CNX Resources Corp (CNX) 2022 Q1 法說會逐字稿

Good day, and welcome to the CNX Resources First Quarter 2022 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I'd now like to turn the conference over to Mr. Tyler Lewis. Mr. Lewis, please go ahead.

Thank you, and good morning, everybody. Welcome to CNX's first quarter conference call. We have in the room today Nick DeIuliis, our President and CEO; Don Rush, our Chief Financial Officer; Chad Griffith, our Chief Operating Officer; and Yemi Akinkugbe, our Chief Excellence Officer.

Today, we will be discussing our first quarter results. This morning, we posted an updated slide presentation to our website. Also detailed first quarter earnings release data such as quarterly E&P data, financial statements and non-GAAP reconciliations are posted to our website in a document titled 1Q 2022 Earnings Results and Supplemental Information of CNX Resources.

As a reminder, any forward-looking statements we make or comments about future expectations are subject to business risks, which we have laid out for you in our press release today as well as in our previous Securities and Exchange Commission filings.

We will begin our call today with prepared remarks by Nick. And then we will open the call up for Q&A where Don, Chad and Yemi will participate as well. With that, let me turn the call over to you, Nick.

Thanks, Tyler. Hi, everybody. I'm going to handle the commentary today, as Tyler just said. I'm going to break it into 2 parts. First, let's have a review of our results for the first quarter and talk about some updated guidance looking forward. And then I'll wrap with a couple of comments and maybe observations, is actually a better term, about our industry, the nation and the world today. But starting first with our quarter and our outlook into the future.

The CNX, I think, has been sounding like a broken record for at least 2 years and 8-plus quarters running. And today, that broken record repeats itself yet again. Fortunately, the repetitive music sounds great for ownership. That's because like the string in recent quarters and the past few years, we had yet another clean and easy to understand quarter.

I'm going to review the quarter by running down the key components of the CNX sustainable business model or the SBM as we refer to it. And you can read more about our sustainable business model in our proxy and our soon-to-be released corporate responsibility report. I encourage you, of course, to do so.

The sustainable business model, it starts with having a compelling why and what motivates us to do what we do. CNX and our employees, we bring quality of life and security to society. Without us, everything stops. And realization of our purpose or that why is grown tremendously the past year. And the world sees what happens is things like domestic natural gas is taken for granted, or worse yet, if it's marginalized. I have more to say on this in a couple of months when we get to those observations that I spoke about.

The next step of that sustainable business model is building a nonreplicable and a resilient competitively advantaged business to deliver on that why. And in the first quarter, we delivered another quarter of smooth, safe and compliant operational execution across what is basically our stacked pay, our upstream/midstream integrated and our low-cost -- actually lowest-cost footprint in what's become the most prolific natural gas basin in the world.

So you take these attributes and you couple them with our programmatic hedge book, you see CNX was able to land our production costs and margins right where we wanted them in the first quarter.

The third step of the sustainable business model, that's to generate steady and substantial free cash flow. First quarter saw us post over $234 million in free cash flow. More importantly, we produced $1.20 of free cash flow per share in the first quarter using the quarter-end share count just over 195 million shares.

And then the next steps of the sustainable business model, they start to look to astutely allocate our free cash flow to the right places and at the right times to generate those value-creating rates of return and long-term per share value. So astute capital allocation, it perpetuates our why. We start with investing in our most important asset, which of course is our team.

I'm happy to report that CNX, which was the public company regional leader when you look at all-in average employee comp in 2020, it achieved even higher all-in compensation for employees in 2021 at over $180,000 per team member. And we've got some exciting efforts in the works when it comes to human capital in 2022. So please stay tuned as the year unfolds, and we'll have much more to say about that.

Now the next free cash flow allocation avenue that we consider is investing in our regional communities. CNX was very active during the first quarter on its front. The CNX Foundation, it's up and running with its governance. It's already committed millions of dollars to what I think are going to be hugely impactful investments across communities in need of our Appalachian footprint.

