CNX Loses $1.5B on Hedges – CFO Unapologetic for Strategy
Late last week CNX Resources issued its third quarter update. As it has done over the past few years, CNX did not issue a full update, opting to let its official SEC filing do the talking for it. What does the quarterly update show? CNX lost $1.5 billion on derivatives (hedging) during 3Q, resulting in an $873 million loss for shareholders. CFO Don Rush defended the company’s strategy by stating shareholders saw consistent returns on their investments in the company during 3Q. CNX did very little drilling–just six new southwest PA Marcellus wells during 3Q. The company completed eight wells and turned to sales eight wells.
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Although three major Marcellus/Utica drillers provided third quarter updates yesterday, we only cover EQT’s update in today’s lineup of stories. Come back Monday for details from both Antero Resources and CNX Resources. S&P Global Platts reviewed all three updates from yesterday and noticed a difference in how each of the three companies is approaching hedging, or preselling production for a specific price up to a year or more in advance. According to S&P, regaining investment-grade ratings for company stock was a stated goal by executives at all three companies during their 3Q earnings calls. They all aim to maximize free cash flows and paying down debt. Hedging programs were touted as the pathway to accomplish these balance-sheet goals.
The Gas and Oil Association of West Virginia (GO-WV) released a new report yesterday called “Gas Facts” (full copy below). The report chronicles the impact oil and gas has had on the Mountain State over the past five years. According to Charlie Burd, GO-WV executive director, “Natural gas is the state’s top-paying sector, supporting more than 82,000 jobs and contributing roughly $5.2 billion in wages each year. Clean, abundant natural gas will continue to drive economic growth and opportunities for generations of West Virginians.” It’s an interesting report. One thing in the report caught our eye immediately: Two “top 10” lists for gas and oil production. We’re suckers for a good top 10 list…
Small investors have a golden opportunity. Oil and gas companies (drillers in particular) are more profitable than ever, yet many large investors are avoiding and will not invest in them. Why? Because they’re idiots? Well, yes, that’s one reason. But the root cause is they have been cowed by loud-mouthed environmental extremists. Threatened by them. Oil and gas companies are still here, still providing a critical service to the world, and still need investors. That’s a great opportunity for small investors–like you.
In April, CNX Resources Corp. announced instead of just blowing smoke about ESG (environmental, social, governance) with pretty slide shows and hoopla, they would donate $30 million to local, underserved communities and populations in the tri-state region (see 
Although the price of natural gas has rocketed this year and cash flows for Marcellus/Utica drillers have ballooned, showering drillers with plenty of free cash flow, M-U drillers are spending less (19% less) on capital expenditures than they did in 2020. Production in the M-U is up slightly by 4% so far in 2021 vs. 2020. The experts at RBN Energy have dived into this latest twist in the shale story to help explain what’s going on and why.
A nice bump up (finally) in the number of permits to drill new shale wells in the M-U, although it’s a lot of wells for a relatively few well pads. Pennsylvania issued 19 new permits across five pads in both the northeast and southwest portion of the play, including 8 permits for a single Cabot Oil & Gas pad in Susquehanna County. Ohio issued just 3 new permits, all to Encino Energy for a single pad in Carroll County. And West Virginia issued a surprisingly high 18 permits to two drillers on three pads in two counties: Marshall and Monongalia.
Because of the soaring price of natural gas (see our companion post today), and because gas drillers have shown remarkable restraint and a real effort to scale back capital spending in an effort to generate free cash flow, investors have taken note and like what they’ve seen. The share price in most pure-play shale gas producers (mainly those in the M-U) posted double-digit gains in value over the past month.
During the second quarter (May through June), ten of the largest oil and gas producers covered by S&P Global Market Intelligence saw their NGL (natural gas liquids) revenues grow substantially from the same period a year ago. Those ten companies, half of them drillers in the Marcellus/Utica region, saw NGL prices increase from 104% to as high as 261%. The extra money from NGLs made what turned out to be a down quarter financial-wise (because of bad bets on hedges) better than it would have otherwise been.
When CNX Resources issued its second quarter update in July, the company revealed that it is not only “net carbon zero” right now, it has been that way–actually net carbon negative, pulling more CO2 out of the atmosphere than it puts in–since 2016 (see 
As they have done in the past few quarters, CNX Resources again issued a quarterly update without an accompanying summary/overview. We have the raw numbers (below), and we have excerpts from the conference call with analysts. One observation from the numbers: It seems major M-U drillers collectively went over the derivatives cliff in 2Q21. CNX, like Antero and EQT (see those stories in today’s update) posted a 2Q loss of $354 million based on a derivatives loss of $539 million. The company did manage to generate free cash flow of $117 million and pay down another $89 million in debt.
Expectations coming from Wall Street are that pure-play drillers, like many in the Marcellus/Utica, will show a turnaround in their financials for the second quarter of 2021. According to S&P, investors took drillers at their word last year that they won’t “drill baby drill” the way they have in years gone by. The stock prices of nearly all major M-U drillers have soared over the past 12 months as a result. The biggest turnaround has been Antero Resources. Its stock price is up nearly 400% over the past 12 months! Range Resources’ stock price is up 140%.
You can’t miss all the chit-chat coming from the oil and gas industry (particularly drillers) about being “net carbon zero” by such-and-such a date–typically by 2025. Or maybe 2030. CNX Resources, an independent natural gas driller (and midstream company) based in Pittsburgh, released its annual corporate social responsibility (CSR) report for 2020 yesterday. CNX continues to walk the talk when it comes to ESG (environmental, social, governance)–one of the few (only?) companies to do so. Get this: CNX has been net carbon *negative* (pulling CO2 out of the atmosphere) for its Scope 1 and 2 operations since 2016! It is the only E&P we’re aware of that can make that claim. Everyone else is still trying to get to net carbon zero, let alone net carbon negative as CNX has done.