Participants

Tyler Lewis; Vice President - Investor Relations; CNX Resources Corp

Ravi Srivastava; President - New Technologies; CNX Resources Corp

Alan Shepard; Chief Financial Officer; CNX Resources Corp

Nicholas DeIuliis; President, Chief Executive Officer, Director; CNX Resources Corp

Unidentified Company Representative

Gabe Daoud; Analyst; TD Securities (USA) LLC

Zach Parham; Analyst; J.P. Morgan

Leo Mariani; Analyst; Roth Capital Partners

Bertrand Donnes; Analyst; Truist Securities

Michael Scialla; Analyst; Stephens Inc.

Noah Hungness; Analyst; BofA Securities, Inc.

Jacob Roberts; Analyst; TPH&Co.

Presentation

Operator

Good morning and welcome to the CNX Resources fourth quarter 2024 Q&A conference call.
(Operator Instructions)
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.

Tyler Lewis

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 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 nongaap reconciliations, which can be found in a document titled four Q2024 earnings results and supplemental information of CNX resources. Also, we posted to our investor relations website, our prepared remarks for the quarter which we hope everyone had a chance to read for the call as the call today will be used exclusively for Q&A.
With me today for Q&A are Nick DeIuliis, 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.
Please note the company's remarks made during this call include answers to questions including forward-looking statements which are subject to various risks and uncertainties. These statements are not guarantees of future performance and our actual results may differ materially as a result of many factors. The discussion of risks and uncertainties related to those factors in 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

(Operator Instructions)
Gabe Daoud, TD Cowen.

Gabe Daoud

Hey, thanks. Morning everyone. I was, I was hoping to start first on new technologies and specifically 45V. Would you be able to walk us through your interpretation of guidance and whether the existing partnership with key state will move forward. I guess, I thought that even with flaring as the counterfactual that the carbon intensity of CMM would still put you in a position to recognize maximum credit value. So we would love, I guess a bit more understanding on that.

Ravi Srivastava

Yeah, thanks for the question, Ravi. So I think you had a quite a few layers in that question. So let me try to address them one after the other. So like, first of all, the root provides an important recognition for capture of coal mine methane as a low carbon intensity feed stock for hydrogen production. And we're pretty excited about that and validate CMM potential for to decarbonize a range of, you know how to break sectors.
So with this inclusion, like, we have successfully validated the premium nature of our coal mine methane previously in manufacturing then in power and now we have within the hydrogen production sector. But and while we're excited about the recognition of CMM in 45V and the way the first productive, rules came out that was pretty good.
But there were quite a few restrictions that were introduced within the rules which we believe are inconsistent with the scientific assessment of CMM that that was done by the national labs and what the what the intent of the IRA was. So we're, we're looking forward to the new administration will have an opportunity to improve the rules, to ensure that it's clarity, to make necessary investment decisions in the future, to scale this hydrogen economy and like our participation and moving some of these projects forward is going to be contingent on clarity on these rules going forward.

Gabe Daoud

Okay. Got it, got it. So I need more clarity before moving forward than anything. Okay. Okay. Thanks for that. And then I guess as a follow up, I'll switch gears to the E&P side. Could you maybe just talk a little bit about the second half of '25 with first half being being or capital being heavily weighted to the first half. Obviously, we expect some declines in the second half into 2026. So any additional commentary on maybe timing of re accelerating activity or what you would need to see to spend more capital in '25 any additional clarity that would be helpful? Thanks arun.

Alan Shepard

Yeah. So this is Alan the way we think about it, we position the activity set, basically the whole production flat coming through 24 the activity set is primarily weighted upfront and choose Q1. We need to wait and see where the industry production levels are coming out of winter. We need the winner to finalize our storage. What projected storage is going to be and then we'll make an assessment, but we do want to create that flexibility. If prices stay high or go higher, you can see us accelerate some activity and bring up some more volumes, but it's too early to tell at this point.

Operator

Zach Parham, JP Morgan.

