior Notes due April 2030 at 4.75% | 396,490 | 396,346 | | Senior Notes due March 2032 at 7.25% | 395,052 | — | | Convertible Senior Notes due May 2026 at 2.25% | 326,545 | 326,068 | | CNX Midstream Partners LP Revolving Credit Facility | 91,350 | 105,150 | | CNX Revolving Credit Facility | 75,000 | 52,050 | | Senior Notes due March 2027 at 7.25% | — | 351,728 | | Less: Unamortized Debt Issuance Costs | 10,623 | 11,660 | | Total Long-Term Debt (Gross) | 2,268,695 | 2,214,374 | | Less: Current Portion | 326,187 | 325,668 | | Long-Term Debt (Net) | 1,942,508 | 1,888,706 | - CNX completed a private offering of $400,000 thousand aggregate principal amount of 7.25% Senior Notes due March 2032, accruing interest semi-annually[169] - The Convertible Senior Notes due May 2026 are classified as short-term debt at March 31, 2024, as the conversion condition (stock price exceeding 130% of conversion price) was met[172][184] - CNX repurchased and retired $350,000 thousand of its 7.25% Senior Notes due March 2027, resulting in a $7,045 thousand loss on debt extinguishment[124] NOTE 11—COMMITMENTS AND CONTINGENT LIABILITIES CNX faces lawsuits related to the 1992 Coal Act and 1974 Pension Plan, with the latter settled for $75,000, while total financial guarantees and purchase obligations amount to $265,176 thousand, primarily for firm transportation and environmental surety bonds - CNX is defending a lawsuit from the UMWA 1992 Benefit Plan regarding Coal Act health benefits, with CONSOL Energy agreeing to indemnify CNX for coal-related liabilities[190][11] - CNX settled a UMWA 1974 Pension Plan claim for $75,000, payable over five years, and subsequently sued CONSOL Energy for breach of contract for denying indemnification[12] Commitment Category | Commitment Category | Total Amounts ($ thousands) | Less Than 1 Year ($ thousands) | 1-3 Years ($ thousands) | 3-5 Years ($ thousands) | Beyond 5 Years ($ thousands) | | :------------------ | :-------------------------- | :----------------------------- | :---------------------- | :---------------------- | :--------------------------- | | Letters of Credit | 43,603 | 43,603 | — | — | — | | Surety Bonds | 221,573 | 220,969 | 604 | — | — | | Total Commitments | 265,176 | 264,572 | 604 | — | — | Purchase Obligations (as of March 31, 2024) | Purchase Obligations (as of March 31, 2024) | Amount ($ thousands) | | :------------------------------------------ | :------------------- | | Less than 1 year | 239,479 | | 1 - 3 years | 434,905 | | 3 - 5 years | 351,324 | | More than 5 years | 551,023 | | Total Purchase Obligations | 1,576,731 | NOTE 12—DERIVATIVE INSTRUMENTS CNX uses interest rate and commodity swaps to manage price volatility, with total notional amounts including 1,245.6 Bcf natural gas swaps and $410,000 thousand interest rate swaps, resulting in a $7,528 thousand gain on commodity derivatives in Q1 2024, down from $762,167 thousand in Q1 2023 - CNX uses interest rate swap agreements to manage interest rate volatility and financial derivative instruments (over-the-counter swaps) to manage natural gas and NGL price fluctuations[17][18] Derivative Instrument Notional Amounts | Derivative Instrument Category | March 31, 2024 Notional Amount | December 31, 2023 Notional Amount | | :----------------------------- | :----------------------------- | :-------------------------------- | | Natural Gas Commodity Swaps | 1,245.6 Bcf | 1,349.2 Bcf | | Natural Gas Basis Swaps | 710.6 Bcf | 760.3 Bcf | | NGL Commodity Swaps | 1,131.5 Mbbls | 81.0 Mbbls | | Interest Rate Swaps | $410,000 | $410,000 | Gain on Commodity Derivative Instruments | Gain on Commodity Derivative Instruments | 3 Months Ended March 31, 2024 ($ thousands) | 3 Months Ended March 31, 2023 ($ thousands) | | :--------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Total Realized Gain (Loss) | 54,653 | (61,032) | | Total Unrealized (Loss) Gain | (47,125) | 823,199 | | Total Gain on Commodity Derivative Instruments | 7,528 | 762,167 | NOTE 13—FAIR VALUE OF FINANCIAL INSTRUMENTS CNX measures fair value using a three-level hierarchy, with Level 2 inputs significant for commodity and interest rate derivatives, which had fair values of $(78,766) thousand and $(111) thousand, respectively, at March 31, 2024 - Fair value measurements are