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CNX Resources Corp. (CNX)
Q2 2020 Earnings Call
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30-Jul-2020
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To remind everyone, CNX consolidates its results, which includes 100% of the results from CNX, CNX Gathering
LLC, and CNX Midstream Partners LP. Earlier this morning, CNX Midstream Partners, ticker CNXM, issued a separate press release and as a reminder, in light of the recently announced transaction, CNXM has cancelled its previously announced earnings
call which was originally scheduled for 11:00 AM Eastern today.
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 Chad and then Don and then we will open the call up for Q&A.
With that, let me turn the call over to you, Nick.
Nicholas J. DeIuliis
President, Chief Executive Officer & Director, CNX Resources Corp.
Okay. Thanks, Tyler, and good morning everybody. Im going to start with my comments on slide 3 of our slide deck. Slide 3 highlights the philosophy and
approach of how we go about managing the company. Intrinsic value per share, thats the true north that we employ. Its the metric that our decision-making looks to optimize and to really do a good job of optimizing intrinsic value per
share, you have to do a couple of other things. You have to be a sound capital allocator to be able to do that. You have to be applying reality.
Ill say two assumptions to do this and the assumptions and the reality that needs to be affixed to them are in two broad buckets. One, our external
assumptions. The most obvious example of that is gas prices, so we apply the NYMEX forward strip, not a different or an inflated gas price. Even though we may desire that price, were always using the forward strip on external assumptions for
gas pricing. And then theres the bucket of internal assumptions. A good example there would be things like capital efficiency and making sure that our capital efficiency assumptions are basically anchored in fact and reality versus something
thats more aspirational that we want to get to, but havent yet demonstrated in the future.
You also need to be able to build a flexible and
strong balance sheet and particularly you need to do that at the bottom parts of the cycle to really have this approach work well. So we think that weve obviously done that as well and we do all these things at CNX and thats not just
what drives our decision making, but its also what drove the seven-year free cash flow plan that we laid out last quarter and updated on Monday.
We
feel CNX is non-replicable. The way to sum this up perhaps is across a range of items that peers in the basin cant do that we enjoy. So peers cant copy the upstream-midstream strategic combination
that CNX now levers. The peers cant shed liability commitments like substantial unused FT that CNX is not as heavily burdened with. The peers cant repeatedly execute in the field at maintenance production levels, at the low capital
intensity levels that CNX brings to bear. The peers cant decide [ph] the date to (00:04:18) hedge, where our hedge book sits for the coming years, and peers cant apply the water infrastructure that we employ to optimize activity pace and
reduce costs. Last but not least, the peers cant protect the cash flows and the balance sheet to the extent that we can, if lower gas prices brought on by a weak start to winter start to materialize going into 2021.
All this means that its going to be tough for others to post CNXs cash costs, certainly our cash margins, our free cash flow and of course the
opportunity that our intrinsic value per share presents to investors. We believe the company is best-in-class. When you look at those cash costs and those capital
efficiencies and those cash margins largely driven by our costs and the hedge book that I mentioned, and our free cash flow profile and last but not least, best-in-class
when you look at our lowest risk to delivering and executing on those metrics.
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