Good morning, and welcome to the CNX Resources First Quarter 2023 Earnings Conference Call. [Operator Instructions]. 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 to everybody. Welcome to CNX's first quarter conference call. We have in the room today, Nick Deluliis, 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 first 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 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 Security 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 up for Q&A where Nav and Ravi will participate as well. With that, let me turn the call over to you, Nick.

Thanks, Tyler. Good morning, everybody. First, let me give you warning at the start, this is take your kids to Workday for us. We've got over 80 kids throughout the hallways in the office at the headquarters today, and we lost contain about 45 minutes ago. So if you hear any yelling or screaming, that's what that's all about. I apologize in advance. But it is one of my favorite days actually of the year. First quarter of 2023, it marked 13 consecutive quarters of significant free cash flow generation, that's going back to early 2020. And we've continued to utilize that free cash flow to reinvest into the asset base and to acquire a significant amount of our shares at prices that we believe represent a substantial discount to their intrinsic value. During the quarter, we repurchased an additional 3% of our outstanding shares, and that's resulting in the cumulative retirement of approximately 28% of the outstanding shares of the company since 2020. And as we discussed on our previous call, this magnitude and the pace of the buybacks has not only been vested by a small handful -- of very small handful actually of other companies across the S&P 1500 over the same period of time. And you get a sense of the magnitude of our share repurchase program when you look at Slide 3 in the deck, which shows the top 30 largest gas producers, at least as measured by production, and more specifically, when you look at the last 12 months cash return to shareholders, which is comprised of share buybacks and any dividends paid, divided over each producer's market cap, you can see that CNX is at the top of that list. And the key takeaway from this slide is that scale doesn't necessarily equate…

Thanks, Nick, and good morning to everyone. As Nick mentioned, this quarter represents the 13th 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 $89 million of free cash flow. Since we initially laid out our free cash flow plan in the first quarter of 2020, this brings our cumulative total to approximately $1.7 billion or roughly 65% of our current market cap. Let's first turn to the capital allocation side of the business as highlighted on Slide 6. As you can see, we continued our market-leading shareholder return initiatives by repurchasing approximately 6 million shares in the quarter and another 500,000 shares after the close of the quarter through April 13. In total, we bought back approximately 3% of our shares outstanding over that time frame. And since Q3 of 2020, we have repurchased approximately 28% of the outstanding shares of the company. Due to what we see as a significant disconnect between the current share price and its intrinsic value, repurchasing our shares continues to be a remarkable low-risk capital allocation opportunity which will dramatically reduce our denominator and thereby meaningfully grow our long-term free cash flow per share. On the balance sheet side, total debt levels remained essentially flat with the previous quarter, while net debt slightly increased as we use cash from the balance sheet towards share repurchases during the quarter. Our net debt to trailing 12-month EBITDA is 1.8x, and we expect it to continue to adjust throughout the year to reflect fluctuations in EBITDA driven by commodity pricing. More broadly, as part of executing our sustainable business model, we expect to continue to pay down absolute debt levels over time to further bolster our balance sheet. And as…

Thanks, Alan. And operator, if you can please open the line up for questions at this time, please.

[Operator Instructions]. Our first question comes from Zach Parham from JPMorgan.

I guess, first, just on the balance sheet. Over the past several quarters, you've been very aggressive with the buyback with less focus on debt reduction. And Nick, in your prepared remarks, you mentioned continuing to return cash to shareholders through the remainder of '23. But just how are you thinking about the balance sheet here with gas prices moving lower over the last 6 months, you're approaching 2 turns of leverage. Will you consider shifting more free cash flow back to the balance sheet later this year? Just any color there?

Yes. This is Alan. So I think what you're seeing now is the cumulative effect of all of our transactions in the last several years have positioned us to kind of withstand this sort of environment. So I mean, we've been very clear that we are built to kind of continue to be able to do shareholder returns throughout the cycle. So for the rest of '23, given our maturity runway, given our ample liquidity and given our hedge book, we're comfortable that we'll be able to consistently return capital and not have to -- have any sort of issues with debt management in the foreseeable future.

