Q4 2023 CNX Resources Corp Earnings Call
Presentation
Operator
Good morning and welcome to the CNX Resources Fourth Quarter 2023 Q&A conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question. You may press star, then one on your telephone keypad. To withdraw your question, please press star then two. 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.
Thank you and good morning, everybody. Welcome to CNX's fourth quarter Q&A conference call. Today we will be answering questions related to our fourth quarter and full year results. This morning, we posted to our Investor Relations website, an updated slide presentation and detailed fourth quarter earnings release data such as quarterly E&P data financial statements and non-GAAP reconciliations which can be found in a document titled 4Q 2023 earnings results and supplemental information of CNX Resources also.
And as previously announced, we posted to our Investor Relations website our prepared remarks for the quarter. This is a new format, better streamline the earnings process and dissemination of information. So we hope that everyone had a chance to read the prepared remarks before the call, the call today will be used exclusively for Q&A. With me today for Q&A are Nick DeIuliis, our President and CEO, Alan Shepherd, our Chief Financial Officer, David Beal, our Chief Operating Officer, and Ravi for vice 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 and 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 and 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 up for Q&A at this time?
Question and Answer Session
Operator
Thank you. We will now begin the question and answer session to ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Bertrand on us with Truist. Please go ahead.
A good morning, guys. I just wanted to start off on the new tech free cash flow guidance. Maybe could you talk about specifically what's changed over the past three months to kind of impact your outlook? And then I suspect despite pricing, but And secondly, is it a matter of IRRs with you when you discussed in your prepared remarks about the incentive for new expansion. Is it is it IRR is not meeting some sort of internal threshold? Or is it maybe that the projects have actually flip to a negative free cash flow territory.
Hey, Brian, this is Ravi. On the on though the new type of cash flow side of things, you're right by the way what's going to impact the cash flows when you take those two things, the volume that qualifies for different programs. And I think the team's done a great job of maximizing what those volumes can be. We have provided a guidance of about 15 to 18 Bcf that qualifies for these various programs. And we were focused on getting all that volume kind of turned in line. So that's that's happened there. We're pretty excited about that part of it.
And the second thing that that impacts what the free cash flow is going to be is what the pricing is. And we have seen some softening of pricing specifically in the APS market for the Tier one rigs, and that's driven the cash flows down. But but there's some seasonality. There is some volatility that kind of comes in into that. What the pricing that we were seeing in Q3, Q4 of last year, there's no reason why we could not go back to those types of pricing later in the year. But what we're trying to do is providing guidance based on the information that we have available at this point in time. And that's that's where that market stand at this point in time.
And on the on the future investment standpoint, that's correct. I think we have a portfolio of opportunities that we can invest our capital into. And we do have opportunity to go and capture more gas. But at this point in time with incentive structure that's available through the programs that we have access to at this point in time. And we're limited in terms of how much more capital we could invest to capture this more base metals.
That makes sense. And then just shifting gears a little bit, but it looks like that does the footnote on full year 2024 for cash unit costs, it ticks up a little bit versus the 4Q 23 disclosure. Is there any color on which bucket is maybe going up? And does that reverse if you know, you ramp up your production?
So the way to think about those quarterly quarterly quarter-to-quarter kind of unit cost numbers, they fluctuate based on kind of the production volumes for the quarter and essential maintenance projects. That slide around between quarters. The way to think about it as always, to look to the sort of annual guidance that we provide, you'll see that that's kind of it where you should think about modeling that on an annual basis because there's noise quarter-to-quarter.
Okay. So there's nothing specifically going up that we have a contract or LOI at.
I have no.
Thank you.
Operator
Next question comes from Zach Param with JPMorgan. Please go ahead.
Yes, thanks for taking my questions. I guess, first, another one on new tech. In December, you announced you're no longer partnering with the Adams for project, which is one of the potential grabber drivers of future new tech free cash flow growth. Can you talk a little bit about the drivers that you expect to you've talked about growing new tech from here, maybe what drives that higher than the $75 million in 2024 as we go out to 2025 and future years exact.
That's a great question. So the way I would look at new tech free cash flow growth, you could you could put them into three different buckets. One is the environment and annual bid opportunities. We talked about the volume that qualifies for some of these opportunities being 580 Bcf. So we can we can grow that volume for that volume to grow, there's better incentive that needs to be available for. So we're we're looking for other opportunities like other incentive programs where are other pathways that can be created where the realization for these environmental attributes can be we can realize more value for diesel. So we're looking at a portfolio of opportunities on that front. So if that happens, not only the realizations go up, there is opportunity to add more volume to that. So that's one pathway to grow new tech free cash flows.
