Good day, and welcome to the CNX Resources First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I’d now like to turn the conference over to Mr. Tyler Lewis. Mr. Lewis, please go ahead.

Thank you, and good morning, everybody. Welcome to CNX's first quarter conference call. We have in the room today Nick DeIuliis, our President and CEO; Don Rush, our Chief Financial Officer; Chad Griffith, our Chief Operating Officer; and Olayemi Akinkugbe, our Chief Excellence Officer. Today, we will be discussing our fourth quarter results. This morning we posted an updated slide presentation to our website. Also detailed first 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 1Q 2022 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 and then we will open the call up for Q&A where Don, Chad and Olayemi will participate as well. With that, let me turn the call over to you, Nick.

Thanks, Tyler. Hi everybody. I'm going to handle the commentary today as Tyler just said, I'm going to break it into two parts. First, let's have a review of our results for the first quarter and talk about some updated guidance looking forward and then I'll wrap with a couple of comments and maybe observations is actually a better term about our industry, the nation and the world today. But starting first with our quarter, and our outlook into the future. CNX yet again, fortunately, repetitive music sounds great for ownership. That's because like the string of recent quarters, the past few years, we had yet another clean and easy to understand quarter, I'm going to review the quarter by running down the key components of the CNX sustainable business model or the SBM as we refer to it. And you can read more about our sustainable business model in our proxy, and our soon to be released corporate responsibility report, I encourage you, of course to do so. The sustainable business model, it starts with having a compelling why. What motivates us to do we do. CNX and our employees, we bring quality of life and security to society. Without us everything stops and realization of our purpose or that why, it's grown tremendously the past year. And the world sees what happens if things like domestic natural gas is taken for granted or worse yet, if it's marginalized. And I’ll have more to say on this in a couple of minutes when we get to those observations that I spoke about. The next step of that sustainable business model is building a non-replicable and a resilient, competitively advantaged business to deliver on that why. And in the first quarter, we delivered another quarter of smooth, safe and compliant…

Thanks, Nick. Operator, if you can please open the call for Q&A at this time.

We will now begin the question-and-answer session. Our first question comes from Michael Scialla with Stifel.

Good morning, everybody. Nick, I appreciate those observations on the industry. I guess, are there any particular things you'd be looking for in terms of policy change that would cause you to rethink the strategy of essentially no growth? And maybe, if you could extrapolate that to Appalachia as well. When do you think, if say, tomorrow the Administration started to move in the direction you think it should, is there any sense on what the timeframe for when Appalachia or CNX in particular, could go back to a growth mode?

From an industry perspective, it's a great question. The most immediate issue is the policies with respect to what they're doing that deters investment with more of the infrastructure, transportation infrastructure, to basically as I said, to collaborate move supply to logical demand centers and settle that out in a way where it basically allows producers to figure out what those rate of returns will be and make capital investment decisions that will span decades. That's probably the biggest impact right now, with respect to basin-wide or industry-wide supply responses, they basically need the plumbing to be able to move the supply of the widgets to the demand centers, whether they're global, regional or local. And the biggest, I think exemplar of that are pipes in Appalachia, we've also got some oil pipe examples as well at Keystone. And I think those two immediate examples front and center would be great proxies to figure out how serious entities are about reversing sort of analyzing policies to get some of this infrastructure built.

Got it. I guess now with the stock over 20, you've talked a lot and in every call you've been asked about your philosophy on returning capital shareholders and your choice have been primarily buybacks, and I guess, complemented by debt reduction. With the stock over 20 now, has that philosophy changed at all to where you would slow down on the buybacks or consider a dividend? Are you still thinking buyback’s the best form of return capital for you at this point?

To your point, right, stock price is one of those important metrics and variables when we're calculating the best per share value creation avenues. The philosophy doesn't change, the equations don't change, just some of the variables. And when you update share price, gas forward strips, the free cash flows that basically would be produced from that under our activity set that we've laid out, then you look at things like free cash flow yields, and free cash flow per share, what those risk adjusted returns are. I think, at this stage, we are still comfortable following that math, that share repurchases are the best avenue for shareholder returns. That can change to your point over time. We're not adversed or against dividends philosophically, but we think again, looking at the math and the risk adjusted returns, clearly the best path continues to be share repurchases versus dividends.

