Cnx Resources Corporation · NYSE:CNX
Cnx Resources — Merger or Acquisition (July 2020)
33 slides from Cnx Resources's merger presentation, Jul 27, 2020
Slide 1: The New CNX: Non-Replicable Best-in-Class Appalachian E&P
The New CNX: Non-Replicable Best-in-Class Appalachian E&P July 27, 2020
Slide 2: Cautionary Language
Cautionary Language Various statements in this presentation, including those that express a belief, expectation or intention, may be considered forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act) that involv
Slide 3: CNX Acquisition of CNX Midstream Partners LP
CNX Acquisition of CNX Midstream Partners LP Transaction Overview Rationale and Benefits ▪ CNX Resources to acquire all of the outstanding publicly- owned units of CNX Midstream in an all equity merger ▪ CNX solidified as lowest cost producer in Appalachian Basin ▪ Exchange ratio of 0.88 CNX share
Slide 4: 6 Reasons Why CNX is a Non-Replicable Best-In-Class E&P
6 Reasons Why CNX is a Non-Replicable Best-In-Class E&P ▪ Production cash costs lowest in basin and declining over time The Lowest Cost E&P 1 ▪ Fully burdened cash costs expected to drop significantly over time Company ▪ Costs position drives basin leading cash margins ▪ Current F&D costs half of hi
Slide 5: 1. The Lowest Cost E&P Company
1. The Lowest Cost E&P Company
Slide 6: Best-In-Class Production Cash Costs
Best-In-Class Production Cash Costs TTM Production Cash Costs per Mcfe(1) $2.25 $2.12 The CNXM $1.61 transaction $1.50 $1.36 lowered $1.14 $1.26 CNX’s production $0.75 $0.73 $0.77 cash costs by ~$0.40 per Mcfe $- CNX Peer 6 Peer 5 Peer 2 Peer 3 Peer 4 Peer 1 Lease Operating Expense ($/Mcfe) Producti
Slide 7: Corporate Costs Decline Rapidly Over 7-Year Plan
Corporate Costs Decline Rapidly Over 7-Year Plan $0.60 $0.34 $0.50 $0.07 $0.40 $0.20 $0.04 $0.16 $0.30 $0.27 $0.04 $0.12 $0.04 $/Mcfe $0.19 $0.08 $0.20 $0.16 $0.04 $0.13 $0.01 $0.00 $0.09 $0.10 $0.04 $0.16 $0.03 $0.12 $0.03 $0.01 $0.09 $0.08 $0.07 $0.05 $0.05 $0.00 ($0.12) ($0.11) ($0.10) ($0.13) ($
Slide 8: Fully Burdened Cash Costs Under $0.90 Per Mcfe
Fully Burdened Cash Costs Under $0.90 Per Mcfe 2020E-2026E Average Prices 2020E-2026E Fully Burdened Costs $/MMBtu $1.40 NYMEX $2.40 $1.22 In Basin Price $1.95 $1.20 CNX Realized Price ($/Mcf) $2.38 $0.34 $1.01 $1.00 $0.93 BTU Conversion (MMBtu/Mcf) 1.079 $0.20 $0.87 $0.86 $0.86 $0.85 $0.16 $0.01 $0
Slide 9: 2. Low Capital Intensity
CNX 2. Low Capital Intensity
Slide 10: Current F&D At Much Higher Capital Efficiency Than Historical D&C DD&A
Current F&D At Much Higher Capital Efficiency Than Historical D&C DD&A $1.20 Marcellus Well Cost $ per Mcfe DD&A ($ / Mcfe) 2019 $1.00 Land $0.10 Gathering/Water Infrastructure $0.07 $0.80 Well (D&C, Water, Pad/Facilities) $0.68 Well Closing Liability $0.02 $0.60 Total DD&A Rate $0.87 $0.40 Signific
Slide 11: Non-D&C: Midstream, Land, and Water Capital Drastically Reduced
Non-D&C: Midstream, Land, and Water Capital Drastically Reduced Non-D&C Capital ▪ Significant past investments have $550 created the infrastructure that support $510 low cost MOP plan ▪ By 2021, midstream capital will $450 primarily represent gathering line connections to planned pads; no major gath