And the CNX Mentorship Academy, it's rounding the bend to conclude its first inaugural class here in early June, hard to believe. And I'm beyond excited about what that is all about and how it's ready to welcome these young men and women in the local workforce and particularly the CNX workforce.

And employees across the company, they're catching the fever to identify and personally participate in and drive a portfolio of investments that we're making across Appalachia. CNX has broken the mold and set a new standard when it comes to ESG performance and things like stakeholder capitalism and what it truly means to focus local. The company's success in the local region's success, they've always been linked, and that's the responsibility that we continue to lead on and embrace.

Next, we look to pay down debt under our sustainable business model. And in the first quarter, we paid down $74 million in net debt. Our balance sheet, I describe it as stellar at this point. It's going to be getting even better as 2022 unfolds. And the optionality that this strength creates, it can be a really powerful thing in an industry such as ours, which I'm also going to expand upon when I talk about those observations.

And then the last step of the sustainable business model, but not the least, right, is calling for returning capital to our owners. And we've got 2 ways of doing that, through dividends or share repurchases. Which one we pick is going to follow the clinical math of risk-adjusted rate of returns in the context of long-term per share value.

And that approach dictated that we continue to repurchase shares in the first quarter. We invested over $150 million of free cash flow in share repurchases, buying in over 9 million shares or just under 5% of the company in the quarter at an average price of $16.55. We are thrilled with that result.

So that's the CNX sustainable business model in action. Yes, it tends to be repetitive, but we love that kind of repetition. And before I forget, today we also raised 2022 guidance to approximately $700 million in free cash flow or $3.59 per share using the updated shares outstanding as of April 20.

Okay. Now that we covered the quarter and our guidance outlook, let me shift and offer up a few observations about our great industry, nation and the state of the world. These observations go to the heart of that why that I spoke about. And they impact not just CNX and Appalachia in profound ways, but they also deserve, I think, far more discussion than the limited time we've got today. But with the time we've got, let's see on a couple of these observations.

I think 2022 is turning out to be quite the proving ground that's verifying certain realities and exposing certain flawed beliefs. And first, let's talk about natural gas supply and how that might be able to grow to respond to increasing energy demand needs, both domestically as well as in places like Europe.

There's been a lot of talk about LNG and how U.S. natural gas can save the EU by replacing Russian natural gas and providing much needed energy security during the time of crisis. And at the same time, we cannot lose sight of the energy supply challenges that we still have to overcome domestically.

And certainly, I think the industry is doing what it can to increase supply. CNX is a great example where we expect reduction in capital expenditures for the year to be toward the higher end of our guidance range. Every little bit of this is going to help. But there are also some harsh realities that are quite ironic, unfortunately. The domestic natural gas, oil and pipeline industries in the nation, they can't ramp up production to anything close to the levels that the U.S. and the EU is clamoring for anytime soon. And that's not because of industry unwillingness.

We are an industry or industries of doers after all. And it's not because of corporate greed or profiteering as some might allege. No. Instead, it's simply and starkly because the policy is consciously and methodically looked to strangle infrastructure investments in the pipes and in the processing and the power generation and, yes, in the LNG infrastructure, all of which are needed to meet the world's energy demand. They're everywhere, these policies I'm talking about, that one looks today.

Global policies via things like the Paris Accord and the UN IPCC climate road map. You see them in national policies via a weaponized regulatory regime in the administrative state. You see it in regional policies like [Reg E] and some of these dysfunctional regional transmission organizations that are manipulating energy and electricity markets that are leading to really bad outcomes and consequences like those that we've seen in Texas and California. And you also see them in state and local policies such as de facto natural gas development or transmission or end-use bans in places like New York and Boston.

And unfortunately, these policies have been extremely effective and achieving exactly what they were designed to do, which is to create energy scarcity, run-up prices and not allow the most sensible supplies of natural gas and oil to reach the obvious demand centers.