Our next question comes from Leo Mariani with KeyBanc.

Wanted to delve a little bit more into one of those -- really, that first question. So I know historically, CNX has spoken over time that the multi year plan was to stay in maintenance mode until there was really a shift upwards in the natural gas futures curve. Clearly, we're at the point in time where the entire gas curve, as you look out a handful years has shifted higher. Could that potentially pave the way for a little bit of growth in 2023? Or do you think that there's just too many kind of infrastructure and policy challenges to even make that a possibility at this point?

This is Chad, I'll take a shot at that. So I guess first, I want to make sure it's clear that we could grow, right. And I think we've demonstrated that by growing roughly 20% -- our production by about 20% since 2020. But that's not necessarily the only variable we're solving for, right. And certainly the changes in commodity prices it changes the variables that are going into that optimization problem. But there are many other variables that are in the optimization problem. And when we solve that, it's continuing to the result that it spits out, continues to point us in the direction of sticking to the plan that we've articulated over the last several quarters, frankly, the last couple of years at this point. And we’d love to plan around it, and there's a number of reasons why we love that plan. It provides a predictability and a line of sight on future operations. It provides our teams ample time to prepare and conduct quality control. The steady work provides continuity of crews and equipment. And that minimizes the impact that our plan has -- the impact on our plan of a lot of the labor and equipment call it, issues that some of the peers and other industries are experiencing. And I think the big third factor is like Nick has already pointed out, there's only a certain amount of capacity and only a certain amount of local demand to consume the gas that's produced right here in Appalachia. When either global demand begins to increase, or the ability to export more molecule at Appalachia begins to increase, we're right here ready and prepared to be able to increase our production along with it.

The only thing I'll add on top of that, Chad, is we look at this on a per share basis production, just like we would free cash flow. So if you look, 5% reduction in our share count in Q1 equates to 5% growth in our production per share. So as Chad mentioned, there's two types of growth in our mind, there's one sustainable consistent growth year after year for decade, with that you need line of sight of gas demand being allowed to do what it could do. And in the meantime, volatility is going to be the name of the game. So there's going to be price swings up and down that are largely completely unpredictable, because of the call it, the fragileness of the supply demand balance and the inventory kind of situation that we have. So we'll try to optimize and kind of grow here in the edges and the fringes year by year, like hand to hand combat decisions. And if there's line of sight to be able to do continuously over long periods of time, it needs -- you need to see line of sight on consistent demand growth to kind of take that approach.

And then I guess, just wanted to follow-up on one of the comments that Nick made. I think I'd heard correctly that you all said you're kind of maybe pointing towards the high end of CapEx in production guide, in 2022. Maybe if you could provide just a little bit more on that. Just I would assume maybe that the activity set hasn't changed in terms of the plan but perhaps the wells are continuing to come in strong, which is why the production would be towards the upper end and maybe inflation is also pointing to kind of the higher end of CapEx. So I'm just looking for a little bit more color on that. And then just anything you had on like cadence of a capital spend or turn in lines for the year, I saw that there weren't any turn in lines in the first quarter. Do you have more of a second quarter and third quarter waited kind of turn in line program and spends just anything you can come tell us would be helpful?

Yes, so I'll start and I’ve kind of said it before like the tail cadence quarter-to-quarter and stuff like that, and it's not something I pay much attention to. Just getting these pads online and the rate of returns are phenomenal. So really, mostly what's happening is Chad and his team keeps getting better in the efficiencies and line of sight we have we’ve been able to go faster, you end up -- like that's been most of our growth. If you look at the growth, he talked about before, it's just our factories moving faster now. So if you if you get through one pad faster, the next pad starts sooner then vice versa. So that's -- Chad calls it the accordion, but we have the ability to kind of move -- if we're moving quicker, you can kind of get on the next one faster now that it has like the ripple effect that is putting us towards the end that Nick talked about here. And as Nick said, it's a good thing for the shareholders, for the nation, for everybody to kind of get some more gas out of the ground here this year.

