Logo of jester cap with thought bubble.

Image source: The Motley Fool.

CNX Resources Corporation  (NYSE:CNX)
Q3 2018 Earnings Conference Call
Oct. 30, 2018, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the CNX Resources Q3 2018 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Tyler Lewis, VP of Investor Relations. Please go ahead.

Tyler Lewis -- Vice President, Investor Relations

Thanks, Chad and good morning to everybody. Welcome to CNX's third quarter conference call. We have in the room today Nick DeIuliis, our President and CEO; Don Rush, our Executive Vice President and Chief Financial Officer; Tim Dugan, our Chief Operating Officer; and Chad Griffith, our Vice President of Marketing and President of CNX Midstream.

Today, we'll be discussing our third quarter results and we've posted an updated slide presentation to our website. To remind everyone, CNX consolidates its results which includes 100% of the results from CNX, CNX Gathering LLC and CNX Midstream Partners LP. Earlier this morning, CNX Midstream Partners ticker CNXM issued a separate press release. And as a reminder, they will have an earnings call at 11:00 AM Eastern today, which will require us to end our call at no later than 10:50 AM. The dial-in number for the CNXM call is (1888) 349-0097.

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'll begin our call today with prepared remarks by Nick followed by Don and then Tim and then we'll open the call up for Q&A.

With that, let met turn the call over to you, Nick.

Nick DeIuliis -- President and Chief Executive Officer

Thanks, Tyler and good morning, everybody. Before we get into discussing our performance for the quarter and what we see in the future with CNX Resources, we'd like to begin today with a few moments talking about the events here in Pittsburgh that occurred over the weekend. This community, whether it's the city of Pittsburgh or Western PA, it's been our home as a company literally for generations and it's always been a tight-knit, family oriented and a take-care-of-our-own kind of a town and the region. And that's why it's so hard to see something like this happen here. What happened the past Saturday morning is completely counter to all the values that this region was built upon and we just wanted to extend our condolences as a company to all of our buddies and families out there who were impacted by this truly tragic event. So thanks for letting us spend just a few seconds on that.

I'd now like to shift to how Q3 unfolded and what we see with respect to opportunities into the future, looking down the road. If I had to sum everything up, I would say basically that the team is firing on all cylinders. You see a lot of the evidence for that. We've tried to summarize that in slide 3, with the slide deck that we posted. Consistent execution is driving production. Capital efficiencies, economies of scale, they're driving costs slower. You couple all of that with the locked-in hedge book for the year and we're able to increase our full year 2018 consolidated EBITDAX guidance to a range of $990 million to $1.01 billion and as compared to the prior guidance of what was $945 million to $970 million.

So I'll expand more on our share repurchase program on the next slide. But if you look at our last shares outstanding, as of October 16, 2018, that's the date it's going to tie to the cover of our 10-Q when we file it, you can see that based on the midpoint of the guidance I just mentioned, we expect to generate $4.91 per share of consolidated EBITDAX in 2018. And the math and the formula is pretty simple here. EBITDAX is growing, while our share count is shrinking on a per share basis, which in our opinion is the only basis that matters for owners, as CNX just keeps getting more and more compelling.

If you look at production, in the quarter, we saw a modest decline. We guided to that during our last quarter's earnings call. So as expected, we ended up turning the line 35 wells. Most of those wells came on in the second half of the quarter. So due to time in production, modestly declined compared to the second quarter, but it also sets up the fourth quarter for production to peak for the year.

If you look at our published turned-in-line guidance, we expect roughly 16 additional wells to get turned-in-line during the fourth quarter. That will bring the total to 68 wells for the year. We've narrowed the full year production guidance range to 497.5 Bcfe to 507.5 Bcfe, which maintains the midpoint of the previous guidance of 502.5 Bcfe. So basically on track when it comes to production.

Our strong balance sheet, it continues to present awesome NAV per share accretive opportunities. We continue to play offense in the third quarter. We bought back the remaining $200 million of our 8% 2023 notes. This saved us an additional $7 million in interest expense and that brings our total annual interest savings looking into the future to approximately $18 million a year. These are real dollars, driving real increases to our NAV per share. Balance sheet has never been stronger with net debt to trailing 12 months EBITDAX at 2.26 times. That's on an attributable basis.