Slide 12: Low Base Decline Rate Drives Low Capital Intensity
Low Base Decline Rate Drives Low Capital Intensity Capital plan 2022E - 2026E (annual avg.) As PDPs build over time, base decline shallows to TIL Count ~25 average ~20% in 2022E-2026E Net production (Bcfe) ~560 Capital Expenditures ($ in millions) Fewer TILs required to keep production flat Y-o-Y Dr
Slide 13: 3. Substantial Free Cash Flow
3. Substantial Free Cash Flow
Slide 14: Why CNX Generates >$3 Billion Over 7-Year Plan
Why CNX Generates >$3 Billion Over 7-Year Plan 2022E-2026E Fully Burdened Costs 2022E-2026E Average Prices $2.50 $/MMBtu NYMEX $2.44 CNX Expected Realized Price: $2.32 / Mcfe $2.00 In Basin Price $1.99 CNX Realized Price ($/Mcfe) $2.32 BTU Conversion (MMBtu/Mcf) 1.078 $1.50 $0.54 $1.41 $ / Mcfe Best
Slide 15: Substantial Cumulative Free Cash Flow and Yield
Substantial Cumulative Free Cash Flow and Yield >$3 billion of cumulative FCF over 7-year plan Cumulative Free Cash Flow(1) 2020E-2026E (1) (2) Cumulative Free Cash Flow FCF Yield at Current Share Price $3,500 30% $3,000 25% CNX Pro Forma Debt $2,500 Free Cash Flow Yield 20% CNX Pro Forma Market Cap
Slide 16: 4. Strong Balance Sheet
CNX 4. Strong Balance Sheet
Slide 17: Strong Balance Sheet and Near-Term Maturities Easily Addressable
Strong Balance Sheet and Near-Term Maturities Easily Addressable $ in millions Revolving Credit Facility $671 Senior Notes $550 E&P Debt $414 $345 Convertible Debt Maturities CSG Term Loan 2020 2021 2022 2023 2024 2025 2026 2027 and Thereafter Revolving Credit Facility Midstream Debt Senior Notes $4
Slide 18: Significant Reduction to Leverage Ratio Driven By Free Cash Flow
Significant Reduction to Leverage Ratio Driven By Free Cash Flow Leverage Significantly Reduced Over 7-Year Plan Hedge book and maintenance of $3,000 Net Debt Leverage Ratio 3.00x production (MOP) plan sets clear path to $2,500 2.50x <1.5x net debt / EBITDAX by $2,000 2.00x early 2023 Net Debt/EBITD
Slide 19: 5. Low-Risk Business Model
CNX <p < 5000 72000 14.000 6000 — TUBE AM coNEcTION 4009 2000 5. Low-Risk Business Model
Slide 20: Low-Risk Business Model
Low-Risk Business Model ▪ Conservative assumptions using NYMEX forward prices Revenue ▪ Best-in-class hedge book with long-duration basis hedges ▪ Best-in-class cost structure allows programmatic hedging to continue ▪ High NRIs and HBP result in Tier 1 land position Operational ▪ Deep core inventory
Slide 21: Best Downside Protection in the E&P Space
Best Downside Protection in the E&P Space 2021E(1) Hedged Gas Production 2022E(1) Hedged Gas Production $ 3.00 $ 3.00 104% $2.94 ~38% of 2023(1) production 63% 100 % $ 2.90 $ 2.90 hedged under maintenance $2.85 60 % scenario at $2.81 NYMEX $2.80 87% $ 2.80 $ 2.80 vs. 80 % $ 2.70 $ 2.70 ~1% for peers
Slide 22: CNX Acreage Position Remains Top-Tier in Appalachia
CNX Acreage Position Remains Top-Tier in Appalachia CNX SWPA Central Marcellus Locations(1) Assuming a run rate of 25 Appalachian Peer Group Net Acres SWPA Central Marcellus TILs 1,200,000 per year: SWPA Marcellus inventory to stay at MOP production for 15 1,000,000 years CNX maintains ~12 years of
Slide 23: 6. Growing Intrinsic Value Per Share
