CNX Resources and the 45Z Tax Credit: Unlocking $30M in Annual Value Amid Drilling Efficiency Gains

The energy transition is reshaping the economics of Exploration and Production (E&P) companies, and few players are navigating this shift as strategically as CNX Resources (CNX). As the Inflation Reduction Act (IRA) introduces performance-based incentives like the 45Z tax credit for low-carbon fuels, CNX's operational improvements in methane capture, drilling efficiency, and transportation decarbonization position it to unlock significant shareholder value. With a projected $30 million annual run rate from 45Z credits by 2026, the company is leveraging its unique asset base to thrive in a low-growth energy landscape.

The 45Z Tax Credit: A Game Changer for E&P Companies

The 45Z tax credit, worth up to $1.00 per gallon-equivalent for fuels with lifecycle emissions below 50 kg CO2e/mmBTU, is a lifeline for E&P companies seeking to monetize low-carbon assets. Unlike traditional tax credits tied to fixed volumes, 45Z rewards carbon intensity (CI), incentivizing producers to reduce emissions across their supply chains. For CNX, this aligns perfectly with its focus on Remediated Mine Gas (RMG)—a product derived from captured waste methane from coal mines.

CNX's RMG has been validated by Argonne National Laboratory's GREET model, with carbon intensity comparable to manure-based RNG. This qualification opens the door to 45Z credits, stacking with state Renewable Energy Credits (RECs) and creating a dual revenue stream. Management estimates that 45Z could add $30 million annually to free cash flow by 2026, assuming regulatory clarity is finalized.

Operational Improvements: The Engine Behind 45Z Value

CNX's ability to capitalize on 45Z hinges on its operational execution. Three key initiatives are driving efficiency and reducing CI:

1. Methane Capture and RMG Production:
   In 2024, CNX captured 9.1 million metric tons of CO₂e from coal mine methane, a figure that directly translates to RMG volumes. By upgrading this waste gas to pipeline-quality methane, CNX creates a product with near-zero emissions that qualifies for 45Z. The company's proprietary capture systems and partnerships with Anew Climate to market RMG ensure these volumes are monetized at scale.

2. Drilling Efficiency Gains:
   CNX has consistently improved its capital efficiency ratio, achieving $0.85 per Mcf in 2025. This efficiency, driven by Utica well performance exceeding internal expectations, reduces costs and allows the company to allocate more capital to low-carbon projects. Stronger well productivity also means higher RMG production potential, amplifying 45Z eligibility.

3. Decarbonizing Transportation:
   CNX has deployed compressed natural gas (CNG)-fueled water-hauling trucks, cutting emissions by 30% and operating costs by 50%. These trucks use RMG, further lowering the CI of its operations and enhancing the 45Z value. The company's electrification of compressor stations and adoption of CNG infrastructure also position it to qualify for other IRA incentives, such as 45X.

Strategic Projects and Partnerships: Scaling the 45Z Opportunity

CNX's collaboration with KeyState Energy and Pittsburgh International Airport (PIT) to build a hydrogen and sustainable aviation fuel (SAF) hub exemplifies its long-term vision. The $1.5 billion project, expected to produce 68,000 metric tons of hydrogen and 70 million gallons of SAF annually, relies on RMG as a feedstock. If the U.S. Treasury clarifies the 45V hydrogen tax credit to include CMM, this project could generate additional incentives, creating a compounding effect on CNX's 45Z value.

However, CNX has criticized the current 45V rules as overly restrictive for CMM. The company is pivoting to voluntary carbon markets and state RECs to monetize its captured methane until federal guidelines evolve. This flexibility underscores its commitment to maximizing returns in a regulatory gray area.

Risks and Mitigation: A Pragmatic Approach

While CNX's strategy is compelling, risks remain. Feedstock supply for RMG depends on stable coal mine operations, and regulatory delays in finalizing 45Z and 45V could slow monetization. Additionally, volatility in CNG prices for water-hauling trucks could impact cost savings. CNX is addressing these risks through:
- Insurance and hedging: Full-wrap insurance policies cover feedstock disruptions.
- Diversified monetization: Leveraging RMG in state RECs and voluntary markets.
- Transparency: Its Radical Transparency program, including public NOV disclosures, builds trust with investors and regulators.

Investment Thesis: A Low-Carbon Play with High Conviction

CNX's strategic alignment with the 45Z tax credit and its operational discipline make it a compelling investment in a sector often overlooked for climate progress. The company's ability to generate $30 million in annual tax credit value by 2026—on top of its core E&P cash flow—creates a durable competitive advantage. With a forward P/E of ~5x and a growing ESG-driven demand for RMG (particularly in data centers and aviation), CNX is undervalued relative to its long-term potential.

Conclusion: As the energy transition accelerates, E&P companies that adapt will outperform. CNX's 45Z strategy, combined with its operational excellence and partnerships, positions it to deliver both environmental and financial returns. For investors seeking exposure to a decarbonizing energy sector with clear monetization pathways, CNX offers a rare blend of innovation and execution.