CNX Resources' Q3 2025: Contradictions Emerge on Free Cash Flow Guidance, 45Z Tax Credits, and Buyback Strategy

Guidance:

• Free cash flow target remains ~$575 million (pre-asset sale) for the year.
• 45Z tax-credit rulemaking pending; expect confirmation of prior $30 million/year run rate once finalized.
• Company expects a maintenance mode for 2026 (limited production/spend changes) and will provide full guidance in January.
• Frac crews started in Oct; TILs expected in December (concentration of completions Q4–Q1).
• Drilling cost guidance ~ $1,750/foot with further efficiency-driven reductions expected.
• Modest timing-driven $7M non-D&C CapEx bump; infrastructure spend to be steady and meterable.

Business Commentary:

* Share Repurchases and Capital Allocation: - CNX Resources reported a significant share repurchase in Q3 2025, the highest since Q4 '22. - This increase in buybacks was driven by a substantial free cash flow generation and the company's valuation being attractive relative to its intrinsic value.

• Utica Acreage Expansion:
• CNX completed the acquisition of Utica rights across the Apex acreage in Pennsylvania.

• This transaction secured unleased Utica rights beneath the Apex asset, enabling the company to leverage its existing infrastructure for development.

• Production and Cost Efficiency:

• CNX Resources achieved well performance outperformance over several quarters, notably in the Utica shale play.

• This was attributed to cost reductions in drilling operations, with costs per foot decreasing by approximately 20%, from $2,200 per foot to $1,750 per foot.

• Maintenance Mode and 45Z Guidance:

• CNX plans to maintain production levels in maintenance mode for 2026, with winter full storage being the primary focus.

• Guidance on the 45Z EOR project is expected to be confirmed with the final rule-making on 45Z, projected for late 2026, indicating a potential $30 million annual run rate.

• M&A Activity and Land Spend:

• CNX engaged in M&A activity, selling some Marcellus rights and acquiring additional Utica rights.
• The company reported increased land spending activity in Central PA, driven by interest in the deep Utica development potential and opportunities for consolidation.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted strong free cash flow driving the largest buyback since 4Q'22, reiterated a $575M pre-asset-sale FCF target, and guided drilling costs down to ~$1,750/ft (~20% reduction). Leadership expressed long-term bullishness on AI-driven in-basin demand while outlining pragmatic, meterable infrastructure needs — signaling confidence in cash generation and operational execution.

Q&A:

• Question from Zachary Parham (JPMorgan Chase & Co, Research Division): First, Nick, congrats and good luck in your retirement. And Alan, congrats on your new role. First off, I just wanted to ask on the buyback. You had a sizable buyback during 3Q. It was the highest since, I think, 4Q '22. Can you talk about what drove that uptick in buybacks and how you think about the pace of the buyback going forward?
  Response: Buyback surge driven by strong free cash flow; capital-allocation framework unchanged and buybacks remain opportunistic given attractive valuation.

• Question from Zachary Parham (JPMorgan Chase & Co, Research Division): And then my follow-up, just wanted to ask on the Utica acquisition that you made on the Apex acreage. Could you give us a little more color there? Do you now have Utica rights across the position? If not, are there -- are you looking to make other acquisitions where you could get more Utica rights on that acreage?
  Response: Acquisition secured the remaining unleased Utica rights beneath the Apex footprint (adds to ~30k Marcellus acres with prior 8k Utica rights), enabling full development using existing infrastructure.

• Question from Leo Mariani (ROTH Capital Partners, LLC, Research Division): I wanted to see if there's any type of update on new tech here. Specifically, I was just curious if there's any update on kind of the oilfield service auto business, perhaps the CNG kind of LNG business and/or just status of 45Z as you guys see it?
  Response: 45Z final rulemaking pending (expected before year-end with finalization H1'26); prior $30M/year run-rate estimate expected to hold; oilfield-services/CNG initiatives progressing with partner but nothing material for 2026.

• Question from Leo Mariani (ROTH Capital Partners, LLC, Research Division): Okay. And just in terms of the plans as we roll into next year, just at a high level, it sounds like the company still wants to stay in maintenance mode. Should we expect production is not a whole lot different in '26? And would that be similar for spending as well? How are you guys thinking about that?
  Response: Expect maintenance-mode for 2026—limited production and spending changes—until clearer long-term gas demand signals emerge; full guidance to be provided in January.

• Question from Leo Mariani (ROTH Capital Partners, LLC, Research Division): Okay. That makes sense. And just on M&A, obviously, you guys sold a little asset, bought another asset, seems kind of longer-term neutral on cash. But just what's the company's appetite in general for deals? Do you see other things that you'd like to pick up in Appalachia and perhaps there's other Utica deals out there that you guys would like to consider?
  Response: Open to transactions but will only pursue M&A if the economics outperform internal opportunities; threshold remains disciplined.