based on an exit price in the principal or most advantageous market, using a three-level hierarchy based on observable or unobservable inputs[44][45][47][48] Level 2 Fair Value | Financial Instrument | Level 2 Fair Value (March 31, 2024, $ thousands) | | :---------------------- | :----------------------------------------------- | | Commodity Derivatives | (78,766) | | Interest Rate Swaps | (111) | Financial Instrument (Carrying Amount vs. Fair Value) | Financial Instrument (Carrying Amount vs. Fair Value) | March 31, 2024 Carrying Amount ($ thousands) | March 31, 2024 Fair Value ($ thousands) | | :---------------------------------------------------- | :------------------------------------------- | :-------------------------------------- | | Cash and Cash Equivalents | 1,988 | 1,988 | | Long-Term Debt (Excluding Debt Issuance Costs) | 2,279,318 | 2,541,378 | NOTE 14—SEGMENT INFORMATION CNX reports two primary segments, Shale and Coalbed Methane (CBM), with an "Other" segment encompassing shallow production, purchased gas, unrealized derivative impacts, and new technologies, evaluating performance by total revenue and operating income - CNX reports segment information based on the 'management' approach, using internal reporting for decision-making and performance assessment[65] - The two reportable segments are Shale and Coalbed Methane (CBM), primarily producing pipeline quality natural gas[67] - The Other Segment includes nominal shallow oil and gas production, purchased gas activities, unrealized gain or loss on commodity derivative instruments, New Technologies, and various unallocated corporate expenses[67] Segment Revenue and Operating Income (3 Months Ended March 31, 2024) | Segment Revenue and Operating Income (3 Months Ended March 31, 2024) | Shale ($ thousands) | Coalbed Methane ($ thousands) | Other ($ thousands) | Consolidated ($ thousands) | | :--------------------------------------------------- | :------------------ | :---------------------------- | :------------------ | :------------------------- | | Natural Gas, NGLs and Oil Revenue | 292,762 | 32,863 | 347 | 325,972 | | Purchased Gas Revenue | — | — | 14,277 | 14,277 | | Gain (Loss) on Commodity Derivative Instruments | 50,779 | 3,846 | (47,097) | 7,528 | | Other Revenue and Operating Income | 15,894 | — | 20,882 | 36,776 | | Total Revenue and Other Operating Income (Loss) | 359,435 | 36,709 | (11,591) | 384,553 | NOTE 15—STOCK REPURCHASE CNX's Board increased the stock repurchase program to $2,900,000 thousand, with $1,080,086 thousand available as of March 31, 2024, having repurchased 2,384,994 shares for $48,282 thousand in Q1 2024 - The Company's Board of Directors approved increases in the stock repurchase program to $2,900,000 thousand, with $1,080,086 thousand available as of March 31, 2024[98] Stock Repurchase Activity | Stock Repurchase Activity | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :------------------------ | :---------------------------- | :---------------------------- | | Shares Repurchased | 2,384,994 | 5,838,635 | | Total Cost ($ thousands) | 48,282 | 93,536 | | Average Price per Share | $20.14 | $15.88 | NOTE 16—SUPPLEMENTAL CASH FLOW INFORMATION Non-cash transactions for capital projects included $44,581 thousand in accounts payable as of March 31, 2024, an increase from $28,198 thousand at December 31, 2023 - Purchases of goods and services related to capital projects included in accounts payable were $44,581 thousand as of March 31, 2024, compared to $28,198 thousand at December 31, 2023[102] Cash Paid | Cash Paid ($ thousands) | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :---------------------- | :---------------------------- | :---------------------------- | | Interest (Net of Capitalized) | 48,396 | 30,094 | | Income Taxes | — | 3,500 | NOTE 17—RECENT ACCOUNTING PRONOUNCEMENTS CNX does not anticipate any new accounting guidance, not yet effective, to materially impact its current financial statements - CNX does not believe any new accounting guidance, not yet effective, will have a material impact on its current financial statements[113] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes CNX Resources Corporation's financial condition and results for Q1 2024 versus Q1 2023, covering overall performance, new