CNX Resources: Hit the Gas - [Business Breakdowns, EP.152]

Mar 6, 2024

James Wilson, manager of The Huginn Fund at Phoenix Asset Management, dives into the rich history of CNX Resources, a transition from coal to a leading natural gas player. He discusses the significance of technological advancements in the Marcellus shale and the company's unique hedging strategies to manage market volatility. Wilson also sheds light on cash flow dynamics, strategic acquisitions, and the importance of financial conservatism for long-term stability. This insightful dialogue offers a deep understanding of the energy sector's evolution and investment opportunities.

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ANECDOTE

CNX History

CNX's history spans 150 years, evolving from Consolidated Coal in Appalachia.
The company navigated cycles of booms and busts, changing management and ownership.

INSIGHT

Natural Gas Use Cases

Natural gas is a versatile resource, crucial for industrial processes, fertilizer, and even medical devices.
Its demand is deeply embedded in modern life, unlike coal, impacting food security and various essential products.

INSIGHT

Coal to Gas Transition

The shift from coal to natural gas in electricity generation was driven by advancements in extraction and power plant technology.
Combined cycle gas turbines offer higher efficiency and reduced emissions, promoting natural gas adoption.

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This is Matt Reustle. Today, we are going into the land of oil and gas to break down CNX. The history of CNX dates back over 150 years. When it comes to energy production, the company's evolution has been very comparable to that of the United States.

Our guest today is James Wilson, manager of The Huginn Fund at Phoenix Asset Management. We discuss the CNX backstory and how it took its coal roots to build this massive natural gas business. We also cover what differentiates CNX's management team and operational strategy relative to Exploration & Production (E&P) peers. Please enjoy this breakdown of CNX.

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Show Notes

(00:00:00) Welcome to Business Breakdowns

(00:02:32) First Question - The History and Evolution of CNX

(00:03:17) Understanding the Business Model

(00:10:33) The Transition from Coal to Natural Gas in the US

(00:16:44) Gathering and Compressing Assets to Leverage Fixed Costs

(00:21:45) Understanding the Unit Economics of CNX

(00:28:27) The Competitive Landscape in Drilling

(00:30:05) The Engineering Excellence and Leadership at CNX

(00:30:46) Exploring the Potential of the Utica Shale

(00:32:27) The Economics of Drilling

(00:34:27) Managing the Volatility of Natural Gas Prices

(00:41:37) The Impact of Regulation on the Drilling Industry

(00:44:59) The Role of Acquisitions in Expanding Reserves

(00:51:14) Lessons Learned From CNX