Zach Parham

Thanks for taking my question. I wanted to follow up on the 2025 budget. I mean, it seems very efficient and seems to be benefiting from some ducks on the apex assets. Could you just give us some color on what the run rate spending would be if you were going to hold this level of production flat going forward?

Alan Shepard

Yeah, so I think we talked about this at the beginning of last year. The goal the run rate is sub 500 there's, there's two things driving that right? You're starting to see the efficiencies from the Utica CPA development combined with our, our low decline PDP base. So we're we're comfortable in the legacy assets that you could hold back below 500 for the upcoming years with respect to apex. You know, we had the tills that are going to come online here.
Basically, those wells were completed post close. All we need to do is flow those back and turn them in. Ultimately, what we do with that position. We'll see and that goes back to the earlier comment about production levels on that as that are going to be set by market pricing later in the year as part of our capital allocation process.

Zach Parham

Got it. Thanks for that color. And I wanted to follow up on Gabe's question, you spoke about 45V. But could you talk about other potential pathways to generate credits from the CMM business in the future? Just really, really trying to think about, what could be next for this environmental attributes business.

Ravi Srivastava

Yeah. So like we've been talking about this where, coal mine, methane offers a clear environmental and economic advantage, as an energy source and, and we have successfully validated pricing in manufacturing with a deal like you like, in the power generation sector with qualification the ATS type program and now in the [two] 45V for hydrogen production. So we're going to continue to target these different sectors, whether it's in power generation manufacturing, data centers, all and the validation that we get from recognition of these programs open up a lot of other monetization opportunities. So we keep driving those efforts and we'll share more information as we have more updates to share on that front.

Operator

Leo Mariani, Roth.

Leo Mariani

Hi. I just wanted to dive in a little bit more to some of the new tech numbers here. So it looks like fourth quarter of '24 saw very robust free cash flow at $30 million. So as we're looking ahead to 2025 seemingly you guys are guiding to say that new tech free cash flow will be down a little bit this year. Maybe you could just provide a little color around that given the strength that we saw in 4Q. And then just additionally, you have you seen any real contribution yet from the oilfield service business or the CNG, LNG business in 2024 that free cash flow? And do you expect those businesses to be additive here in 25?

Ravi Srivastava

Yeah. So is Ravi again. So the fourth quarter numbers are, are primary ifma in Q3, we had a, we had a lower volume, we had a lower cash flow number because some of the volumes got pushed into Q4. So the Q4 numbers are benefiting from monetization of more environmental attributes in the Q4 volume itself in Q4 itself. So the overall volume is consistent and we were able to bring some some volume that would have been monetized in January got into December, which allowed the P four number to be high.
But on a run rate basis, I think the volumes that we will be able to monetize that a program is in that 17 to 18 DCF and the value recognition is still staying in that $30 to $35 per megawatt hour range. So I think, and that's going to be the primary driver for the free cash flow in that segment, which comes out to that $75 million per year range, there may be like some eps and flows because of when some of those volumes get monetized but largely that's what the driver is.
The auto (inaudible) and CNG business, they're still in a in early commercialization phase. I mean, we're autoset is full of, it's fully deployed on CNX footprint and we're, we're seeing the cost benefits and the safety benefits and operational efficiencies and emission reduction, objectives that we wanted to achieve with that. So we're seeing that on that front but expansion beyond the nex footprint we expect to see in '25 and, and, and some of that materializes, we will share more information.

Leo Mariani

Okay? That's helpful. And then obviously, I think in your, your comments, you folks referred to hopefully the new administration here which has come in might take a fresh look at the 45V rule interpretation and maybe make some, some more favorable, changes. Just, overall, obviously you have 45Q legislation, pending, as well.
Clearly, we had the red sweep, that happened with the elections here. I mean, it's been, I guess, a short period of time, just a couple of weeks since the Trump administration has taken over. Do you folks have any read on how the new administration would just be viewing coal mine methane in terms of, the abatement there and how that can translate into potential opportunities for you folks. Has there been any signal at the administration that they're more inclined to maybe be helpful on this front?

