Q3 2023 CNX Resources Corp Earnings Call
Participants
Alan K. Shepard; CFO; CNX Resources Corporation
Navneet Behl; COO; CNX Resources Corporation
Nicholas J. DeIuliis; President, CEO & Director; CNX Resources Corporation
Ravi Srivastava; President of New Technologies; CNX Resources Corporation
Tyler Lewis; VP of IR; CNX Resources Corporation
Benjamin Zachary Parham; Research Analyst; JPMorgan Chase & Co, Research Division
Bertrand William Donnes; Associate; Truist Securities, Inc., Research Division
Brian Taylor Velie; Analyst; Capital One Securities, Inc., Research Division
Jacob Phillip Roberts; Associate of Exploration and Production Research; Tudor, Pickering, Holt & Co. Securities, LLC, Research Division
John Holliday Abbott; VP & Oil & Gas Equity Analyst; BofA Securities, Research Division
Leo Paul Mariani; MD; ROTH MKM Partners, LLC, Research Division
Michael Stephen Scialla; MD; Stephens Inc., Research Division
Nitin Kumar; MD & Senior Energy Equity Research Analyst; Mizuho Securities USA LLC, Research Division
Presentation
Operator
Good morning, and welcome to the CNX Resources Third Quarter 2023 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Tyler Lewis, Vice President of Investor Relations. Please go ahead.
Tyler Lewis
Thank you, and good morning to everybody. Welcome to CNX's Third Quarter Conference Call. We have in the room today 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.
Today, we will be discussing our third quarter results. This morning, we posted an updated slide presentation to our website. Also detailed third quarter earnings release data, such as quarterly E&P data, financial statements and non-GAAP reconciliations are posted to our website in a document titled 3Q 2023 Earnings Results and Supplemental Information of CNX Resources.
As a reminder, any forward-looking statements we make or comments about future expectations are subject to business risks, which we have laid out for you in our press release today as well as in our previous Securities and Exchange Commission filings. We will begin our call today with prepared remarks by Nick, followed by Alan and then we will open the call for Q&A, where Nav and Ravi will participate as well.
With that, let me turn the call over to you, Nick.
Nicholas J. DeIuliis
Thanks, Tyler. Good morning, everybody. Third quarter of 2023, it marks our 15th consecutive quarter of free cash flow generation despite experiencing what I would call extremely challenging in-basin pricing. And our continued execution of our long-term strategy, which started back in 2020, it's generated approximately $1.8 billion in free cash flow. It's reduced outstanding debt by approximately $385 million and it's allowed us to repurchase and retire 31% of our outstanding shares at deeply discounted prices.
And we remain on pace to exceed our original goals supported by our sustainable business model that has and will continue to generate significant long-term per share value for our owners. And all of that might sound like a broken record because we've been stringing out this theme for these metrics for a couple of years now, which is sort of the point. And that's the consistent execution and clinical capital allocation, those things drive the creation of meaningful per-share value over the long term.
During the quarter, our operations team, it continued to execute efficiently. In fact, the team has been successful in further improving cycle times and accelerating activity and Alan will go into some more of those details in a minute and how it impacts our full year production outlook and capital timing.
More specifically, one thing I'd like to highlight during the quarter is that we brought online 4 new wells beneath the Pittsburgh International Airport's runway. And these latest wells highlight our public-private partnership with the airport and we achieved this, by the way, with 0 safety incidents and 0 environmental impacts. These 4 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 4 years.
And this is on top of a similar amount of royalty revenue that the airport's already received from our partnership that was created back in 2013. So our historic partnership with the Pittsburgh International Airport, it's created a sustainable fuel hub, utilizing locally sourced lower cost, lower carbon intensity natural gas and it's a perfect example of our Appalachia First vision driving tangible results.
Let's shift now to the New Technologies group, very exciting part of our business and 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. 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.
The near-term New Tech free cash flow growth is through our ability to monetize environmental attributes tied to our waste methane abatement operations in Virginia and our New Tech effort is poised to lead the charge into the hydrogen economy with the Adams Fork Clean Ammonia Project, where we expect to provide ultra-low carbon intensity feedstock and carbon capture and sequestration services.
The DOE recently announced the funding of this project is part of the ARCH2 hydrogen hub application. And while we certainly applaud the funding announcement and inclusion of ARCH2 in the award, we're also eagerly awaiting implementation guidance regarding the related hydrogen production tax credit or the 45V provision of the IRA and that's going to materially impact the project economics.