And maybe just a little bit more color on capital cadence and production cadence. If you look at the numbers we've -- if you look at the current guidance and the midpoint of our current guidance, divide that by four, basically exactly where we're at on Q1 production and Q1 CapEx plus or minus maybe 1%. I think that just illustrates how consistent our plan is becoming. And it's just, there is chunkiness, the pads are large, when you bring a new pad on, it does bring a surge in production. But over time, over multiple quarters and multiple years, I mean, we're really solving for a very consistent, right, predictable, derisked sustainable business model. And so I mean, it's going to be chunky, it's almost impossible to like Don said, there's a bit of bracketed quarter to quarter, or even year to year sometimes depending on exactly when these pads come online, but we really are solving for a very consistent, for steady state execution plan.

I just wanted to also ask on cash taxes. Just noticed that in 2021, you all did not pay really anything on the cash tax or current tax line, but saw you paid about $8.6 million in the first quarter of '22. And I wanted just to get a sense, if that's more of a one off, or do you think you're going to start to have to pay state or federal cash taxes more material this year or next?

Yeah, so whatever we, I guess, as you recall, or maybe recall, we laid out our initial seven year plan back in 2020. We kind of got it to the $3 plus billion cash flows at the time and kind of talked about being material cash taxpayers, like after that. So, fast forward, prices have gotten up, we've mentioned in 2021 that, “Hey, that that might be a little bit sooner since you’re making some more money.” So generally, rule of thumb it's almost like once we were across that 3 plus billion threshold, that's when you could be in a zone where you can be a material cash taxpayer on and obviously, it depends on what you do with the free cash flow between now and then as well. But that's, you'll see some here and there which is alignments of the NOLs on the federal level and the state level and the ADCs and how we balance all those. So we're solving for kind of minimizing and across the longer timeframe, so you'll see some noise. But until we get past that, that rule of thumb I just gave, you won't see anything material.

Our next question comes from Neal Dingmann of Truist.

I just want to talk about cadence a bit.

Neal, are you there?

Mr. Dingmann, your line is live and open.

Go to the next one, please.

Next question comes from Noel Parks of Tuohy Brothers.

I was interested to hear your comments about essentially steering clear of the debt capital markets for the longer term. And I was curious, do you or do you not sort of see us with maybe two different windows ahead where especially now with everything looking positive for Nat gas fundamentals, it's more like the old days where demand is rising. We're seeing it in the strip against a backup of tight supply. So it seems to be a time especially since interest rates have gone up where they ultimately could, where it's not necessarily the worst time to be financing with debt. And in contrast to when we get to that point when you know we're honest of the declining demand trajectory for gas when you know alternatives become cheaper and take up more of the energy pie.

I think your description is accurate if you're looking at just the math on a spreadsheet. Like, the objective analysis is accurately represented with what you just said. But we're in a world right now where when it comes to capital markets, the objective data are not reigning supreme. And our fear, our concern is that we'll continue to have less and less prominence with respect to rates, access to capital, costs up, et cetera. So that's why from our perspective, as a low cost producer, and a free cash flow generator coupled with a balance sheet metrics, we've got to say, when I'm talking balance sheet metrics, it’s not just absolute debt or leverage ratio, I'm also talking about maturity schedule, liquidity, those types of things. We've achieved a position where we basically take free cash flow generation, and when we're looking at the opportunity to allocate between debt and shareholder returns, we can have very, very healthy levels of shareholder returns and also manage our debt in a way where we never would need to access the debt markets and the capital markets. So that is the call it, the ideology does reign supreme over the data, the metrics, the facts. We're in a position where basically that sustainable business model is self funding. That's a great place to be. I hope that your description does end up being the situation that the entire industry finds itself in moving forward, because that would not just be good for the industry that we care about, it would be good for the nation, and frankly, the global economy. But there are troubling signs as we said, that we've seen from a whole bunch of different entities and regulatory authorities that are sort of blinking to us that access or cost of capital when it comes to debt markets is going to be incrementally more difficult moving forward.

I was also wondering with the Ukraine and Russia situation, and just the shock that's causing your commodity markets. To my mind, it sort of muddied the picture as far as where the industry is headed as far as seasonality and consumption. And I just wonder, kind of now with the benefit of hindsight, do you have any sense about what we learned about whether -- about how much or how little heating season, domestic seasonal factors are going to play in pricing going forward?

