Prepared remarks
Good day, and welcome to the CNX Resources Second Quarter 26 Question and Answer Conference Call. Today, all participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded. I would now like to turn the conference over to Tyler Lewis, Senior Vice President of Finance and Treasurer. Please go ahead.
Thank you, and good morning, everybody. Welcome to CNX's second quarter Q&A conference call. Today, we will be answering questions related to our second quarter results. This morning, we posted to our Investor Relations website an updated slide presentation and detailed second quarter earnings release data such as quarterly E&P data, financial statements and non-GAAP reconciliations, which can be found in a document titled 2Q 26 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 before the call. The call today will be used exclusively for Q&A. With me today for Q&A Alan K. Shepard, our President and Chief Executive Officer; Everett Good, our Chief Financial Officer; and Navneet Behl, our Chief Operating Officer. Please note that the company's remarks made during this call, including answers to questions, include forward-looking statements and 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. A 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. Operator, can you please open the call for Q&A at this time?
Questions and answers
Thank you. We will now begin the question and answer session. As a reminder, to ask a question, you may press star then the number 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. At any time your question has been addressed and you would like to withdraw it, please press star then the number 2. Today's first question will come from Gabe Daoud with Truist. Please go ahead.
Thanks, operator. Good morning, everyone. Good morning, guys. Can we start with 45Z and the updated guidance around credit monetization? How should we think about timing around Treasury issuing a final ruling to feel comfortable about that $40 million revenue number for 2027?
Yeah. On the Treasury guidance itself, that is going to be sometime in the second part of this year. I will turn it over to Everett; he can walk you through what happened. There are a couple of pieces that we disclosed.
One was a step up in cash flows for the current year where we had confirmation that the methane stream cash for the first four months of 2025 qualified for credit. So we stepped up our monetization this year. And then Treasury also refined its carbon intensity calculations in its CRET model, which raised the value of our annual monetization to approximately $40 million a year. So we combine our 45Z sales going forward, which will be monetized in 2027, plus our environmental attributes, and we're targeting approximately a $90 million a year run rate between the two.
Okay. $90 million a year. Great. Thanks for that. And then maybe a follow-up: could we get your updated thoughts around capital allocation moving forward? Maybe a little bit of a weaker near-term macro environment with a medium- to longer-term improving picture. How does CNX think about capital allocation given that and your attractive cadence on the buyback?
Yeah. Nothing's changed from our process. We are on year six and a half of executing our capital allocation philosophy. Our focus is on creating long-term value per share. When we see opportunities where the margin of safety is pretty big, we are going to take advantage of that. We do not signal what we are going to do, but we have a lot of flexibility, and we are seeing some attractive opportunities right now on the equity side. We will continue to run the process we've been running.
And our next question is from Leo Mariani with Roth. Please proceed.
Yes. Hi, good morning. I was hoping you could talk a little bit about capital. In your prepared remarks, you said that third quarter CapEx is moving up some versus second quarter and it looks like it will move back down in fourth quarter. Eyeballing that, it looks like it puts you at the higher end of the 2026 CapEx range. Is that generally accurate, and are you seeing some inflation starting to hit the numbers?
No. I would not read into that. We are still guiding to the midpoint of those numbers. The commentary is more about reflecting the timing of activity we have in the field. You'll see slightly higher in Q3 and then level out in Q4 to match the activity in the field. We are not seeing anything notable on the inflation side.
Okay, that is helpful. On production, you talked about how fourth quarter was the peak. With weakness in gas, are you attempting to manage turn-ins to try to get production to peak in winter when prices may be better? Does that mean third quarter is a little weaker and fourth quarter is the strongest? I'm trying to get a sense of what you're doing on production scheduling.
The schedule usually naturally sets up like that where we have some of the pads coming on toward the end of the year. We do not over-engineer for that outcome; we are solving for a different objective. The way it lines up this year, you will see a big couple of wells come on in Q3, and then you'll see the rest surge into Q4.
Okay, that is helpful. On the 45Z, you monetized $30 million of credits. Is that going to hit in the third quarter as one lump sum payment?