So the intent of the hydrogen production provision of the IRA, of course, was to incentivize the creation of low-carbon intensity hydrogen and to reduce emissions and to enhance U.S. energy security and to create jobs and economic activity in energy communities. And I'll tell you the Adams Fork project squarely aligns with all those objectives. So we're monitoring developments with the 45V guidance closely and we're hopeful that D.C. will follow the intent of the law and help us make this important West Virginia project and others like it, frankly, a reality.
Also like to highlight that we reached our 2023 methane emission reduction target of 70,000 tons of carbon dioxide equivalent by the end of the third quarter this year, which was awesome. So that, of course, is a quarter ahead of schedule and our team is still hard at work with regard to making further adjustments and improvements to reduce emissions further. Great accomplishment by our regulatory reporting and operations teams. And by the end of this year, we expect the cumulative effect of our reduction efforts to have reduced methane emissions on a carbon dioxide equivalent tons basis by about 49% since 2020. So almost a 50% reduction in a very short period of time.
Our methane reduction goals for 2023 were focused mostly on pneumatic devices and liquids unloading. Those were the 2 biggest opportunity sets. And we invested $7 million of capital for specific projects and the teams got to work. Year-to-date, we've changed out over 700 pneumatic devices and they came in at a cost, the low cost actually a very sort of competitive one at $3 of CO2 equivalent per ton.
And we now plan to add an additional 160 or so devices to our plan for the rest of the year because we're ahead of schedule due to that fantastic pace that the team has set. And in addition, the team has been working on our liquids unloading processes, as I just mentioned, which also contributes significantly to our methane emission reduction of the 70,000 tons of CO2 equivalent. So we set a difficult but yet achievable targets, and we do what we say we're going to do. So we're not going to be in the game, you're not going to see this from us of setting goals that are decades away to sort of avoid accountability. Our focus is always going to be on the tangible and the impactful and the local type of actions.
Now last but certainly not least, we continue to have conviction that our shares are materially undervalued. During the quarter, we bought back an additional 1% of our shares outstanding. Our compound annual growth rate or CAGR for our share repurchase program over the past 3 years since the peak share count around third quarter of 2020 is approximately negative 11%.
And we think that's top tier across the capital markets and that it compares favorably to the classic best-in-class share re-purchasers like AutoZone as an example, where AutoZone's retired shares at about a minus 8% CAGR over a 25-year period. So we believe that our share repurchase program provides an opportunity to create incredible value for our long-term like-minded owners who are going to benefit as their per-share value continues to grow meaningfully over the coming years. Now let's hear from Alan.
Alan K. Shepard
Thanks, Nick, and good morning to everyone. As Nick mentioned, this quarter represents the 15th consecutive quarter of free cash flow generation through the execution of our sustainable business model and long-term strategic plan. In the quarter, we generated approximately $19 million of free cash flow despite the challenging price environment. Since we initially laid out our free cash flow plan in the first quarter of 2020, this brings our cumulative free cash flow to approximately $1.8 billion or around 50% of our current market cap.
Looking ahead, 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.
We continue to believe that our shares trade at a significant discount to their intrinsic value. And as such, during the quarter, bought back an additional 2.4 million or 1% of shares outstanding at an average price of $19.50 per share. And after the close of the quarter through October 12, we bought back an additional 1 million shares at an average price of $22.20. Since the third quarter of 2020, we have now bought back approximately 31% of our total shares outstanding at an average price of $15.58, an exceptional result, not just in our industry, but anywhere in the capital markets and we believe those results will only become more impressive as we are well-positioned to continue to take advantage of this opportunity moving forward.
Turning briefly to the balance sheet. Our significant maturity runway and robust hedge book continue to be key components that underpin our capital allocation flexibility. Given these 2 elements, combined with our low-cost position, we remain comfortable with our current leverage profile and have the luxury to remain opportunistic with respect to our debt management. Furthermore, we believe that the growth in the New Technologies group over the next few years will result in a lower leverage ratio even before considering potential further reductions in absolute debt.
Speaking of the New Technology group, it continues to deliver tangible results in both positive free cash flow and environmental impact. During the quarter, we recorded approximately $13 million in free cash flow, primarily associated with sales of environmental attributes from our waste methane capture activities, which brings our year-to-date free cash flow from New Tech to approximately $19 million. Further, as Nick mentioned, we continue to have good line of sight to the New Technologies group contributing approximately $75 million to $100 million in free cash flow in 2024. As we said last quarter, free cash flow from New Tech has the potential to be meaningfully higher in the years beyond 2024.
