CNX Resources: Headwinds From Underwater Hedges

2025-02-08 10:10:37 ET

Summary

• CNX Resources' stock has dropped 28% since my December 1st sell recommendation, driven by deflated optimism around New Technologies and unfavorable Treasury rulings on 45V tax credits.
• CNX's extensive hedging strategy, with 85% of 2025 production hedged, limits cash flow upside in a rising natural gas price environment, posing a significant headwind.
• Despite the Treasury's restrictive 45V tax credit rules, CNX's New Technologies unit's contribution to free cash flow is now more predictable, reducing downside risks.
• CNX's underwater hedges for 2025 and 2026, totaling over $650 million in losses at the current strip, severely limit its ability to benefit from higher future natural gas prices.

Back on December 1 ^st , I posted a bearish piece on natural gas producer CNX Resources ( CNX ) titled “ CNX Resources: Look Elsewhere for Natural Gas Leverage .”

Since publication, CNX is down over 28%, compared to a loss of just 7.36% in the widely followed SPDR S&P Oil & Gas Exploration & Production ETF ( XOP ) and a gain of 0.96% in the SPDR S&P 500 ETF ( SPY ):

My sell call was based primarily on two factors.

First, extreme optimism surrounding CNX’s New Technologies unit led to almost 95 percentage points of outperformance year-to-date through November 29, 2024, leading up to the publication of my article....

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