Got it. And then one just on OpEx. Operating costs were a bit higher than expected in 1Q and I noticed in the slide deck that you increased the 2023 fully burdened cash cost guidance by about $0.05 per M. Can you just give us color on what's going on there? Is that just inflation driven? Just any thoughts on that number?

Yes. So kind of two primary drivers. The first, kind of the impact in the first quarter of being able to sell unutilized FT. So there wasn't as much of a spread on some of our pipes as we had initially forecasted. So that was one of the primary drivers. The second is we've added some kind of incremental planned maintenance, major maintenance projects on the compressor side. So we've updated the outlook for that.

The next question comes from Leo Mariani from ROTH MKM.

I was hoping you could talk a little about these kind of two different scenarios that you're envisaging here that you kind of outlined on the call where there could be some cut in activity depending on what the math sort of tells you. Totally understood, it's very focused on what the markets and math are going to tell you here. But just wanted to get a little bit of sense of kind of what you're going to be looking at. Obviously, near-term gas prices are very weak. But as you look out into '24 and '25, as you mentioned, the strip is materially higher. So is it really more of a drop in that strip as we get into the winter and into 2024 that may cause CNX to kind of pull back a little bit on activity this year? Or is there also going to be some impact from spot prices? Just trying to get a sense of how the dynamic plays out in terms of spot versus strip affecting your plans here?

Yes. So a couple of things on that. So from a kind of ongoing production perspective, our variable costs are incredibly low because of the midstream ownership. So the way we look at this opportunity is always in terms of kind of when we're going to bring wells on. So think about it in terms of TIL cadence or deferring our completions activity or something in that round. I think what you saw in 2020 is kind of the play that we would use if cash prices continue to be weak, where you kind of delay TILs from coming the shoulder season towards the end of the year and you bring those on in the winter. So obviously, we're looking at that continuously, and we'll keep an eye on the strip, and maybe I'll kick it over to Nav for how he thinks on kind of shut-ins and other things in that nature.

Yes. On shutting-in of existing production, what we are trying to do is optimize over the life cycle valuation of the asset. So since we have integrated upstream and midstream, what we are trying to maximize is our sand phase to sales point deliverability of the gas. And so for that, we are doing note on that analysis on all the wells based on where they are on the life cycle phase of those. And that will go on the decision because, for example, sometimes it's easy to shut those wells in, but it's like pretty expensive to kind of like lift them up and get back them to sales. So we are trying to solve for 2 things. One is maximizing production and two is minimizing the cost.

Okay. That's helpful for sure here. And then I basically just wanted to be clear, though, it sounds like though, at this point, you guys reiterated the guidance, everything is intact. So there hasn't been any kind of material change, of course, and I guess we'll just have to wait to see what happens. Just wanted to clarify that.

Yes, that's right. Right now, where the forward strips were kind of steady state, and we're keeping an eye on it. And we're always developing plans to react to create the most optimal scenario.

The '24, '25 forwards that you mentioned, those right now are basically following that math saying keep the 1 frac crew activity set going in the rhythm that it's in. If those forwards change to your point, those will change the longer-term rates of return. That's when we got the ability and the flexibility to adjust when needed.

Okay. Very clear. That's helpful for sure. I just wanted to ask on the Adams Fork deal here for sure. Obviously, as very sizable project there in West Virginia. Can you just provide a little bit more color on what CNX's role there is going to be? Are you folks going to be like an exclusive gas supplier to that clean ammonia plant. And on the carbon capture side, are you guys kind of taking sort of a traditional point source, CO2 role where you guys will kind of manage a storage reservoir and drill injection wells and bury that CO2 underground. Just any additional color would be great.

Leo, this is Ravi. You're right. The strategic partnership that we're discussing with Adam Fork at this point in time, we will be the gas supplier. Our gas assets sit pretty close to where this facility will be constructed. And we do have the expertise in drilling these deep wells and sequestering CO2. We have assets in place that allow us to sequest the CO2 in the deep formation. So we'll bring those expertise amongst other services that we can offer to this project.