That's why Boston has to import LNG from thousands of miles afar, including Russia at times, instead of taking molecules from Pennsylvania 400 miles away via pipeline. That's why U.S. politicians end up pleading with dictators in Venezuela and OPEC to increase output, and most tragically, that's why the EU is energy dependent on Russia.

Now for our industry to solve problems and provide solutions, it unfortunately is going to take years. The domestic energy industry has been under attack and penned in for over a decade by these policies and now will take nearly as long to correct that. And that's assuming policymakers wake up to the reality, which is a big assumption, as crazy as it sounds, considering times like these, where common sense tells us domestic energy has never been more vital and the policies that are designed to stymie it, they've never been more harmful.

Now these policy concerns, they lead to my second observation. And despite the clear validation of domestic energy as an attractive and a deserving investment option, we believe access to the capital markets for our industry is going to continue to be more restricted.

Now it could be something like ESG investing on a rise or it could be the Federal Reserve climate stress test on banks or it could be SEC climate disclosures. But to manage this risk, we believe the prudent course under our sustainable business model is to maintain a debt level and a maturity schedule on a liquidity level, whereby we never need access to debt markets.

Unfortunately, we reached that point. Our guidance of future free cash flow generation, when you couple it with our balance sheet metrics, it means we've got the optionality to organically delever, to be independent of the debt capital markets. For our industries, the CNX way needs to become the norm until policymakers and capital markets allow themselves to be mugged by the facts.

I'll wrap with my third and final observation. The topic is one of sadness. I've been around this industry and company for 32 years now, and I've seen a lot, free market-driven, innovative and entrepreneurial movement that disrupted the world with the shale revolution. I've seen the establishment of an energy powerhouse with the United States and energy independence if we want it.

I've seen vastly improved quality of life and revival of the middle class in an improved environment, including lower carbon intensity from my lifelong home of Appalachia, as a retort itself to take advantage of the shale revolution. And I've been with the company to completely transform from exclusively coal to now best-in-breed natural gas in midstream in working with people, of course, who care and who excel and who achieve and who are compensated at the very best levels to be found in any industry.

So CNX today is strong, vibrant and secure when you look at its future path. The opportunities are mind-boggling from our developing, exciting, emerging technologies to what we should deliver on shareholder per share value.

But my emotion in 2022, I have to tell you, as I said, is that of sadness. Because much of what ails this nation and the world did not have to be. Putin did not have to be enabled. The Ukraine did not need to be destroyed. Americans didn't need their households to be robbed by that thief known as inflation. And our energy security and our grid reliability, whether it's Texas, California or Europe, none of them needed to be compromised.

Yet all of this happened. And it continues to run rampant, and it's going to get worse, potentially much worse. Why? Because the full potential of the American energy industry to unleash prosperity domestically and abroad has been deliberately handcuffed. Energy scarcity has been manufactured by policy design.

These industries were not allowed basically to become victims of their own success by providing more supply of our widgets so that not only infrastructure and demand grew, but so that supply and demand would balance, so the prices can moderate, so that dictators don't hold a free world hostage.

The current state of our energy industry and economy and our geopolitical standing, they are not healthy. And until the health of those improve, we're all going to pay the price. It's just a question as to what extent. This didn't have to be. How long should we continue to tolerate it?

The good news is the Appalachian region has the resources and the know-how and the work ethic to be the fountainhead or the catalyst of the modern energy and manufacturing industries. We can be a center for skilled labor job creation to help pave a path to middle class access to the region's underserved rural and urban communities. The only thing preventing this from happening is the collective willingness to embrace data and facts over politics and ideology.

We should embrace the assets and the workforce and the energy in the Appalachian region to be utilized first in this region and then far beyond. It can make Western Pennsylvania or Western Virginia or West Virginia the true energy capitals of the world by developing and utilizing homegrown resources to build a local energy ecosystem that will cultivate and sustain the middle class for the next generation.

These natural gas-based products, they're more environmentally friendly, lower costs and will be sourced locally in the Appalachian region instead of faraway lands that have extensive supply chain and carbon footprints. This is a realistic actionable solution for the Appalachian region that runs counter to other such efforts championed by establishment organizations or by those with ideological goals.

