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CNX Resources to Slash 2020 Spending in Effort to Navigate Latest Downturn
Appalachian pure-play CNX Resources Corp. on Tuesday joined the chorus in acknowledging that tough times are ahead for the oil and gas industry, laying out a plan to cut year/year drilling and completion (D&C) spending by 33% in 2020.
CEO Nicholas Deluliis said exploration and production companies are confronting a “challenging commodity price environment.” The company also plans to cut non-D&C spending next year by 50%. Overall, CNX is guiding for a budget of $540-620 million, compared to this year’s range of $895-945 million. While 2020 production is expected to increase 12% year/year, 2021 volumes are expected to remain flat.
Deluliis pointed to the company’s hedge book, claiming it’s one of the strongest in the industry with 86% of 2020 gas volumes hedged at $2.94/Mcf, as a strong part of CNX’s strategy to weather what could be another jarring downturn. Minimal firm transportation (FT) commitments should also help protect the balance sheet, he said.
“FT, in some ways, at least as I look at it, is more debt-like than debt itself,” he told financial analysts during a call to discuss second quarter earnings. “So, we seriously contemplate any commitments to FT that can be unforeseeable at the time and make for negative consequences in the future.”
A dark cloud has blown in this earnings season across the Lower 48. In gas-heavy Appalachia, EQT Corp. and Cabot Oil & Gas Corp. have announced plans to cut spending and activity next year, while others, such as Range Resources Corp., have offered grim outlooks as natural gas prices hover near their lowest levels in years with an oversupplied market and demand weakening.
As investors crave capital discipline and better returns, they appeared to reward CNX’s message, sending the stock up by nearly 20% after Tuesday’s call concluded. Cabot’s stock tumbled late last week after it laid out a plan to increase spending this year to gain production efficiencies ahead of a plan to cut its budget in 2020. Earlier this year, CNX increased the 2019 budget to drill more wells that won’t come online until 2020.
The company’s 2020 plan is based off strip pricing of $2.55/MMBtu. Combined with the hedge book, next year’s blueprint is expected to generate $135 million in free cash flow.
CNX also increased its 2019 production guidance as wells have come online sooner than anticipated and others have performed above type curves. The company is now forecasting 510-530 Bcfe this year, up from the previous range of 495-515 Bcfe. The 2019 budget remains unchanged.
The second quarter saw operational gains too. CNX said it drilled the longest Marcellus Shale lateral in Pennsylvania’s history at 19,609 feet. It’s also been working for years to lower its well costs in the deep, dry Utica Shale of southwest Pennsylvania. The company said Tuesday that average well costs on its Majorsville 6 Utica pad hit $12.1 million, coming in below its target for the region.
The company ran up to five rigs during the second quarter, drilling 30 wells, completing nine and turning another four to sales. Its decision in 2018 to sign a unique three-year agreement with Texas-based Evolution Well Services to utilize a 100% electric fracturing fleet translated to fuel savings of $180,000/well during the second quarter, management said.
CNX produced 135 Bcfe in 2Q2019, up from 123 Bcfe in the year-ago period and 133 Bcfe in 1Q2019.
Average realized prices slipped to $2.63/Mcfe during the quarter from $2.87/Mcfe in 2Q2018. Revenue was up over the same time to $605 million from $402.1 million in 2Q2018.
CNX reported second quarter net income of $162 million (84 cents/share), compared to earnings of $42 million (19 cents) in the year-ago period.
COO Tim Dugan, who joined the company from Chesapeake Energy Corp. in 2014 and helped oversee a split of the coal and gas businesses at predecessor Consol Energy Inc., announced Tuesday that he would retire at the end of the year. Chad Griffith, who has held various positions with the company, is to replace him.
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