A jump in forecasted natural gas production, along with inflationary pressures, will find CNX Resources Corp. spending more this year to execute a long-term plan that remains on track after the company turned in a solid 2021.
Management said operating efficiencies have improved markedly over the last two years across its assets in the Appalachian Basin. As a result, the company is moving forward with a seven-year plan outlined in 2020 with a new base production level of 590 Bcfe instead of the previous 560 Bcfe.
“The one rig, one fracture crew that we used to use to run a maintenance and production plan now grows production without adding any new crews,” said CFO Donald Rush during a call on Thursday to discuss year-end results with financial analysts. “...Our old plan was based in a different world from low gas prices to different efficiencies.”
The one rig program is expected to give the company low, single-digit production growth. CNX is guiding for production of 575-605 Bcfe this year and capital expenditures (capex) of $470-500 million.
Capex guidance was above the $470 million range the company forecasted for 2021. COO Chad Griffith said capex is expected to come in higher because of inflation, as well as plans for water and other midstream infrastructure to support operations.
CNX produced 158.2 Bcfe in the fourth quarter, up from 146.5 Bcfe in the year-ago period. Most of its activity occurred in Southwest Pennsylvania during the period. For the full year, the company reported production of 590.2 Bcfe, up from 511 Bcfe in 2020.
The average price of natural gas, natural gas liquids and oil, including cash settlements, was $2.83/Mcfe during the fourth quarter, up from $2.49 in the year-ago period.
CNX reported fourth quarter net income of $630.3 million ($3.02/share), compared with $195.8 million (88 cents) in the year-ago period. The company reported a 2021 net loss of $498.6 million (minus $2.31), compared with a 2020 net loss of $428.7 million (minus $2.43).
The independent was lifted by higher commodity prices across the board, reporting its eighth consecutive quarter of free cash flow (FCF) at $158 million. CNX used 80% of its cash flow to buy back shares, with the remainder used for paying down debt.
CNX took a big loss on its hedge book during 3Q2021 that weighed down full-year results, but management said Thursday it has no plans to change its approach. The company currently has about 86% of its 2022 production hedged, the bulk of which is locked in at average prices of $2.94/MMBtu.
"Our programmatic hedging approach does not change moving forward,” said CEO Nicholas DeIuliis. “It's really premised on being able to derisk the top line and create a better level of certainty with the FCF generation and basically lock in those rates of return that are quite attractive when you couple it with our cost structure.
"I think during the different twists and turns that the commodity cycle is inevitably going to take, we continue to programmatically hedge on out into the future."
