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Fitch assigns CNX Resources first-time rating of BB, citing 'thoughtful' hedging

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Fitch assigns CNX Resources first-time rating of BB, citing 'thoughtful' hedging

Fitch Ratings assigned a first-time rating to CNX Resources Corp., giving the independent oil and gas company a BB rating and a stable outlook.

Specifically, Fitch gave CNX a long-term issuer default rating of BB, a BBB-/RR1 rating for the company's revolving credit facility and a BB/RR4 rating for its senior unsecured notes, with a stable outlook.

Fitch in a Sept. 4 report highlighted CNX Resources' substantial natural gas base in the Marcellus and Utica shales, a "thoughtful" hedging program, ownership of CNX Midstream Partners LP and status as a low-cost operator. Also, Fitch expects that the company will begin generating free cash flow as it cuts capital spending and that its distributions to CNX Resources will increase at approximately 25% compound annual growth rate from this year's $55 million.

"CNX has one of the most robust hedging positions in the industry, with approximately 81% of its expected 2019 gas production hedged at an average of $3.01 per MCf and 86% of its expected 2020 gas production hedged at an average of $2.94 per Mcf," the report said.

However, CNX Resources' exposure to a recent decrease in natural gas prices may delay its free cash flow generation and affect the company's development of assets in southwest Pennsylvania. The agency also expressed concern that CNX's operations are so concentrated in a single geography.

"CNX operations are primarily in Appalachia, which exposes the company to significant basis risk due to takeaway constraints," the report said.

Still, Fitch expects the free cash flow to turn positive upon the company's completion of projects in 2020.