6. Growing Intrinsic Value Per Share
Slide 24: CNX Debt to Equity
CNX Debt to Equity $ in millions Illustrative CNX Firm Value Composition Over Time(1) $4,494 $4,494 $4,494 $4,494 $4,494 $4,494 $4,494 $424 $939 $1,454 $1,969 $2,394 $4,586 $5,029 $4,071 $3,556 $3,041 $2,526 $2,101 ($91) ($535) 2020E 2021E 2022E 2023E 2024E 2025E 2026E Implied Equity Value Excess Ca
Slide 25: Relative Free Cash Flow Yield
Relative Free Cash Flow Yield 2021E Free Cash Flow Yield(1) CNX Appalachia Peers Top 10 XOP S&P 500 Sectors CNX 2021E-2026E Average Expected FCF Yield: 26% Implied CNX share price of ~$35 assuming a 6.5% yield Source: Public filings, FactSet as of 7/17/2020. Note: Market data as of 7/17/2020. Free C
Slide 26: Non-Replicable Business Model Deserves Premium Valuation
Non-Replicable Business Model Deserves Premium Valuation Midstream Ownership ▪ Our peers have outsourced their midstream services at high costs, reducing their margins Firm Transport Position ▪ Our peers will have expensive fixed annual obligations on an absolute dollar and per unit basis Wate
Slide 27: CNX Enjoys Substantial Upside
CNX Enjoys Substantial Upside ▪ If the forward gas strip moves up to the consensus estimate of $2.75 NYMEX Gas Price Upside pricing, CNX’s annual long-term EBITDA and free cash flow would increase by ~$150 million each year Incremental Drilling Upside ▪ CNX has the ability to increase activity a
Slide 28: Flexible FCF Allocation Options Under All Scenarios
Flexible FCF Allocation Options Under All Scenarios High Gas Price Low Gas Price The company is ▪ Increase D&C activity ▪ Rich land acquisition and M&A environment for a strong deleveraging in High Share Price ▪ Accelerate development to all four scenarios company like CNX to create grow production
Slide 29: CNX Presents a Unique Investment Opportunity
CNX Presents a Unique Investment Opportunity ~$9.00 Current CNX Share Price $2.40 NYMEX, No FCF Yield $2.40 NYMEX, 6.5% FCF Yield $2.75 NYMEX, 6.5% FCF Yield Valuation, but Equity to Debt Valuation Used in Other Industries Valuation Used in Other Industries Conversion Instead ~$22.00 ~$35.00 ~$45.00
Slide 30: Why Invest in the "New" CNX?
Why Invest in the “New” CNX? Lowest cost Appalachian E&P Average annual go forward FCF of ~$500 million assuming current $2.40 NYMEX Safety in paying down debt to increase equity value Immense upside in normal or high gas price environment Non-replicable business model: Midstream, NRIs, water assets
Slide 31: Appendix
Appendix
Slide 32: CNX Acquisition of CNX Midstream Partners
CNX Acquisition of CNX Midstream Partners Status Quo Pro Forma Legacy CNX Legacy Public Merger Transaction Shareholders CNXM Unitholders 0.88 CNX Shares for each CNXM LP Unit 187.4mm shares 37.1mm shares CNX Resources 187.4mm shares outstanding 83.5% Stake 16.5% Stake CNX Shares CNXM Units 54.6% Own
Slide 33: Non-GAAP Definition
Non-GAAP Definition Non-GAAP Financial Measures Definitions: EBIT is defined as earnings before deducting net interest expense (interest expense less interest income) and income taxes. EBITDAX is defined as earnings before deducting net interest expense (interest expense less interest income), incom