• Question from Noah Hungness (BofA Securities, Research Division): Just for my first question here, I was just hoping you could kind of unpack some of the moving pieces on your free cash flow guidance. Even when you take out the asset -- the additional asset sales, it looks like free cash flow guide is roughly flat to where it was before, even though the adjusted EBITDAX guide moved down and CapEx moved up. I was just hoping to unpack some of the moving parts there.
  Response: Free cash flow guidance incorporates working-capital swings (AR/AP); despite EBITDA/CapEx moves, management remains confident in the ~$575M pre-asset-sale FCF target.

• Question from Noah Hungness (BofA Securities, Research Division): Great. That makes sense. And then on the Utica acquisition here in Pennsylvania, could you maybe talk about -- are there any requirements for drilling on that acreage next year? Or is there any acreage that may be expiring near term that you'll want to drill on to hold it?
  Response: Plan is to develop the acquired Utica acreage as underwritten; specific timing will be reflected in future development plans (no immediate expiration-driven disclosure).

• Question from Michael Scialla (Stephens Inc., Research Division): I had a couple of questions on the Utica. I guess as you think about next year's plan, is there any thought about trying to delineate the play any more with wells maybe further north or further south? Or do you plan to stay kind of in that area that you've been developing so far?
  Response: Focus will be on operational execution within the established fairway—no urgent need for north/south delineation; step-up development in known areas.

• Question from Michael Scialla (Stephens Inc., Research Division): Makes sense. I wanted to see on -- in terms of well costs, where do you see the opportunities there? And does the Utica require a different rig? And if so, you've been just running one rig most of the year. Are there further efficiencies that could be had by keeping a rig running continuously in that play?
  Response: Current rigs can drill deep Utica; drilling efficiencies have lowered costs to roughly $1,750/ft (down ~20% from ~$2,200/ft) and management expects further drilling-day and pad-efficiency gains.

• Question from Jacob Roberts (Tudor, Pickering, Holt & Co. Securities, LLC, Research Division): I wanted to start on the well outperformance that we've seen over the past several quarters. I'm curious if you could provide some color on if this is a function of better-than-expected declines on older vintages? Is this better new well performance? And how durable do you think these results are and how that translates to your longer-term capital efficiency plans?
  Response: Outperformance driven mainly by Apex-acquired pads and converted newer wells; durability is uncertain, but company remains focused on flat production and maximizing free cash flow rather than chasing efficiency metrics now.

• Question from Jacob Roberts (Tudor, Pickering, Holt & Co. Securities, LLC, Research Division): Great. And then maybe if I could just ask your opinion on current in-basin demand and power generation and all that topic you hear and your thoughts there and ability to participate perhaps?
  Response: Very bullish long-term on AI-driven in-basin demand, but widespread participation hinges on additional pipeline infrastructure; initially demand will be served in-basin until transport builds out.

• Question from David Deckelbaum (TD Cowen, Research Division): I just wanted to echo the sentiments, congratulations to Nick and Alan. Just also wanted to ask on -- welcome. The activity for the fourth quarter, you have the frac crew coming back to work. I still wanted to get some color on the timing of the TILs. It seemed like the guidance have been more of a December time frame. I think last quarter, when we checked in, the macro perhaps seemed a little bit more precarious. And perhaps now things are tightening up a little bit. So how do you guys think about that in terms of turning on new volumes into the winter season here?
  Response: Frac crews restarted in October; TILs expected in December (later in Q4); completions concentrated Q4–Q1 and 2026 activity will remain flexible to market conditions.

• Question from David Deckelbaum (TD Cowen, Research Division): Appreciate that. And my follow-up is just, obviously, you guys closed a couple of deals this quarter. It seems like the basin in general that there's been a lot more land spend through all your peers right now. I guess, is there -- can you just generally speak to that environment right now? Are we just seeing a lot more horse trading or folks kind of willing to transact on single zone areas? It seems like we should be underwriting perhaps a larger land spend in the '26 time frame and perhaps beyond as maybe these opportunities are increasing.
  Response: Central PA is seeing increased interest and consolidation as players recognize deep Utica potential; CNX sees opportunities to acquire acreage but remains disciplined on economics.

• Question from David Deckelbaum (TD Cowen, Research Division): Appreciate that. And just to confirm real quick, the acres that you sold out of the Marcellus rights, are those areas where you've already developed Utica or those are areas that you intend to develop Utica in the future?
  Response: The sold Marcellus acres were in Ohio where CNX has already developed the Utica.