Let's now shift to the updated guidance outlook. Broadly speaking, we are reaffirming the 2023 and initial 2024 guidance that we updated last quarter. As Nick mentioned in his commentary, Nav and the operations team have done an outstanding job in compressing cycle times and accelerating our drilling and completion activity. The accelerated operational results, particularly on the completion side, have pulled the timing of capital into Q3 and accelerated online dates for our 2 most recent pads. As a result of our accelerated pace, we now have both -- we now expect both annual production and capital to trend towards the higher end of the ranges provided.
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. We will provide the full 2024 guidance with our next quarterly update.
To conclude, the sustainable business model that we have created is continuing to deliver value to our shareholders throughout the commodity cycle. Our focus for the remainder of 2023 will remain on safe and compliant execution to develop our extensive natural gas asset base, accelerating free cash flow growth from our New Technologies business, on consistent and clinical capital allocation to grow our long-term free cash flow per share and most importantly, as always, on ensuring all our decisions continue to reflect a long-term owner mindset.
With that, I'll turn it back over to Tyler for Q&A.
Tyler Lewis
Thanks, Alan. Operator, if you can please open the call for questions at this time.
Question and Answer Session
Operator
(Operator Instructions) The first question comes from Bert Donnes with Truist.
Bertrand William Donnes
On the New Tech front, would you say the $75 million to $100 million range is kind of the low-hanging fruit? I know you mentioned there's the potential for meaningfully higher free cash flow. Just want to understand if that next leg up requires government legislation or new partnerships or anything like that? Or if the $75 million to $100 million can stair step quickly to that meaningfully higher free cash flow?
Ravi Srivastava
Bert, this is Ravi. So the $75 million to $100 million that we guided to, we have a good line of sight on what we can accomplish next year. We're not making like government legislations and all those uncertainties into that guidance for next year. However, like depending on how some of these things come out, there's an opportunity to grow that beyond 2024. And as we talked about our Adams Fork Project, the CCS opportunities, low feedstock sale opportunities, all that stuff is contingent on how that project progresses. So all that stuff adds to that meaningful growth opportunities in '25 onwards, but next year, we have good line of sight on what we need to do to get to that $75 million to $100 million number.
Bertrand William Donnes
Okay. And then could you break out maybe where you've gotten so far that $75 million to $100 million between -- I think there's 3 buckets that you kind of -- you put that in and maybe the year-to-date range whether or not that is -- which bucket that falls into? And then just little small ones here, but does some of that have a macro pricing supply/demand baked into it, like if we saw a better environment for that, would that free cash flow range move? Or is the $75 million to $100 million more of a fixed outcome?
Alan K. Shepard
Yes. To your first question, that's primarily associated with the free cash flow as you're seeing generated being in the last 2 quarters, which is the environmental attributes. They make up the bulk of that expectation for next year. The range we've given there kind of includes some of the subjectivity to the pricing and those regulatory pathways that we already have line of sight on to Ravi's point, so.
Ravi Srivastava
Right. I think some of that $75 million to $100 million is contemplated on where we see where the market is today. Just like any -- if you're in tune with where some of these environmental attribute pricing and all that stuff is, there is some level of fluctuation volatility in it, but we think that $75 million to $100 million is still achievable.
Operator
The next question comes from Zach Parham with JPMorgan.
Benjamin Zachary Parham
Could you give us a little more color on the trajectory of the free cash flow from New Tech going forward? Do you expect another increase in 4Q? And does that get you to a '24 run rate? Or do you expect New Tech free cash flow to kind of continue to ramp through '24? And then maybe based on what you see now, assuming no more governmental regulations or anything that come in, is that $75 million to $100 million a good run rate for 2025?
Navneet Behl
Good question. What I would say is I think it will be easier. It's better to guide on some of these platform an annual basis. There is some seasonality aspects of it, but some quarter might be better, some quarters might be worse in terms of how it kind of pans out. So we're going to try to stick to an annual guidance on this until there's better clarity on how everything shakes out. There's a different pathways that we're pursuing, I think we'll have much better clarity on this in the coming days. But at this point in time, annual number is what we can best articulate. And again, like based on the pathway that's already created, the $75 million to $100 million on a annual basis is something that we have a good line of sight on. And the goal for the team would be to continue to grow that in '25 and beyond.