Ravi Srivastava

I mean, I would say it's too early at this point in time. I mean, coal mine methane has a lot of inherent environmental and, socioeconomic benefits. So I think we're going to continue to advocate and make the case for it, but it's a 45P and other processes like that, they're going to run their political, new course and we stay connected in that with the right folks. But in the meantime, we're going to continue to pursue opportunities in these other markets and sectors for modernization pathways.

Leo Mariani

Okay. That's helpful.
And then just jumping over to some of your, your comments on production just real quick, just wanted to make sure I understood them. So, really the goal here of '25 production is to keep your base volumes flat, but it sounds like if I heard you right, you'll expect to see somebody modest declines on the apex volumes. Maybe as we get into the second half of the year, I know you're bringing some deferred tills, online which will happen for little to no capital, maybe that props up production in the near term.
But then you see a modest decline. You know, in the second half, if I just wanted to make sure, I heard that right. And it sounded like also if conditions are more favorable in the gas market and the rest of the winter is decent, then there's a reasonable chance you might have a few more wells late this year with maybe the goal to flatten that out as we head into the end of the year in '26.

Alan Shepard

Yeah, that's right. We're, the guys we provided speaks to what you're talking about with the optionality to, to increase volumes or accelerate volumes in the second half of the year. The pricing and capital allocation methodologies suggest we should do that.

Leo Mariani

Okay. Thank you for the clarification

Operator

Bertrand Donnes, Truist.

Bertrand Donnes

Hey, morning guys on the coal mine, methane front. I just want to make sure I understood your comments correctly. You're only looking for clarity on the overly restrictive rules. But if those are cleared up, the financial incentives are enough, is that correct? And then, is there any capital levels that would be associated if the rules were clarified positively that maybe CapEx you'd have to spend.

Ravi Srivastava

But I think it's the restricted nature of the rules and like there's some lack of clarity on, the book and claim methods and which facilities qualify there's a lot there to unpack. I think it's going to take a little bit of time to figure out, like how, how all those things shake out and once we have a better idea of, all those things, I think that will provide a better understanding of like, what the how the plan forward would be in terms of capital investments and like where those capital investments are made.
So there's just too much lack of clarity at this point in time and it's going to take a little bit of time to figure out how the rules get fixed and then how some of the more clarifications from treasury and doe on some of the other applications comes in so too early at this point in time to comment on that.

Bertrand Donnes

Just just to make sure. So there is some level of if the rules were clarified positively, you would have some level of revenue, but then maybe you could increase that amount by spending some capital. I guess there's room to accelerate activity through, operations.

Nicholas DeIuliis

So this is Nick just to be clear, back up a step where we're at with coal mine, methane and the climate benefits tied to it as a fuel stock blend to different industries. We've got manufacturing where it's established a premium pricing level. We've got the hydrogen economy now with the recently issued 45V guidance and we've got the power generation sector with programs like the APS standards in Pennsylvania. We're continuing to work all those different apps to optimize that portfolio.
And some of that is going to involve things like 45Q and 45V and some of that will include pursuing opportunities and things like the A I power generation industry to feed it and recognizing the benefits and market transactions with regard to fugitive methane capture. So with respect to these individual rules and programs, it's part of a bigger puzzle and it's too early to say we'll have to wait and see where it lands.

Bertrand Donnes

That's perfect. Thank you.
And then just the other question would be on the buyback activity was just a little bit surprised you didn't step in. And in Q1 of '25 were there may be some blackout periods due to apex or maybe a view on the macro or is it maybe a game of -- we should preserve the capital if we want to accelerate in the second half instead of using it on buybacks now or just any thoughts there? Thanks guys.

Alan Shepard

Yeah, I think we talked about before. It doesn't -- we don't talk about tactics on these calls. I think we just refer back to them. We do run a continuous capital allocation process and obviously there there is a blackout period. That's part of that consideration.

Ravi Srivastava

Understood. Thanks.

Operator

Michael Scialla, Stephens.