The second part of it that we have that we have talked about in the past is we have a technology portfolio that we're trying to look to create value out of. And I think '24 is going to be the year where we've been in the prototype and testing phase for a lot of stuff. But I think this year we start to see that those opportunities start to take commercial scale. So we're excited about those. I think more to come on that front in the coming quarters. We're very excited with the progress that we've seen on that front. And then the third part is alternate fuel opportunity where our hydrogen projects for getting into CNG LNG market opportunity creates opportunity for new tech to grow its cash flows and again, I think it dovetails with the technology of IP opportunity that we have. It creates CNG and LNG opportunities for us. So more to come on that front, but we're pretty excited about what we have in our portfolio. And those of those three different buckets combined is what's going to drive new tech cash flows in the coming years.
Thanks, Robbie, of my follow up on the E & P business, 11 of your 35 planned turn-in-lines in 2024 will be in the Central PA area versus the Southwest PA area. Which is up a bit from 2023. Can you just talk a little bit about what your future development it will look like? Will we see more activity shift the Central PA versus Southwest PA over time?
Yes. I think as we've talked about historically, we're very focused on continuing to develop that Southwest PA asset. That's where the bulk of our infrastructure is currently. And right now, we we assess those opportunities on a on a NPV kind of total IRR basis. We did drill some CPA Utica as well. They wells this year, and we've talked about those and we expect those to come online next year, and that's some of the tills you're talking about. But overall, the next few years of mix should look pretty consistent on that you've seen historically. But in the longer term you will see us migrate up towards CPA towards the latter part of the decade.
Great. Thanks for the color, guys.
Operator
Your next question comes from Leo Mariani with ROC MKM. Please go ahead.
Yes. I just wanted to follow up a little bit on kind of production trajectory here. In 2024. I know you guys only had kind of two tales that in the fourth quarter. So just generally speaking, should we expect kind of production to dip a little bit here in the second quarter and then kind of start kind of moving up as we get to the middle of the year to hit that guidance range. And I know that previously last, you kind of had a point estimate on guidance and in this year you got a little bit of a range. So maybe just provide any kind of color around that would be helpful.
Yes, you'll see kind of similar to what you saw last year. Q1 are probably the low number for our volumes and that'll build throughout the year and we should end the year at the highest kind of quarterly run rate. But on average, you know, we as we talked about, we're trying to maintain kind of a flat production profile on an annual basis, about 500 entities.
Got it. Okay. That's helpful. And then could you just talk a little bit more about how you get from 2024 capital to 2025 capital. So you've got roughly $600 million this year, and it's expected to kind of step down to closer to $500 million next year. Can you maybe just kind of talk us through a little bit what the kind of delta there is?
Yes. What you're seeing there is what we've kind of set out to achieve or to hold production flat and focus on capital efficiency. And when you do hold production flat, you end up needing to turn-in-line fewer and fewer wells each year. So the 25 plan is going to you should expect to see fewer tails and with that comes lower capital, right, particularly on the completion side. So that's really the big driver there we're not modeling any sort of cost reductions or anything of that truly an activity base reduction?
John, it's I mean, I'm assuming a lot of this is probably just a function of lower decline rates as you continue to hold production flat or it's just taking fewer wells? And is there also any kind of component that you're seeing where perhaps the wells have improved at all. I'm just trying to get a sense of I know it's a pretty big step down or going from $600 million to $500 million, call it 17% to 18% less capital as a really nice change and efficiency was just wanted to see if there's any kind of well improvement on performance component here.
Yes, I wouldn't I would describe as well improvement performance. I mean, we will have the CPA Utica wells in that blend next year, and we expect those to be very robust like we saw in three or prior years. So really it's just the to maintain 580, you hit it, the production declines are lower. The capital intensity on the infrastructure side is lower and you end up with lower completion activity. So that's right where we want to be.
Okay.
I always think you've got to grow production in this basin.
Yes, that makes sense. Thank you.
Operator
Next question comes from Michael Scialla with Stephens. Please go ahead.