technologies, segment analysis, and liquidity, highlighting key drivers of revenue, expenses, and cash flow changes General CNX monitors global events impacting commodity prices, expects continued volatility in natural gas, NGL, and oil, manages risk through hedges, and addresses inflation in steel, diesel, and labor with efficiency improvements - Global events (e.g., Russia-Ukraine conflict, OPEC production cuts) continue to impact global commodity prices, leading to expected volatility in natural gas, NGLs, and oil prices[74][75] - CNX manages market risk through physical natural gas supply transactions and financial hedges (NYMEX, index, and basis hedges), with total hedged natural gas production for Q2 2024 at 109.7 Bcf[75][77][78] - Inflation, particularly in steel, diesel fuel, and labor, presents ongoing risk, potentially increasing costs. Anticipated Federal Reserve interest rate cuts in late 2024 may alleviate rising borrowing costs[76] New Technologies Update CNX's New Technologies group is developing proprietary solutions for business growth and environmental attributes, including collaborations with NuBlu Energy for CNG/LNG technology and Deep Well Services for AutoSep Technologies to enhance shale well operations - CNX is developing unique, proprietary technologies to enhance natural gas extraction and delivery, and to develop and sell environmental attributes[96] - Collaboration with NuBlu Energy aims to deploy advanced CNG/LNG technology solutions to displace conventional liquid fuels with locally sourced, cleaner, and more cost-effective options[120] - Joint venture with Deep Well Services launched AutoSep Technologies, offering automated flowback systems for unconventional shale wells to reduce costs, improve safety, and lower environmental impact, with significant market potential[121] Results of Operations - Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023 CNX's net income significantly decreased to $7 million ($0.04 diluted EPS) in Q1 2024 from $710 million ($3.61 diluted EPS) in Q1 2023, primarily due to an unrealized loss on commodity derivatives and a net loss on asset sales, despite increased sales volumes Net Income Net income for Q1 2024 was $7 million ($0.04 diluted EPS), a substantial decrease from $710 million ($3.61 diluted EPS) in Q1 2023, driven by an unrealized loss on commodity derivatives and a net loss on asset sales Net Income and Diluted EPS | Metric | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | | :--------------------- | :----------------------------------------- | :----------------------------------------- | | Net Income | 7 | 710 | | Diluted EPS | 0.04 | 3.61 | - Q1 2024 earnings included an unrealized loss on commodity derivative instruments of $47 million and a net loss on asset sales and abandonments of $20 million[133] - Q1 2023 earnings included an unrealized gain on commodity derivative instruments of $823 million and a net gain on asset sales and abandonments of $9 million[133] Non-GAAP Financial Measures CNX uses non-GAAP measures like 'Sales of Natural Gas, NGL and Oil, including cash settlements' ($381 million in Q1 2024) and 'Natural Gas, NGL and Oil Production Costs' ($237 million in Q1 2024) to evaluate operating performance - Management uses non-GAAP measures such as 'Sales of Natural Gas, NGL and Oil, including cash settlements' and 'Natural Gas, NGL and Oil Production Costs' for planning, forecasting, and evaluating performance[134] Non-GAAP Financial Measure Comparison | Non-GAAP Financial Measure | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | | :---------------------------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Sales of Natural Gas, NGL and Oil, including Cash Settlements | 381 | 395 | | Natural Gas, NGL and Oil Production Costs | 237 | 226 | Selected Natural Gas, NGL and Oil Production Financial Data Total sales volumes increased by 4.5 Bcfe to 140.4 Bcfe in Q1 2024, but Natural Gas, NGL, and Oil Revenue decreased by $130 million, and Production Margin decreased by $25 million, due to lower realized prices and less favorable hedging Production Financial Data | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Variance | | :---------------------------------------------- | :---------------------------- | :---------------------------- | :------- | | Total