Final thought to tie this back to where we started. Despite the challenges noted in my observations, we're going to continue to embrace our tangible, impactful and local approach to ESG, which is going to help us execute our sustainable business model and deliver long term per share value, while advocating for our industry and region. The opportunity is now to reframe and redefine the region's energy utilization and economic strategy that will directly and tangibly benefit local citizens, the local environment and the entire region. When the why of what we do is so compelling, our path forward is always clear.

I'm going to turn it back over to Tyler now for Q&A.

Thanks, Nick. Operator, if you can please open the call for Q&A at this time.

(Operator Instructions) Our first question comes from Michael Scialla of Stifel.

Nick, I appreciate those observations on the industry. I guess are there any particular things you'd be looking for in terms of policy change that would cause you to rethink the strategy of essentially no growth and maybe if you could extrapolate that to Appalachia as well? When do you think if, say, tomorrow, the administration started to move in the direction you think it should, is there any sense on what the time frame for when Appalachia or CNX in particular could go back to a growth mode?

I think from an industry perspective, it's a great question, the most immediate issue is the policies with respect to what they're doing that deters investment with more the infrastructure -- transportation infrastructure. So basically, as I said, equilibrate move supply to logical demand centers and settle that out in a way where it basically allows producers to figure out what those rate of returns will be and make capital investment decisions that will span decades.

That's probably the biggest impact right now with respect to basin-wide or industry-wide supply responses. They basically need the plumbing to be able to move the -- supply the widgets to the demand centers, whether they're global, regional or local. And the biggest, I think, example of that are pipes in Appalachia. We've also got some oil pipe examples as well of Keystone. And I think those 2 immediate examples front and center would be great proxies to figure out how serious entities are about reversing sort of analyzing policies to get some of this infrastructure built.

I guess now with the stock over $20, you've talked a lot in every call you've been asked about your philosophy on returning capital to shareholders. And your choice has been primarily buybacks and, I guess, complemented by debt reduction. With the stock over $20 now, has that philosophy changed at all to where you would slow down on the buybacks or consider a dividend? Or are you still thinking buybacks the best form of return of capital for you at this point?

To your point, right, stock price is one of those important metrics and variables when we're calculating the best per share value creation avenues. The philosophy doesn't change. The equations don't change as some of the variables. And when you update share price, gas forward strips, the free cash flows that basically would be produced from that under our activity set that we've laid out, then you look at things like free cash flow yields and free cash flow per share, what those risk-adjusted returns are.

I think at this stage, we are still comfortable following that math, that share repurchases are the best avenue for shareholder returns. That can change, to your point, over time. We're not adverse or against dividends philosophically. But we think, again, looking at the math and the risk-adjusted returns, clearly the best path continues to be share repurchases versus dividends.

Our next question comes from Leo Mariani with KeyBanc.

Wanted to delve a little bit more to one of those -- really that first question. So I know historically, CNX has spoken over time that the multiyear plan was to stay in maintenance mode until there was really a shift upwards in the natural gas futures curve. Clearly, we're at the point in time where the entire gas curve, as you look out a handful of years, has shifted higher. Could that potentially pave the way for a little bit of growth in 2023? Or do you think that there's just too many kind of infrastructure and policy challenges to even make that a possibility at this point?

This is Chad. I'll take a shot at that. So I guess, first of all, I want to make sure it's clear, like we could grow if we wanted to, right? And I think we've demonstrated that by growing roughly 20% -- our production by about 20% since 2020. But that's not necessarily the only variable we're solving for, right? And certainly, the change in commodity prices, it changes the variables that are going into that optimization problem. But there are many other variables that are in an optimization problem.

And when we solve that, it's continuing to -- the result that it spits out continues to point us in the direction and sticking to the plan that we've articulated over the last several quarters, frankly -- the last couple of years at this point. And we love the plan that we're on. There's a number of reasons why we love that plan.