Michael Scialla

Thank you. Good morning, everybody. I wanted to ask on the Apex acquisition. You talked about 8,600 net acres there of undeveloped Utica. I just wondering with that, that acquisition being 36,000 acres, was the Utica developed on a large portion of that acreage or is it limited by geology? Just looking for a little bit more color there.

Alan Shepard

Our view is that there's no Utica across that footprint and there hasn't been any development on that particular asset just yet on the Utica.

Michael Scialla

So there I would, does that imply that there's upside to that? 8,600? I guess I'm just looking at how did you come to the 8,600 number.

Alan Shepard

The 8,600 will be disclosed on the acquisition. You're saying on the Utica in terms of control, those are controlled rights at acquisition. That's what they had in terms of you -- find their lease.

Michael Scialla

Got you. So they didn't have a right to hold. 36. Okay. Got it there. 36,000, sorry. And of those eight wells that are going to be turned in line on that acreage are all those Marcellus or any of those Utica.

Alan Shepard

Those were all Marcellus.

Michael Scialla

Okay. And just one more on the on Utica. Are you still thinking of 3 BCF per 1,000 foot of lateral and any update on what you're seeing with cost per lateral foot and as.

Unidentified Company Representative

Well yeah, Mike, that's correct. The wells that we, gave guidance last quarter like the BP6 (inaudible) are holding production like we expected to and they are in line for CBC (inaudible).

Michael Scialla

And anything on the cost side that you can say there.

Alan Shepard

I would just say, part of the capital efficiency number that you're seeing in the total CapEx. We're delivering these, well, at the target numbers, we're, we're looking to see, I think there's a little bit of room to improve and we're going to continue to work on that, but we're very pleased with where we're at on the drilling and the capital efficiency side on those wells.

Michael Scialla

Great, appreciate it guys.

Operator

Noah Hungness, Bank of America.

Noah Hungness

Good morning, Nick and team. I guess the first question here is also on the Utica. If you guys could give any latest thoughts on spacing just for, for neutral locations.

Unidentified Company Representative

Yes, I can do that just now. And so on the spacing. So far with the BP6 wells, like we have, they are at 1,300 foot spacing and that's in line and then we have a few more spacing tests coming up at 1,500 foot. So we will be able to like talk about that, later, later this year.

Noah Hungness

Appreciate it. And then my second question is just on cash taxes for '25. How we can think about that given how volatile strip has been?

Alan Shepard

Yeah. So we're, we're still a de minimis cash taxpayer until we reach a cumulative $3 billion of free cash flow. So we don't see material cash tax payments until we get out to late '26 early '27.

Ravi Srivastava

Great. Thanks.

Operator

The next question is from Jacob Roberts with TPH.

Jacob Roberts

I wanted to touch on the comment about coal mine methane volumes relative to the reference to anticipated mining plans. Can you give any insight into how much insight you guys might have into those plans and the time frame of that mine development we should be thinking about. And is that comment on development specific to the Buchanan Complex? It seems like you guys may be capturing almost all of the drainage gas there, but it appears there may be other minded smaller volumes that could present some opportunities. And are there any limitations on capturing those volumes?

Ravi Srivastava

Yes, our volumes are primarily butane and mine at this point in time. I mean, we have some capture operations in our Northern Appalachian footprint as well. We work closely with the mine operators to have an understanding of what their annual or long term plans are. And we try to provide guidance and our expectations based on the best information we have from them.

Jacob Roberts

Okay. Thank you. And then my second one is on marketing. Just curious what is driving the changes year over year and the percentages and the various sales points, maybe what you guys are looking for seeing in those markets at the moment and how that could shift through the year.

Alan Shepard

Yeah, marketing is on a daily basis, right? We're continually optimizing with our foot portfolio which end markets we had. So there's any variation you're seeing quarter to quarter or year to year, it's just optimization the marketing side, we haven't entered into any new foot contracts or anything like that, that would fundamentally change the market split.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks.

Tyler Lewis

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