Sales Volumes (Bcfe) | 140.4 | 135.9 | 4.5 | | Natural Gas, NGL and Oil Revenue ($ millions) | 326 | 456 | (130) | | Gain (Loss) on Commodity Derivative Instruments - Cash Settlement ($ millions) | 55 | (61) | 116 | | Sales of Natural Gas, NGL and Oil, including Cash Settlements ($ millions) | 381 | 395 | (14) | | Natural Gas, NGL and Oil Production Costs ($ millions) | 237 | 226 | 11 | | Natural Gas, NGL and Oil Production Margin ($ millions) | 144 | 169 | (25) | - The 4.5 Bcfe increase in sales volumes was primarily driven by new wells turned-in-line in 2023 and Q1 2024, and increased ethane recoveries, partially offset by normal production declines[144] Average Realized Price Reconciliation Natural gas sales volume increased by 2.9% to 128,942 MMcf, but average sales price decreased by 32.6% to $2.17 per Mcf, while NGL sales volume increased by 11.7% to 1,873 Mbbls, with hedging impact shifting to a gain of $0.42 per Mcf Average Realized Price Reconciliation | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Variance | Percent Change | | :---------------------------------------------- | :---------------------------- | :---------------------------- | :------------ | :------------- | | NGL Sales Volume (Mbbls) | 1,873 | 1,677 | 196 | 11.7% | | NGL Gross Price ($/Bbl) | $23.94 | $27.48 | $(3.54) | (12.9)% | | Oil/Condensate Sales Volume (Mbbls) | 29 | 86 | (57) | (66.3)% | | Oil/Condensate Gross Price ($/Bbl) | $64.08 | $67.32 | $(3.24) | (4.8)% | | Natural Gas Sales Volume (MMcf) | 128,942 | 125,290 | 3,652 | 2.9% | | Natural Gas Sales Price ($/Mcf) | $2.17 | $3.22 | $(1.05) | (32.6)% | | Hedging Impact ($/Mcf) | $0.42 | $(0.49) | $0.91 | 185.7% | | Gain (Loss) on Commodity Derivative Instruments - Cash Settlement ($ thousands) | 54,652 | (61,032) | 115,684 | 189.5% | - The decrease in natural gas, NGLs, and oil revenue was primarily due to a $1.05 per Mcf decrease in natural gas prices and a $3.54 per Bbl decrease in NGL prices, partially offset by a positive change in commodity derivative cash settlements and a 4.5 Bcfe increase in sales volumes[147] SEGMENT ANALYSIS for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 Consolidated earnings before income tax significantly declined, driven by the Other Segment's shift to a loss from unrealized derivative impacts, while Shale earnings decreased due to lower commodity prices, and CBM experienced a nominal loss from decreased sales prices and volumes SHALE SEGMENT Shale segment earnings before income tax decreased to $161 million in Q1 2024 from $180 million in Q1 2023, primarily due to lower natural gas and NGL prices, despite a 4.3% increase in sales volumes, with total operating costs rising to $198 million Shale Segment Metrics | Shale Segment Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Variance | Percent Change | | :---------------------------------------- | :---------------------------- | :---------------------------- | :------------ | :------------- | | Earnings Before Income Tax ($ millions) | 161 | 180 | (19) | (10.6)% | | Total Shale Sales Volumes (Bcfe) | 130.8 | 125.4 | 5.4 | 4.3% | | Average Shale Gas Sales Price (per Mcf) | $2.06 | $3.10 | $(1.04) | (33.5)% | | Average Sales Price - NGLs (per Mcfe) | $3.99 | $4.58 | $(0.59) | (12.9)% | | Total Average Shale Sales Price (per Mcfe) | $2.63 | $2.80 | $(0.17) | (6.1)% | | Total Average Shale Production Costs (per Mcfe) | $1.52 | $1.50 | $0.02 | 1.3% | - The $115 million decrease in natural gas, NGLs, and oil/condensate revenue was primarily due to lower average sales prices for natural gas and NGLs, partially offset by a 4.3% increase in total Shale sales volumes[160] - Shale lease operating expenses increased due to higher water disposal costs, and depreciation, depletion, and amortization costs increased due to a higher annual depletion rate from downward reserve revisions[162][165] COALBED METHANE (CBM) SEGMENT The CBM segment reported a nominal loss in Q1 2024, down from $7 million in Q1 2023 earnings, driven by a $15 million decrease in natural gas revenue due to a 25.1% decrease in average sales price and an 8.7% decrease in sales volumes CBM Segment Metrics | CBM Segment Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | Variance | Percent Change | | :---------------------------------------- | :---------------------------- | :---------------------------- | :------------ | :------------- | | Earnings Before Income Tax ($ millions) | Nominal Loss | 7 | (7) | (100)% | | CBM Gas Sales Volumes (Bcf) | 9.5 | 10.4 | (0.9) | (8.7)% | | Average CBM Gas Sales Price (per Mcf) | $3.46 | $4.62 | $(1.16) | (25.1)% | | Total Average CBM Sales Price (per Mcf) | $3.87 | $4.17 | $(0.30) | (7.2)% | | Total Average CBM Production Costs (per Mcf) | $3.90 | $3.50 | $0.40 | 11.4% | - The $15 million decrease in CBM natural gas revenue was due to a 25.1% decrease in average sales price and an 8.7% decrease in sales volumes[179] - CBM lease operating expenses remained flat at $5 million, but unit costs increased due to decreased total CBM volumes. Depreciation, depletion, and amortization costs increased due to a higher annual depletion rate from downward reserve revisions[118][183] OTHER SEGMENT The Other Segment incurred a $155 million loss before income tax in Q1 2024, a sharp decline from $741 million earnings in Q1 2023, primarily due to an unrealized loss on commodity derivatives, despite increased other operating income from environmental attribute sales Unrealized (Loss) Gain on Commodity Derivative Instruments - The Other Segment recognized an unrealized loss on commodity derivative instruments of $47 million in Q1 2024, compared to an unrealized gain of $823 million in Q1 2023[198] Purchased Gas Revenue and Costs | Metric | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | | :----------------------------------- | :----------------------------------------- | :----------------------------------------- | | Purchased Gas Revenue | 14 | 37 | | Purchased Gas Costs | 13 | 34 | | Purchased Gas Sales Volumes (Bcf) | 5.2 | 12.8 | | Average Sales Price (per Mcf) | $2.73 | $2.86 | | Purchased Gas Average Cost (per Mcf) | $2.60 | $2.67 | - The decrease in purchased gas revenue and costs was primarily due to a 59.4% decrease in purchased gas sales volumes[199][206] Other Operating Income | Other Operating Income Category | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | Variance ($ millions) | Percent Change | | :------------------------------ | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------------- | | Sales of Environmental Attributes | 13 | — | 13 | 100.0% | | Excess Firm Transportation Income | 6 | 3 | 3 | 100.0% | | Water Income | 2 | 1 | 1 | 100.0% | | Equity Income from Affiliates | (1) | — | (1) | 100.0% | | Total Other Operating Income | 20 | 4 | 16 | 400.0% | - Sales of environmental attributes contributed $13 million in Q1 2024, a new revenue stream compared to Q1 2023[201][207] - Excess firm transportation income increased by $3 million, reflecting revenue from selling unutilized pipeline capacity to third parties[201][207] Exploration and Production Related Other Costs | Cost Category | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | Variance ($ millions) | Percent Change | | :---------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------------- | | Lease Expiration Costs | 1 | 4 | (3) | (75.0)% | | Land Rentals | 1 | 1 | — | —% | | Total Exploration and Production Related Other Costs | 2 | 5 | (3) | (60.0)% | - Lease expiration costs decreased by $3 million due to a reduction in the number of acres allowed to expire[202][208] Selling, General and Administrative | SG&A Category | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | Variance ($ millions) | Percent Change | | :-------------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------------- | | Short-term Incentive Compensation | 4 | 3 | 1 | 33.3% | | Long-term Equity-Based Compensation (Non-Cash) | 7 | 9 | (2) | (22.2)% | | Salaries, Wages and Employee Benefits | 8 | 10 | (2) | (20.0)% | | Other | 17 | 13 | 4 | 30.8% | | Total SG&A | 38 | 37 | 1 | 2.7% | - Short-term incentive compensation increased due to higher projected payouts, while long-term equity-based compensation and salaries/wages decreased[210][211] - Other SG&A costs increased primarily due to higher professional services and consulting fees related to cyber security, legal matters, and regulatory reporting[211] Other Operating Expense | Other Operating Expense Category | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | Variance ($ millions) | Percent Change | | :-------------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------------- | | Environmental Attribute Fees | 2 | — | 2 | 100.0% | | Water Expense | 1 | — | 1 | 100.0% | | Other | 7 | 1 | 6 | 600.0% | | Total Other Operating Expense | 24 | 15 | 9 | 60.0% | - Environmental attribute fees and water expense increased as new cost categories in Q1 2024[212] - Other operating expense increased significantly due to one-time items, including a $3 million charge for a prior-year sales and use tax audit settlement and a $3 million charge for a pipeline tariff filing[205] Other (Income) Expense | Other (Income) Expense Category | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | Variance ($ millions) | Percent Change | | :------------------------------ | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------------- | | Litigation Recovery | 7 | — | 7 | 100.0% | | Total Other Income | 10 | 3 | 7 | 233.3% | | Total Other Expense | 5 | 4 | 1 | 25.0% | | Total Other (Income) Expense | (5) | 1 | (6) | (600.0)% | - Total Other (Income) Expense shifted from a $1 million expense in Q1 2023 to a $5 million income in Q1 2024, primarily due to $7 million in litigation recovery in the current period[213][218] Loss on Debt Extinguishment | Metric | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | | :-------------------------- | :----------------------------------------- | :----------------------------------------- | | Loss on Debt Extinguishment | 7 | — | - A $7 million loss on debt extinguishment was recognized in Q1 2024 due to the repurchase of $350 million of 7.25% Senior Notes due March 2027 at a premium[220] Interest Expense | Metric | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | | :----------------- | :----------------------------------------- | :----------------------------------------- | | Total Interest Expense | 37 | 36 | - Total interest expense increased by $1 million, primarily due to higher borrowings on the CNX revolving credit facility and increased principal balances from long-term debt issued in February 2024[221] Income Taxes | Metric | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | | :----------------------------------- | :----------------------------------------- | :----------------------------------------- | | Total Company Earnings Before Income Tax | 6 | 928 | | Income Tax (Benefit) Expense | (1) | 218 | | Effective Income Tax Rate | (8.4)% | 23.4% | - The effective income tax rate for Q1 2024 was (8.4)%, a significant decrease from 23.4% in Q1 2023, primarily due to equity compensation, federal tax credits, and state taxes[224] Liquidity and Capital Resources CNX's liquidity is supported by cash from operations and borrowing capacity, with cash and cash equivalents increasing to $2 million at March 31, 2024, operating cash flows decreasing by $64 million, and financing cash flows improving by $84 million, while remaining compliant with debt covenants Overview, Sources and Uses - CNX generally meets working capital, capital expenditures, and debt service obligations through cash generated from operations and borrowings[225] - The company uses letters of credit to satisfy financial assurance requirements, which reduce borrowing facility capacity[226] Factors that may Impact our Liquidity - Cash and cash equivalents were $2 million as of March 31, 2024, up from nominal amounts at December 31, 2023[223] - Capital expenditures are projected to be $525 million to $575 million for FY2024, with $168 million incurred in Q1 2024[223] - Production volumes are expected to range between 540 Bcfe and 560 Bcfe for FY2024, with 140.4 Bcfe produced in Q1 2024[223] - The fair value of open derivative instruments was a net liability of $79 million at March 31, 2024, and $56 million at December 31, 2023[223] - CNX expects to remain in compliance with debt covenants, even considering a significant decline in commodity prices[230] Cash Flow Activity | Cash Flow Activity | 3 Months Ended March 31, 2024 ($ millions) | 3 Months Ended March 31, 2023 ($ millions) | Change ($ millions) | | :---------------------------------- | :----------------------------------------- | :----------------------------------------- | :------------------ | | Cash Provided by