It provides the predictability and a line of sight on future operations. It provides our teams ample time to prepare and conduct quality control. The steady work provides continuity of crews and equipment that minimizes the impact that our plan has -- the impact on our plan of a lot of the labor and equipment, call it, issues that some of the peers and other industries are experiencing.

And I think the big third factor is, I think, as I already pointed out, there's only a certain amount of capacity and only a certain amount of local demand to consume the gas that's produced right here in Appalachia. When either local demand begins to increase or the ability to export more molecules out of Appalachian begins to increase, we're right here ready and prepared to be able to increase our production along with it.

The only thing I'll add on top of that, Chad, is we look at this on a per share basis production, just like we would free cash flow. So if you look 5% reduction in our share count in Q1 equates to 5% growth in our production per share. So as Chad mentioned, there's 2 types of growth in our mind. There's one sustainable, consistent growth year-after-year for a decade. With that, you need line of sight of gas demand being allowed to do what it could do.

And in the meantime, volatility is going to be the name of the game. So there's going to be price swings up and down that are largely completely unpredictable because of the, call it, the fragileness of the supply-demand balance and the inventory kind of situation that we have.

So we'll try to optimize and kind of grow here in the edges and the fringes year-by-year, like hand-to-hand combat decisions. And if there's line of sight to be able to do it continuously over long periods of time, it needs -- you need to see line of sight on consistent demand growth to kind of take that approach.

Okay. That's very helpful. And then, I guess, just wanted to follow up on one of the comments that Nick made. I think I had heard correctly that you all said you're kind of maybe pointing towards the high end of CapEx in production guide in 2022. Maybe if you could provide just a little bit more on that. Just I would assume maybe that the activity set hasn't changed in terms of the plan, but perhaps the wells are continuing to come in strong, which is why the production would be towards the upper end and maybe inflation is also pointing to kind of the higher end of CapEx.

I was just looking for a little bit more color on that. And then just anything you had on like cadence of capital spend or turned-in-lines for the year. I saw that there weren't any turned-in-lines in the first quarter. Do you have more of a second quarter and third quarter weighted kind of turned-in-line program and spend? Just anything you can kind of tell us would be helpful.

Yes. So I'll start. And I've kind of said it before, like the cadence from quarter-to-quarter and stuff like that, that's not something I pay much attention to. It's just getting these pads online and the rate of returns are phenomenal. So really most what's happening is, Chad and his team keeps getting better and the efficiencies and the line of sight we have on being able to go faster. You end up -- like that's been most of our growth.

If you look at the growth we talked about before, it's just our factories are moving faster now. So if you get through one pad faster, the next pad starts sooner, then vice versa. So that's -- Chad called it the accordion, but we have the ability to kind of move -- if we're moving quicker, you can kind of get on to the next one faster, and that has like the ripple effect that is putting us towards the end that Nick talked about here. And as Nick said, it's a good thing for the shareholders, for the nation, for everybody to kind of get some more gas out of the ground here this year.

And maybe just a little bit more color on capital cadence and production cadence. If you look at the numbers we've -- if you look at the current guidance and the midpoint of our current guidance and divide that by 4, you're basically exactly where we're at on Q1 production and Q1 CapEx, plus or minus maybe 1%. I think that just illustrates how consistent our plan is and is becoming. And it's just -- there is chunkiness, but the pads are large.

When you bring a new pad on, it does bring a surge of production. But over time, over multiple quarters and multiple years, I mean, we're really solving for a very consistent, very predictable, de-risked sustainable business model. And so -- I mean it's going to be chunky. It's almost impossible to -- like Don said, a bit of bracketed quarter-to-quarter or even year-to-year sometimes depending upon exactly when these pads come online. But we really are solving for a very consistent sort of steady-state execution plan.