So I think the question boils down to how much does export sort of adjust or affect seasonality of domestic natural gas prices. And so when you look at exports as a function of total annual consumption, you're looking at roughly 10% to 15% of U.S. production is subject to that export market. So it has maybe on the margin, reduce that seasonality a bit, but it's still wildly, wildly subject to the fluctuations in our weather and whether wet weather shows up. And a lot of the seasonality is ultimately driven by how much storage is available. So over the last several years as the consumption of natural gas has grown by roughly 80%, there's still the same amount of storage and the same amount of infrastructure available to move the gas around in different periods of the years as the demand locations change that there was when half as much natural gas was being used. So LNG is certainly maybe on the margin sort of affected it, but the reality is fundamentally across this nation, we lacked the storage and the infrastructure to be at a moderate out the seasonality caused by winter weather.

Great. Thanks a lot.

Next question comes from Neal Dingmann.

Sorry about that, guys. Just try this again. I was just asking on cadence, it looks like to me your plan appears to be pretty steady just on a go forward basis, I mean, even second half versus first half. So I'm just wondering if maybe, Chad, you or Don or Nick could comment on that.

I think that's fairly accurate. And I don't think we have to, I don't think we have any more detail beyond that to give.

Okay. And then just maybe, Don, for you on the market mix, my second would be just on the kind of on a go forward. Do you anticipate much change there? What I'm getting at is TETCO M2? Will that continue to be the largest route followed by sort of the TCO Pool or do we anticipate on the marketing side, any sort of changes coming there?

So this is Chad, so we really don't expect to see any changes in our market mix over time. I mean, on the margin, the marketing team is constantly looking for short-term opportunities to move gas to different markets to different receive points that gives access to different pipelines, whether may be changing demand for natural gas. And they're optimizing it on a daily basis, monthly basis, weekly basis, and they're doing a phenomenal job down there. On the go forward basis and longer term basis, just like we've been doing for the last several years, we'll look at long-term FT opportunities, access to other markets on an economic basis. And whether or not potential long-term commitments to firm transportation and gives us access to other markets, justifies making that long-term of a commitment to a transport option, and whether or not that market premium will be there over the long-term.

And one last one, if I could, I really liked that you guys continue to break out net acreage and undeveloped location updates, if I can talk a little bit on that? I'm just wondering, could you maybe talk or give a little bit more detail on that, again, you guys give some great detail on that. And I'm just wondering, I guess the natural question is, obviously now the prices have taken off so much, how do those locations look sort of at this level versus when we're back sort of at the Nord 2 handle. Maybe if you could just talk about not just numbers there, but kind of the maybe color around the totals there, if you could?

Yeah no, for sure. I mean, it's a clean way to just show folks what we own and you can kind of see it cutting both ways, right? There's development every year and there's also some leasing every year, just like we've kind of said, it's just normal course for any Appalachian company. So, I think all four areas like we've talked about the four areas, the Southwest PA, Marcellus and Utica, what we call CPA, Marcellus and Utica. Net all that, there's like 350,000 undeveloped acres, our consumption rate is 6000, 7000 acres a year, and we got the leasing. The leasing so far 1000 acres here there every year. So net all that together, there's a tremendous amount of acres to be developed at CNX. And like we've talked before, our cost structure kind of makes every acre better. So if a peer is next to us with a $0.40, $0.50 gathering charge and we're drilling orders that have $0.05 -- or $0.05 kind of OpEx for midstream systems, it's just kind of gives us a pretty unique and pretty cool advantage in all of our areas. So they all worked really well at the old strip and kind of $2 in basin price like you said, and they were even better, all of them at the current structure that we have out there. It's pretty wild looking at the math of like, how much - how quickly you get your investment back from drilling a well or drilling a new pad. So we feel very good where we sit, we're always looking at trying to figure out ways to create more of anything and everything, especially free cash flow. So we're good where we're at, but we're always working every part of our business and buy and sell and swap and trade-in.

This concludes our question-and-answer session. At this time, I'll now like to turn it back to Mr. Lewis for any closing remarks.

Thank you, everyone, for joining this morning. And please feel free to reach out if you have any additional questions. Otherwise, we'll look forward to speaking with everyone again next quarter. Thank you.

Conference is now included. Thank you for attending today's presentation. You may now disconnect.