Yes. As a reminder, you will see it come through in cash flow in Q3; that is why we disclosed the early July activity. When you see it in the financials, remember it comes through the income tax expense line and shows up there, so you do not really see it in EBITDA. The cash flow impact is the most important thing: you will see it coming through in Q3.
Okay. Thank you.
And the next question is from Michael Scialla with Stephens. Please proceed.
Good morning, everybody. Looking at your second quarter spending, it was a little bit lower than we were anticipating. I know you do not guide quarterly, but it looks like you only drilled two wells, granted they were in the Utica. Did anything slow down activity during the quarter or was that as planned?
Yeah, that was as planned. It is a function of us not providing quarterly guidance; you should look to our full-year guidance and midpoints as the right way to think about it.
On 45Z, given the encouraging update, any plans for additional remediation or are you sticking with the Buchanan mine going forward?
You are starting to see this carbon intensity score come down and the value of these credits creep up. We're getting close to where expanding the system might make sense, and we are always evaluating opportunities to expand. We have some rights and opportunities to do that. Nothing definitive at this time; probably nothing for the rest of this year, but longer term expansion is a goal.
I wanted to sneak one more in. On your last couple quarters, you set some 24-hour drilling records in the Utica. Anything you can say about well costs? I think you're around $1.7 thousand per foot. Is that still a good number or is it moving?
Yes, that's about the number we're staying with right now. The opportunity for improvement is in drilling; completions and the rest of well construction are pretty steady. Every time we go back to a pad and get a new well, we continue to improve as expected. When we have a full data set, we will provide an update at a future point.
Thank you. The next question comes from Jacob Roberts with TPH. Please go ahead.
Good morning. I know you just said no quarterly guidance, but can you help with the activity plan from here, specifically how to think about TIL count by quarter relative to the higher level of spending in Q3? And could you comment on where the remaining Utica TILs will fall in the back half of the year?
I'll give you some direction. We have a large Marcellus pad in process right now that will come on in Q3, so 12 to 13 of your TILs will hit in Q3. The Utica pad we are in the process of will hit later in Q4.
Perfect, that's very helpful. For Everett, on the low-carbon side, positive on the 45Z uplift, but I wanted to focus on the Pennsylvania AEC market. It sounded like if you are thinking about $90 million for next year, that is a flat run rate on the AEC market going forward. Could you speak to what you are seeing in that market and your confidence around the numbers for the rest of this year and into 2027?
We are essentially marking it to market off of where we are seeing it trade on ICE. We are assuming it is stable to flat. We do see some volatility in that market and will mark to market as we provide go-forward guidance, but we are seeing relative stability in price.
Great. I appreciate the time.
And the next question comes from Betty Chang with Barclays. Please proceed.
Great. Thank you. Good morning. On the buyback, you are clearly leaning into a countercyclical buyback here. Philosophically, I think you took down some debt on the revolver. What is your willingness to lean on debt to buy back more stock in this environment?
That is a good question. Think about the short-term outlook for gas and the longer-term outlook: 2026 going into 2027 is setting up to be a little soft, but longer term the outlook for gas here in Appalachia is tremendous. If that is your view, you would be more interested in repurchasing shares. Based on our activity level, we are probably the most bullish of the operators here in Appalachia. Under the right constraints and risk management, you could certainly see us outspend if that made sense. Regardless, we will keep running the process we've been running for the last six years and allocate capital to the best use.
Got it. Makes sense. Operationally, two items: one, lateral lengths were a lot longer in Q2 in southwest Pennsylvania. Is that specific to Q2 or is the program generally getting longer laterals? And second, on central Pennsylvania, now that your one QL has been on for a while and you also brought on Utica in the second quarter, how are these wells faring relative to your expectations?
On lateral length, that is a function of your acreage position; longer laterals are better for well economics, so we fit them to optimize that where possible. On the Utica side, you can see from state data and other published information that these wells are performing as we guided. We are very pleased with the results from the Utica and believe it is top tier in the basin.
This does conclude today's question and answer session. I would now like to turn the conference back over to Tyler Lewis for any closing remarks.
Thank you again for joining us this morning, and please feel free to reach out if anyone has any additional questions. Otherwise, we look forward to speaking with everyone again next quarter.
Thank you. Thanks everybody.
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.