Operating Activities | 185 | 249 | (64) | | Cash Used in Investing Activities | (160) | (160) | — | | Cash Used in Financing Activities | (24) | (108) | 84 | - Operating cash flows decreased by $64 million, primarily due to a $704 million decrease in net income and a $925 million net change in commodity derivative instruments[238] - Financing cash flows improved by $84 million, driven by the repurchase of $350 million of Senior Notes, issuance of $400 million new Senior Notes, and reduced common stock repurchases[234] Commitments and Significant Contractual Obligations | Contractual Obligation Category | Total ($ thousands) | Less Than 1 Year ($ thousands) | 1-3 Years ($ thousands) | 3-5 Years ($ thousands) | More Than 5 Years ($ thousands) | | :------------------------------ | :------------------ | :----------------------------- | :---------------------- | :---------------------- | :------------------------------ | | Purchase Order Firm Commitments | 1,100 | 400 | 700 | — | — | | Gas Firm Transportation and Processing | 1,575,631 | 239,079 | 434,205 | 351,324 | 551,023 | | Long-Term Debt | 2,279,318 | 326,545 | 166,350 | 500,000 | 1,286,423 | | Interest on Long-Term Debt | 811,650 | 135,326 | 256,480 | 229,750 | 190,094 | | Finance Lease Obligations | 24,332 | 2,861 | 9,216 | 12,189 | 66 | | Operating Lease Obligations | 133,518 | 52,150 | 54,130 | 10,705 | 16,533 | | Total Contractual Obligations | 5,232,926 | 937,213 | 997,078 | 1,139,501 | 2,159,134 | Debt - Total long-term debt was $2,279 million at March 31, 2024, including $326 million in current portion[242] - Debt includes $500 million of 6.00% Senior Notes due 2029, $500 million of 7.375% Senior Notes due 2031, $400 million of 4.75% Senior Notes due 2030 (CNXM), $400 million of 7.25% Senior Notes due 2032, and $331 million of 2.25% Convertible Senior Notes due 2026[242] - CNX is not a guarantor for CNXM's 4.75% Senior Notes or its Credit Facility[242][249] Total Equity and Dividends - Total equity was $4,309 million at March 31, 2024, a decrease from $4,361 million at December 31, 2023[243] - CNX has not paid dividends on common stock since 2016, and future payments are subject to Board discretion and contractual restrictions (e.g., Credit Facility limits dividends to $0.10 per share annually if net leverage exceeds 3.00:1.00)[244] Off-Balance Sheet Transactions - CNX does not maintain off-balance sheet transactions, arrangements, or obligations that are reasonably likely to have a material effect on its financial condition, revenues, or liquidity, other than those disclosed in the notes[244] - The company uses surety bonds, corporate guarantees, and letters of credit to secure financial obligations for employee-related, environmental, and performance items, which are not reflected on the balance sheet[244] Critical Accounting Policies and Estimates - The preparation of financial statements requires management to make judgments, estimates, and assumptions that affect reported amounts, and actual results could materially differ from these estimates[251] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk CNX faces market price risk from commodity sales and interest rate risk from variable-rate debt, mitigating these with fixed-price contracts and derivatives, with open derivatives at a $79 million net liability and a 100 basis-point interest rate increase impacting pre-tax earnings by $2 million annually - CNX is exposed to market price risk in selling natural gas and liquids, and interest rate risk from variable-rate debt[256][261][262] - The company uses fixed-price contracts, options, and derivative commodity instruments (swaps) to minimize exposure to market price volatility, not for speculative purposes[261] - As of March 31, 2024, open derivative instruments were in a net liability position with a fair value of $79 million. A hypothetical 10% decrease in future natural gas prices would increase their fair value by $498 million[268] - A hypothetical 100 basis-point increase in the average rate for CNX's variable-rate instruments would decrease pre-tax future earnings by $2 million on an annualized basis[262] Fixed Price Volumes | Fixed Price Volumes (Bcf) | 2024 (Total Year) | 2025 (Total Year) | 2026 (Total Year) | 2027 (Total Year) | | :------------------------ | :---------------- | :---------------- | :---------------- | :---------------- | | Hedged Bcf | 332.7 | 374.4 | 339.6 | 216.2 | | Weighted Average Hedge Price per Mcf | $2.52 | $2.43 | $2.48 | $3.28 | ITEM 4. Controls and Procedures CNX's management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal controls over financial reporting during the quarter - CNX's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024, ensuring timely and accurate reporting[271] - No material changes occurred in the Company's internal controls over financial reporting during the fiscal quarter ended March 31, 2024[272] PART II OTHER INFORMATION ITEM 1. Legal Proceedings This section incorporates legal proceedings disclosures from Note 11, detailing lawsuits related to the 1992 Coal Act and 1974 Pension Plan, with no significant environmental proceedings expected to materially affect future financial results - Legal proceedings disclosures from Note 11 – Commitments and Contingent Liabilities are incorporated by reference[274] - CNX is not aware of any significant legal or governmental environmental proceedings that would materially affect future financial results[275] ITEM 1A. Risk Factors This section outlines various risks, including volatile commodity prices, operational challenges, competition, economic downturns, hedging, ESG matters, and regulatory changes, which could materially affect CNX's business, with no material changes since the 2023 Form 10-K - The financial conditions and operating results can be affected by volatile natural gas and NGL prices, unsuccessful operational efforts, competition, economic downturns, and hedging activities[247] - Risks also include increasing attention to environmental, social, and governance (ESG) matters, dependence on third-party infrastructure, uncertainties in reserve estimation, and substantial capital expenditures for development and exploration projects[247] - No material changes to the Company's risk factors have occurred since the 2023 Form 10-K was filed[276] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2024, CNX repurchased 2,384,994 shares for $48,282 thousand at an average price of $20.14 per share under its $2,900 million share repurchase program, with $1,080,086 thousand remaining available Stock Repurchase Program Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | Amount Available Under Programs (000's) | | :--------------------------- | :------------------------------- | :--------------------------- | :-------------------------------------- | | January 1, 2024 - January 31, 2024 | 1,847,174 | $20.10 | 1,091,119 | | February 1, 2024 - February 29, 2024 | 378,040 | $20.05 | 1,083,584 | | March 1, 2024 - March 31, 2024 | 159,780 | $21.88 | 1,080,086 | | Total (Q1 2024) | 2,384,994 | | | - The total number of shares repurchased as part of the publicly announced program during Q1 2024 was 2,384,994, with $1,080,086 thousand remaining available under the $2,900 million program[277] ITEM 5. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended March 31, 2024[281] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including purchase agreements, indentures, certifications, and Inline XBRL documents, noting that Exhibits 32.1 and 32.2 are furnished, not filed - The report includes various exhibits such as purchase agreements, indentures, and certifications (31.1, 31.2, 32.1, 32.2)[282] - Exhibits 32.1 and 32.2 (Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350) are furnished and not filed[278][282] Forward-Looking Statements This section provides a cautionary statement for forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from projections - This section serves as a cautionary statement, utilizing safe harbor provisions for forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from projections[247] - Forward-looking statements include projections and estimates concerning timing and success of projects, future production, revenues, income, and capital spending, identified by words like 'believe,' 'intend,' 'expect,' 'may,' 'should,' 'anticipate,' 'could,' 'estimate,' 'plan,' 'predict,' 'project,' or 'will'[247] - The company disclaims any obligation to publicly update or revise forward-looking statements unless required by securities law[247][260]