Benjamin Zachary Parham
Got it. I guess just one follow-up also on New Tech. You mentioned most of the free cash flow at this point is coming from the methane capture and the environmental attributes associated with that. I think most of that is coming from the butane and met coal mine. What's the future runway on capturing gas there? I guess, do those gas volumes decline over time? And maybe on the other side of that, are there still gas -- is there still gas volumes that are being invented that you could capture and potentially generate even more credits?
Ravi Srivastava
So I think that's where some of the -- when I talked about an annual guidance on some of these things. But those are some of the uncertainty factors on the mining space and some of that stuff that dictates what the volumes are. But I think there is -- as for the run rate for the mine, the mine has been operational for decades and it has running room for several more decades to go and we have captured infrastructure in place to continue to do that.
So for a part of the $75 million to $100 million is contingent on capturing that methane, and that having a certain mining pace that we have seen over the last several years. And there's opportunity to do more beyond that particular mine itself, but that's not contemplated in 2024.
Benjamin Zachary Parham
Got it. I guess just one clarification there. The gas that you're capturing now, we think about shale gas, shale gas declines over time, does the gas that you're capturing now, does it have a base decline rate? Is it pretty flat? Just trying to get a sense of the opportunities set there?
Ravi Srivastava
It's a different play altogether, so to speak. I think it's more a function of mining pace and how fast the mine is operating as opposed to the decline from the well itself.
Operator
The next question comes from Leo Mariani with ROTH MKM.
Leo Paul Mariani
Yes. Just a quick follow-up here on the New Tech business, so maybe just kind of looking at this a little different way. So we think about the $75 million to $100 million of New Tech free cash flow next year. Is that sort of contractually kind of underpinned for you folks? Are you selling these credits kind of on a long-term basis and maybe that volume and just sort of price is kind of locked in? Or is this maybe just more your own internal production of what you expect for next year?
Navneet Behl
Yes, it's more of a internal production of what we expect the pricing to be. There's a mix of long-term contracts in certain arenas and then there's certain other programs where the pricing and volume kind of fluctuates in some of the arena. It's a mixed bag of those kind of opportunities. But it's our $75 million to $100 million is based on where we see how the different opportunities kind of shake out.
Leo Paul Mariani
Okay. That's helpful. And then just on kind of the remainder of the year, I guess you guys are saying that CapEx and production are at the higher end here, as I'm looking at kind of year-to-date CapEx for the first 3 quarters and I look at this right that you've got about $100 million left to spend in 4Q, which is kind of roughly half of what third quarter levels are. So are you seeing just limited operational activity in the fourth quarter?
And similar question on the production, I mean I can get kind of the high-end of the guide, but I guess that assumes that production can even come down a little bit in 4Q versus 3Q? I just want to verify that I'm kind of looking at these numbers right that you would expect like CapEx to be kind cut in half in 4Q and maybe production tails off a little this quarter?
Alan K. Shepard
Yes, that's right. You're going to see a significant decline in CapEx in Q4. And what we talked about there during the commentary was the completions team has just been so efficient that we pulled basically 11 of the 13 remaining [tills] in the second half of the year came into Q3. That's also driving kind of the production bump. But if you think about it, basically, we got 1 rig running and we've kind of had to slow down to almost idle the 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.
Leo Paul Mariani
Okay. Now that's very helpful, guys. And then just on the production, just to follow up there. So if I look at third quarter production, I mean, it looks like it's around 570 Bcf annual run rate in 3Q, a little bit lower than your '24 guide of 580 Bcfe and I guess production is coming down slightly here in fourth quarter. What's the kind of plan? Is there a plan for early '24 where you make it up, but you're ramping up activity on January 1st to try to get those volumes up to that 580 B-level? Is that kind of the high-level operating plan here to kind of get back after it right when the year turns?
Alan K. Shepard
Yes. And so if you think about the operating plan as we mentioned, we have a continuous drilling program ongoing, right? And it's really just timing on the fracs. The frac is kind of the biggest spend on the D&C side. So right now we slowed down the completion activity because we're ahead of schedule. And next year, the 580 Bcfe is going to come and go for the year. I mean, we're not providing specific volume guidance quarter-by-quarter. But the way to think about it now is we've mentioned before, we're trying to get to kind of this 1.59, 1.6 run rate. That's where we're at, and that's where you should roughly expect to see volumes through next year.
Operator
The next question comes from Michael Scialla with Stephens.
Michael Stephen Scialla
Yes. Just to add another one on the New Tech. I'm just trying to understand the revenue generation there. Most of the revenues are, I guess, maybe all the revenues would be -- are they generated with the alternative energy credits associated with the power plant? Or is there any other credits that you are able to generate by abating the methane?