Yes, good morning, everybody. Or maybe just follow-up on Leo's question there, too. Just curious what that step down to $500 million was there anything built in a CapEx wise for the adidas fourth project in that timeframe? Or was that further out now?
That was further.
Okay. And then your production guidance for this year, looks like you're implying some mid single digit growth year over year policy. How you see the in-basin fundamentals playing out this year and any concern about potential bottlenecks on storage or export capacity now, I mean, it's all going to be weather-dependent.
I think up your peers have been pretty consistent in staying flat. So we'd expect the supply side to remain steady and it's going to be a demand function. You know, we'll see how kind of we get through the winter here the rest of February, March, and we'll have a better view on that, but we're protected in any scenario and with our hedge book, so we're ready to go for whatever 24 brings.
Can I jump in though, if I could ask one more for this year's non-drilling CapEx, the $145 million to $175 million you talked about. Can you give any rough split on the land midstream and new tech breakout there?
Yes, the new tax in a separate bucket within that discretionary line, and that's pretty de minimus in that $5 million to $10 million range. But that also includes all of our efforts on ESG reductions. So there's two kind of things in that bucket on the land side, around the $30 million sort of range and the rest is split between water infrastructure, midstream infrastructure that kind of keeps up with the field development.
Great. Appreciate it.
Operator
Again, if you have a question, please press star then one. The next question comes from Jacob Roberts with GPDH. Please go ahead.
Morning. I'm wondering if we could we were wondering if you're able to give any insight into the split of the $75 million the new tag in terms of perhaps credits versus private party transactions? And then is there any expectation given the volatility of those markets in terms of how they'll be monetized on a quarterly basis.
So we've said in our prepared commentary that the sources for the cash flow for Intec is coming from the APS market. There's some of the compliance markets that were part of Vanda, are there some voluntary transactions that you've taken?
So at this point in time where we're making some dynamic decisions on where the opportunity is and where to directors those attributes to. So it's difficult to provide the split on an ongoing basis. But but I what I would say is that of the some of the other transactions on the on the voluntary side and all that stuff, they're all driven by what the other opportunity cost are. So the APS. program is probably a good driver for what the realization would be for some of the stuff. And then the variabilities count is going to come from the volume and what's happening in that market for pricing at APS.
Okay. I appreciate that. And then my second question is at a high level. How are you guys thinking about balancing uses of FCF in the coming years? Between shareholder returns, which have been on a solid pace, potential debt reduction or even maybe how you plan to handle those maturities in the 26, 27 time frame?
Yes. So we've been pretty consistent and kind of message to the market and the longer term, we are looking to de-lever that's going to occur through kind of absolute debt reduction as well as kind of growth in gas pricing and the new tech revenue side, we're well positioned right now with where the balance sheet fit and where the hedge book sits and to have the luxury to basically deploy close to 100% of free cash flow to shareholder returns. It's a on kind of a quarter-by-quarter decision, though, to continue that pace may we always talk about following the math, and that's what we do right now. We still see a lot of opportunity in the undervalued shares to continue where we’re at.
great appreciate the time.
Operator
Our next question comes from John Abbott with Bank of America. Please go ahead.
Fairly. Good morning, Robbie, my question's for you. You talked about those three different opportunities to grow free cash flow on the new technology side, you've talked about these commercial opportunities and bucket. Number two. Can you provide any more color on what those are approximately what do you're looking at there or do we have to wait and see of that?
Look, what I could say is that we have developed a portfolio of IP around opportunities that help reduce costs on the on the on the oil and gas flowback completion side of things and reduces emissions on that side of things. It's very exciting and more to come on that front. I think it's been into this prototype phase, and we've been doing a lot of testing on that. But I think we're at a point where it starts to pick some commercial scale. So stay tune in next couple of quarters, we'll have much better idea of how that shapes out in the industry, new tech free cash flow in the coming years.
Appreciate. And then my other one is just sort of a quick follow-up. Just since you gave your seven year plan for a while back now, any thoughts about when you may update your longer term guidance?
Yes. I mean, right now, we've been extremely successful in that plan and we're at 33% of the share repurchases still got three years left to go on that plan. And we know when there's a material change to kind of the strategy that we've laid out, that's the appropriate time to update it right. Now there's nothing that I could point to that has planned to do so.
All right. Thank you very much.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks.
Great. Thank you again for joining us this morning. Please feel free to reach out if anyone has any additional questions otherwise, we will look forward to speaking with everyone again next quarter. Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