• Question from Wei Jiang (Barclays Bank PLC, Research Division): I want to ask about the -- pretty small, but in the guidance, the increase in the non-D&C capital, what's driving that? And as I'm hearing just more focus on deep Utica development going forward, is there a need for facility infrastructure spend going forward for you to optimize development there?
  Response: The ~$7M midpoint increase is timing noise; moving into Central PA requires modest, steady infrastructure additions (metered over time), not large-scale buildouts.

• Question from Wei Jiang (Barclays Bank PLC, Research Division): Great. And my follow-up is on the back to the deep Utica development. I know there's been many questions asked around that. But what I'm hearing is the focus is really trying to get the per foot cost down. And as we have seen in the past with play development, it's just about steady-state development and park a rig there and optimize and reduce drill time. And with one rig running, it just seems that's not moving between the Southwest and Central that's just not the most efficient way. Is there a possibility for us to start seeing like one dedicated rig being allocated to the Utica to maximize that efficiency?
  Response: Management aims to align pads for repeatability to capture efficiencies (3–4 well pads), will balance allocation across SW PA and Central PA, and expects continued per-foot cost declines from operational repetition (guiding ~$1,750/ft today).

Contradiction Point 1

Free Cash Flow Guidance and Asset Sales Impact

It involves the company's free cash flow guidance and how asset sales impact this projection, which are critical financial indicators for investors.

Could you explain the factors affecting your free cash flow guidance, excluding asset sales, given that the guidance appears flat? - Noah Hungness(BofA Securities)

2025Q3: Our free cash flow guidance includes all working capital adjustments. We're still confident we'll be at the $575 million pre-asset sale number. - Alan Shepard(CFO)

What credit price is underwriting the revised free cash flow guidance for environmental attributes of $65 million? - Noah Hungness(BofA Securities)

2025Q2: Our free cash flow guidance is consistent with our prior comments. While we expect our 2025 full-year free cash flow to benefit from the asset sales, we do not plan to rely on that to reach our guidance of $650 million. - Alan Shepard(CFO)

Contradiction Point 2

45Z Tax Credit and Allocation

It involves the company's expectations and allocation of tax credits, which can significantly impact financial projections and investor relations.

Regarding the Utica acquisition, could you clarify if you now hold Utica rights across the entire position? - Zachary Parham(JPMorgan Chase)

2025Q3: We're still awaiting the final rule on 45Z, but we expect confirmation of our $30 million annual run rate once implemented. - Alan Shepard(CFO)

When do you expect to reach a $30 million annual run rate for 45Z credits, and how will they be allocated between RMG gas and PA AEC Tier 1 credits? - Noah Hungness(BofA Securities)

2025Q2: The $30 million run rate could be realized in 2026, with credits being fungible and convertible to cash upon filing tax returns. - Alan Shepard(CFO)

Contradiction Point 3

Production and Development Strategy

It highlights a shift in the company's approach to production and development strategies, which is critical for understanding CNX Resources' operational focuses and capital allocation.

Are there plans to delineate the Utica play north or south? - Michael Scialla (Stephens Inc., Research Division)

2025Q3: We're confident in our geological model and in development of the play. - Alan Shepard(CFO)

What is the production trajectory, and what CapEx level is required to maintain 1.4 Bcf/d gas production through 2026? - Gabriel Daoud (TD Cowen)

2025Q1: We don't focus on quarterly production targets but rather on free cash flow per share. - Alan Shepard(CFO)

Contradiction Point 4

Infrastructure Spending Trends

It involves changes in the company's infrastructure spending trends, which are crucial for understanding CNX Resources' investment strategy and long-term growth plans.

What's driving the $7M increase in non-D&C capital guidance? - Wei Jiang (Barclays Bank PLC, Research Division)

2025Q3: This is mostly timing and noise, not indicative of future infrastructure spending trends. - Alan Shepard(CFO)

Could you provide details on the remaining turn-in-lines and their expected timelines? Considering gas price volatility, how do you plan to adjust activity, and when would you decide to increase operations? - Zachary Parham (JPMorgan)

2025Q1: Our net investment is $1.4 billion, $1 billion of which is capital lease and infrastructure investments. - Alan Shepard(CFO)

Contradiction Point 5

Buyback Strategy

It involves changes in the company's capital allocation strategy, specifically regarding share repurchases, which can impact investor sentiment and stock performance.

What drove the uptick in buybacks, and how do you plan the buyback pace moving forward? - Zachary Parham (JPMorgan Chase & Co., Research Division)

2025Q3: The primary driver was a significant free cash flow generation in the quarter. Our process for evaluating buybacks versus other capital allocation opportunities hasn't changed. We continue to view the business valuation as very attractive relative to its intrinsic value. - Alan Shepard(CFO)

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2024Q4: We operate a continuous capital allocation process, with blackout periods considered. We do not discuss tactics on these calls. - Alan Shepard(CFO)