Ravi Srivastava
So this is Ravi. The EA opportunity that we're pursuing, they're a combination of voluntary and compliance offsets, compliance utility programs and the AEPs. So there's more to that. And then we expect to add forestry carbon credits and wetland mitigation -- a lot of other EAs to it. So there's -- it's not just coming from one source. We have like pathways into multiple opportunities.
Michael Stephen Scialla
Okay. Got it. And are you sharing any of those credits with anybody else? Or is it solely CNX that is getting those credits at this point?
Ravi Srivastava
I mean, those credits are monetized. I'm not -- we're not consuming them ourselves. I don't understand the question.
Michael Stephen Scialla
Sorry, I'm wondering if you are -- you're the only one abating methane at a mine.
Ravi Srivastava
Right.
Michael Stephen Scialla
So yes, you generate the credits. I mean you can monetize them with another party, but you're the only one that is abating methane at the plant.
Ravi Srivastava
Right. If you're asking who the -- like there's only one working interest partner in the projects, it's us.
Michael Stephen Scialla
Got it. Got it. Very good. It looks like you've sold some production -- sold some assets. I assume there was some production associated with that. Can you say what that was for the $19 million that you generated in asset sales for the quarter?
Alan K. Shepard
The bulk of that is selling spare parts. So again, we read to you guys, we have a deep inventory of leases throughout Appalachia. And we're to the point now where folks come to us for a lot of unit fill in. So we're able to monetize some of these noncore assets acreage at very attractive prices and we saw an upsurge of that in Q3. So it wasn't production-related. We did have the second part of the close on our asset sale for the non-ops here we did, but that was about $3 million in the $19 million. The bulk of that is just from selling from our deep inventory of leases.
Michael Stephen Scialla
That's good. Okay. And just last one for me. I wondered any insight on what you think well costs might look like for '24 relative to where they were this year?
Alan K. Shepard
Yes. I think if you're asking about sort of oilfield services inflation, things like that, we're modeling everything to be pretty flat. We expect with Nav's teams going to -- we'll see some operational efficiencies to improve costs, but we're not modeling or thinking about any sort of major downdraft in oilfield service costs for next year.
Operator
The next question comes from Jacob Roberts with TPH.
Jacob Phillip Roberts
Just a fact of Buchanan power facility. I'm curious if you could let us know how to think about the uptime of that plant or the run time that plant relative to power pricing in the region?
Alan K. Shepard
I mean it's a peaker plant, right, it runs as called upon the PJM, so.
Jacob Phillip Roberts
Okay. But no guardrails in terms of what PJM pricing is and when that is on or off?
Alan K. Shepard
No, it's all dictated by Spark economics, right? Like with the power prices relative to flowing gas to the plant to turn it on. So that's just a traditional peaker plant, yes, nothing unique about it.
Jacob Phillip Roberts
And then relative to that feed gas, is CNX the sole supplier of gas to the plant and then longer term, were the plant to increase utilization, can CNX provide that supply in totality?
Ravi Srivastava
CNX is the sole supplier of gas to that facility at this point in time.
Alan K. Shepard
There's volumes produced in that field beyond what that plant consumes.
Operator
The next question comes from John Abbott with Bank of America.
John Holliday Abbott
So with the New Technology business and the free cash flow guide that you provided here, I mean, how do you think about the potential impact to your credit rating going forward?
Alan K. Shepard
Yes. So we've had those discussions yet. It's not being incorporated. I think that probably credit guys usually wait for some more quarters on our belt before they give us credit for it. I think the one thing we did want to point out was that it will create some natural deleveraging even before considering reductions in absolute debt.
John Holliday Abbott
Very, very helpful. And then also, again, with the free cash flow outlook that you provided there, I mean, it doesn't seem like there's any incremental CapEx spend on there. Is there incremental CapEx that we should be thinking about related to New Technology guide as it relates to co-pay methane abatement in 2024 and 2025?
Navneet Behl
Yes. On '24, '25, we do expect to spend some capital on the New Tech group front, but not necessarily on the coal mine methane abatement side of things.
John Holliday Abbott
All right. And I guess we'll get further clarity on that probably at year-end results here. But any idea in terms of what -- how we should think about other capital for 2024?
Alan K. Shepard
Yes. I mean we'll provide the full guidance breakout when we get to Q1 -- or sorry, January of 2024. But you should expect to see everything kind of decline from this year as we make our way towards that $500 million a year.