Our next question comes from Michael Scialla from Stephens.

Alan, you mentioned you've been a bit surprised the industry activity hasn't responded to lower gas prices yet. The thoughts on takeaway capacity from the basin and I guess, with or without MVP, how that looks?

Yes. So there hasn't really been any changes to takeaway capacity, like to your point, depending where MVP lands, I don't think we have any unique insight into whether that project is going to come on or not as they fell gas producer. I think we'd all like to see that just to help with national kind of production levels. But I think my comment on kind of industry response was more to on the supply -- the service cost side. We haven't really seen that roll over just yet, but we're expecting it to as we see some folks adjust their schedules moving forward.

Got it. And maybe to follow up on the cost side, you said you anticipate 23 costs, if I heard you right below 22. Is that based on further efficiencies on your side and assuming similar OFS costs? Or do you actually anticipate a decline in OFS costs as well?

Yes. So we did last year about $1.20. Right now, we're guiding to $1.50 with kind of the current cost environment. So we're going to try and beat that even. So that's the genesis of that comment.

[Operator Instructions]. Our next question comes from Noel Parks from Tuohy Brothers.

Going back to the Adams Fork and the ammonia plant project. I'm just curious, could you talk a bit about maybe how long you are in discussions for forming the partnership? And how the 45Q carbon capture credit increase played in? I wonder, was there a possibility of a deal in the works even before that, it became evident? Or was that really a catalyst for making it happen?

This is Ravi again. So the strategic partnership discussions with Adam Fork are still being worked out. There's a lot of details that are going to go into it and the relationship is going to change over time as some of the other milestones are hit as we -- as the discussions kind of pursue with Adams Fork. And on the 45Q side of things, that is definitely something that improves the outcome for that project. These incentives they provide -- they could provide a pretty steady revenue stream. I think the technology that we're trying to deploy there is going to give us a fairly clean stream of CO2 to be sequestered and the assets, the midstream assets, the surface assets and the 4 space assets that we have in play kind of make us the ideal partner to partner with in a project like that. And we expect the 45Q type incentives to continue to make projects like this viable in these disadvantaged communities that are impacted by energy transition type scenarios. So we're excited that there's a lot of things that can make this project sort of very suitable in that West Virginia region, there's access to water, there's access to power, there's access to our midstream assets, gas assets, there's a lot at play but still the 45Q type credits play a huge role in making the project viable.

Great. And just on the macro front, of course, with the volatility we've seen in that gas over the last quarter plus. Much of the industry understandably has been looking to the LNG capacity coming online, '24, '25, '26. And I detect in those discussions a little bit more of a shift to a more granular perspective as far as exactly which trains, which projects, how they're running according to schedule, whether, for example, with a higher interest rate environment, some of them might get pushed out a bit. I'm just curious if you've detected anything in the wind that affects your macro thinking, especially as you're looking ahead to 2024 and '25, which I know you have an eye on because your programmatic hedging policy.

This is Nick. I think macro from a demand perspective for natural gas, and we've been on the record for this for a while. It's sort of a major thrust of the new technologies effort within the company. Things like LNG exports certainly is going to have a role in a time with respect to not just National Energy Supply Demand and natural gas markets, but also global, of course, but from a sequential thinking perspective for a lot of reasons, from policy to just straight-up economics, be more immediate and more impactful opportunity for demand creation within natural gas in Appalachian Basin. Is with vertical integration into transportation types, manufacturing types of industries. And that's why we're so excited about projects like Adams Fork. Those can be done much quicker. Those basically shrink supply chains from tens of thousands of miles cumulatively to dozens of miles in some instances. And those have immediate sort of economic drivers, benefits, rationale, they also tie quite nicely with policy. Whether it's regional state or federal. So it's those transportation opportunities, manufacturing opportunities where we think when you get down to it, the actual capital will be deployed to in the front, let's say, 3 to 5 years. LNG export and growth of LNG export will certainly have its time, but that's probably going to come later and then after this first step.

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

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.