Okay. That's helpful for sure, guys. And I just wanted to also ask on cash taxes. Just noticed that in 2021, you all did not pay really anything on the cash tax or current tax line, but I saw you paid about $8.6 million in the first quarter of '22. And wanted to just to get a sense if that's more of a one-off or do you think you're going to start to have to pay state or federal cash taxes more material this year or next?

Yes. So whenever we -- I guess, as you recall or maybe recall, we laid out our initial 7-year plan back in 2020. We kind of guided to the $3 billion to $3-plus billion cash flows at the time and kind of talked about being material cash taxpayers like after that. So fast forward, prices have gotten up, we mentioned in 2021 that, hey, that might be a little bit sooner since you're making some more money. So generally, rule of thumb, it's almost like once we were to cross that $3-plus billion threshold, that's when you could be in a zone where you could be a material cash taxpayer.

And obviously, it depends on what you do with the free cash flow between now and then as well. But that's -- you'll see some here and there, which is alignments of how the NOLs on the federal level and the state level and the IDCs and how we balance all those. So we're solving for kind of minimizing it across a longer time frame. So you'll see some noise. But until we get past that rule of thumb I just gave you. You won't see anything material.

Okay. So it sounds like really not much here for the next handful of years.

Our next question comes from Neal Dingmann of Truist.

Can you hear me, guys?

Yes.

I just wanted to talk about cadence a bit.

Neal, are you there? Let's go to the next one, please.

(Operator Instructions) Next question comes from Noel Parks of Tuohy Brothers.

I was interested to hear your comments about essentially steering clear of the debt capital markets for the longer term. And I was curious, do you or do you not sort of see us with maybe 2 different windows ahead, where especially now with everything looking positive for nat gas fundamentals, it's more like the old days where demand is rising, what we're seeing it in the script against the backdrop of tight supply.

And so it seems to be a time, especially since (inaudible) gone where they ultimately go, where it's not necessarily the worst time to be financing with debt. And in contrast to when we get to that point when we're at sort of a declining demand trajectory for gas when alternatives become cheaper and take up more of the energy pie.

I think your description is accurate if you're looking at just the math on a spreadsheet. Like the objective analysis is accurately represented with what you just said. But we're in a world right now where when it comes to capital markets, the objective data are not reigning supreme. And our fear, our concern is that will continue to have less and less prominence with respect to rates, access to capital, cost of, et cetera.

So that's why, from our perspective, as a low-cost producer and free cash flow generator, coupled with the balance sheet metrics we've got today -- when I'm talking balance sheet metrics, it's not just absolute debt or leverage ratio. I'm also talking about maturity schedule, liquidity, those types of things. We've achieved a position where we basically take free cash flow generation and, when we're looking at the opportunity to allocate between debt and shareholder returns, we can have very, very healthy levels of shareholder returns and also manage our debt in a way where we never would need to access the debt markets and the capital markets.

So that is, call it, the ideology does reign supreme over the data, the metrics, the facts. We're in a position where basically that sustainable business model is self-funding. That's a great place to be. I hope that your description does end up being the situation that the entire industry finds itself moving forward because that would not just be good for the industry that we care about, it would be good for the nation and, frankly, the global economy.

But there are troubling signs, as we said, that we've seen from a whole bunch of different entities and regulatory authorities that are sort of blinking to us that access or cost of capital when it comes to debt markets is going to be incrementally more difficult moving forward.

Great. I was also wondering, with Ukraine-Russia situation and just the shock that's causing to commodity markets, to my mind, it's sort of muddied the picture as far as where the industry is headed as far as seasonality and consumption. I just wonder kind of now with the benefit of hindsight, do you have any sense about what we learned about whether -- about how much or how little heating season, domestic seasonal factors are going to play in pricing going forward?

So I think the question blows down to how much does export sort of adjust or affect the seasonality of domestic natural gas prices, right? And so when you look at exports as a function of total annual consumption, you're looking at roughly, I don't know, 10% to 15% of U.S. production is subject to that export market. So it has, maybe on the margin, reduced that seasonality a bit, but it's still wildly, wildly subject to the fluctuations of winter weather and whether that wet weather shows up.