Operator
The next question comes from Brian Velie with Capital One Securities.
Brian Taylor Velie
Really appreciate all the detail on New Tech. I have a couple of other questions that maybe you'd be able to answer and help me out a little bit. Just wondering if you could help me understand how much methane do you capture to earn one of the credits like a single credit?
Ravi Srivastava
I'm not sure how to answer that question. But I think what I can tell you is and we've provided details in our CSR and our quarterly updates on -- we're capturing around 6 million tons CO2e of methane and different programs have different ways of monetizing that. So that's why it's difficult to answer specifically what your question was.
Brian Taylor Velie
Okay. I understand. So it sounds like just different conversion rates depending on the program. And then I guess I -- probably answers the next question I was going to ask was what was the credit price that you could sell these credits at that was assumed in the $75 million to $100 million budget -- or I'm sorry, free cash flow range for next year, but I assume that those price assumptions vary also by program.
Ravi Srivastava
That's correct.
Brian Taylor Velie
Okay. One last question --
Alan K. Shepard
That's why we gave the range and that's kind of the current market.
Brian Taylor Velie
I'm sorry, say that one more time. Apologies.
Alan K. Shepard
That's why we provided the range and then the expected range is based on kind of the current market. Yes.
Brian Taylor Velie
Perfect. And then last question. This is pretty -- well, very interesting stuff. I don't know anybody else that's talking about this in the E&P space. I assume maybe the way you're able to do this is your past experience in the coal industry and relationships that you have there. Is that a unique strategic advantage that you expect really only you will be able to exploit? Or is that something you expect other people to kind of follow on and start doing similar things?
Ravi Srivastava
I think it's a combination of both. I think there's other people who can do this, but we have developed some technology around capturing waste methane most effectively like there's some skill that goes into it and we think we have the upper hand there.
Operator
The next question comes from Nitin Kumar with Mizuho.
Nitin Kumar
Obviously a lot of interest in the New Tech and delivered lease. So I guess my question is, are the current free cash flows, are they only from Pennsylvania credits? Or are you getting anything from other states? And is it all kind of current time? Or are you monetizing any crude credits from your past activities?
Ravi Srivastava
So I think I already answered this question where not all the revenue is coming from Pennsylvania program that you mentioned. And on the accrual side of things, I think most of these programs where they have a time line on how much you can accrue. So there is -- it's not from previously accrued, it's whatever is permitted by the program.
Alan K. Shepard
Generally concurrence the way to think about it.
Ravi Srivastava
Yes.
Nitin Kumar
Okay. That's helpful. And then I guess going back to the regular gas side of things. My question was really around -- it seems like you're dropping a little activity. I know you pulled some CapEx in the third quarter. Not looking for formal guidance, but there is a pretty significant step-up in production in 2024 based on the outlook that you've provided. So I'm just curious, is this -- is there any sort of cadence of activity that you expect for '24? Is it going to be front half weighted or back half weighted? Just looking at strip and trying to understand how you're planning for the year in terms of timing.
Alan K. Shepard
Yes. I mean, [Mike] has mentioned earlier, there's nothing in particular worth highlighting growing like the quarter-to-quarter cadence. The way to think about it is that we doing 580 Bcfe and we targeted this sort of run rate we're at, so it should just fluctuate around that a little bit. And this year, we had a lot of capital to build up from, call it, the 555 Bcfe to the 580 Bcfe next year. So once we're back to that maintenance production of 580 Bcfe, that's going to be the driver of the capital declining, right?
Nitin Kumar
I'm going to sneak one more in, I'm sorry. But for some of those who have followed you for a while, you're coming -- I think you've highlighted in the fourth year of your maintenance production plan. This is concentrated (inaudible) specific area. When do you start -- expect to start unlocking the other inventory in your portfolio and start spending some of the midstream CapEx that was associated with that?
Alan K. Shepard
Yes. We're still a few years out from unlock anything. We still have a nice chunk of Southwest PA to develop. I think you can see in the program, we are placing in kind of a CPA Utica well here and there. And as those results become available, we'll highlight those in the materials moving forward. But we're still a few years out from needing any sort of major infrastructure investment in a new area.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks.
Tyler Lewis
Great. Thank you, everyone, for joining this morning and thank you for your interest in CNX. Please feel free to reach out if anyone might have any additional questions. Thanks.
Operator
Thank you. The conference has now concluded. You may now disconnect.