And a lot of the seasonality is ultimately driven by how much storage is available. And so over the last several years, as the consumption of natural gas has grown by roughly 80%, there's still the same amount of storage and the same amount of infrastructure available to move the gas around in different periods of the year as the demand locations change that there was when half as much natural gas was being used. So LNG is certainly maybe on the margin sort of affected it. But the reality is, is fundamentally across this nation, we lack the storage and the infrastructure to be able to moderate out the seasonality caused by winter weather.

Our next question comes from Mr. Neal Dingmann.

Sorry about that, guys. Let's try this again. Just -- I was just asking on cadence. It looks like, to me, your plan appears to be pretty steady, just on a go-forward basis, even second half versus first half. So just wondered maybe if Chad, you, or Don or somebody could comment on that.

Yes. I think that's fairly accurate. I mean I don't think we have -- I don't think we have any more detail beyond that to give.

Okay. And then just maybe, Don, for you on the marketing mix. My second would be just on kind of on a go forward, do you anticipate much change there? Would be meaning -- what I'm getting at is TETCO M2, will that continue to be the largest route followed by sort of the TCO Pool? Or do we anticipate, on the marketing side, any sort of changes coming there?

No. I mean -- so this is Chad. So we really don't expect to see any changes in our market mix over time. I mean on the margin, the marketing team is constantly looking for short-term opportunities for new gas to different markets, to different receive points that gets access to different pipelines where there may be changing demand for natural gas. And they're optimizing it on a daily basis, monthly basis, weekly basis, and they're doing a phenomenal job down there.

On a go-forward basis, on a long-term -- longer-term basis, just like we've been doing for the last several years, we'll look at long-term [FT] opportunities, access to other markets on an economic basis and whether or not potential long-term commitments to firm transportation and gives us access to other markets justifies making that long term of a commitment to a transport option and whether or not that market premium will be there over the long term.

Great. And one last one, if I could. I really like that you guys continue to break out that acreage and undeveloped location update, [just help tie] a little bit on that. I'm just wondering, could you maybe talk or give a little more detail on that? Again, you guys give some great detail on that. And I'm just wondering -- I guess the natural question is, obviously, now that prices have taken off so much, how do those locations look sort of at this level versus when we're back sort of at the (inaudible), maybe if you could just talk about not just numbers there, but kind of maybe color around the totals there, if you could.

Yes. No, for sure. I mean it's a clean way to just show folks what we own, and you can kind of see it cut in both ways, right? There's development every year, and there's also some leasing every year, just like we've kind of said, it's just normal course for any Appalachian company. So I think all 4 areas -- like we've talked about the 4 areas, the Southwest PA, Marcellus and Utica, and what we call CPA of Marcellus and Utica, you add it all off, there's like 350,000 undeveloped acres.

Our consumption rate is 6,000, 7,000 acres a year when you got the leasing. The leasing of a few thousand acres here are there every year. So you net all that together, there's a tremendous amount of acres to be developed at CNX. And like we've talked before, our cost structure kind of makes every acre better. So it appears next to us with a $0.40, $0.50 gathering charge, and we're drilling orders at a $0.05 kind of OpEx for our midstream systems, it just kind of gives us a pretty unique and pretty cool advantage in all of our areas.

So they all worked really well at the old strip and kind of $2 in-basin price, like you said. And they work even better, all of them, at the current structure that we have out there. It's pretty wild looking at the math of like how much -- how quickly you get your investment back from drilling a well or drilling a new patch.

So feel very good where we sit. We're always looking and trying to figure out ways to create more of anything and everything, especially free cash flow. So feel good where we're at. We're always working every part of our business in buying, selling, swapping, trading.

This concludes our question-and-answer session. At this time, I would now like to turn it back to Mr. Lewis for any closing remarks.

Thank you, everyone, for joining this morning. And please feel free to reach out if you have any additional questions. Otherwise, we'll look forward to speaking with everyone again next quarter. Thank you.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.