Some people out there keep referring to the 2.5 times leverage ratio as our target. I think that's a bit misleading. If we were above 2.5 times, having that as a target, I think that would be true, since we'd be managing to get down to the 2.5 times. But I think it's currently have been inaccurate because we're already below that level today and Q4 based on our guidance is only going to improve upon leverage ratio looking down the road.

More accurately, our healthy leverage ratio today, it creates optionality and adaptability. The balance sheet capacity will vary as capital allocation opportunities develop. And in this topsy-turvy energy world right now, there is a lot of capital allocation opportunity to take advantage of. I think the biggest capital allocation opportunity was our discounted share price.

Slide 4 sums up and provides some pretty compelling results. On the share repurchase front, we bought back an additional 8.3 million shares during the third quarter. And in total, through October 16 of this year, we bought back 27.6 million shares, since the program started last year. That's a 12% reduction in our shares outstanding. That's meaningful for several reasons, but the main reason, as I said on numerous calls in the past, is that CNX was the only Appalachian E&P company to not issue equity during the prior downturn. We didn't lose discipline and dilute our owners at a bad time and then have start a share count effort already behind the eight ball like many others are today.

Second, our job is to be great capital allocators, to grow the NAV per share of the company. We've conviction that our shares are undervalued in this misinformed market today and for a capital allocator, that's not a frustration, that's not a complaint, that's an opportunity. And this capital allocator named CNX is all over that opportunity. The fact they were able to retire 12% of our outstanding shares at prices far below our NAV per share makes us very happy. And the duo of facts that we've got a strong balance sheet and $300 million new authorization to keep going, that makes us even happier.

So thank you, Mr. Market. Last time we checked, this is a commodity business and as such, the low-cost producer wins the day. Our total production cash costs of $1.04 per Mcfe and our cash margins of $1.88 per Mcfe in the third quarter, those were driven by a powerful trio. We had low cost dry Utica volumes, strong core Marcellus well performance and last but not least, old-fashioned cost control. Stacked pays, they situate us to drive cost down more and margins even higher. The deep dry Utica program continues to go well and we spud two additional wells in Southwest PA and we're focused on driving down costs and optimizing well performance there.

You saw that we closed on the Ohio Utica JV sales during the quarter. We used the cash proceeds to pay down debt and repurchase shares. We have a distinguished track record of divestitures and there's no shortage of future opportunities for monetizations. We'll continue to be opportunistic in our approach and make decisions under the filter of NAV per share, so the same old story there when it comes to monetization opportunities.

I'd like to wrap my comments with a few remarks about the culture that's taking shape here at CNX is we approach the one-year anniversary of the new company. I think it's crucial to build a nurture culture that both challenges and rewards the team and drives results for the company. The spend that occurred last November gave us the opportunity to reboot our thinking and that's exactly what we've done. I think it's evident in the results from the quarter and for the year so far. Our data-driven culture built around innovation and the challenge-driven mindset is coming into its own. We continue to focus on operational execution and excellence.

We're mindful of the imperative to constantly work to control costs across the board and we work to simplify and streamline the way we do things to bring forward the most value for the business. Most importantly, we must always be shrewd capital allocators. That's the foundation of our culture and our mindset as we go about business everyday. We don't sit idle. We constantly look for ways to push the envelope and we're executing in the field. Balance sheet is where we needed to be. And the mindset and culture we want, they're pervasive. I've been telling you for a while now how excited I've been about the future of the company and I think these results and where we are heading demonstrate why I was so excited.

With that, now, I'm going to turn it over to Don Rush to discuss some of the financials in a little more detail.

Don Rush -- Executive Vice President and Chief Financial Officer

Thanks, Nick and good morning, everyone. This quarter really highlights our ability to execute our strategy on all fronts. In the quarter, we generated significant free cash flow. We reduced our net debt. We reduced our leverage ratio to below 2.5 times. We bought back approximately 4% of the company. We lowered our cash operating costs. We brought 35 new wells online. We added to our hedge book and we grew our consolidated EBITDAX per outstanding share by almost 150% year-over-year.

Slide 5 shows some of our financial steps. And I think it is important to reemphasize our strong cash margins of $1.88 per Mcfe for the quarter. It is clear our margins are benefiting from significantly lower cost, which Tim will touch on shortly.

Slide 6 highlights the attributable versus consolidated math. As I mentioned on the last earnings call, we will continue to show it both ways to provide clarity to our investors and ultimately, it is important to understand both businesses individually as well as combined to truly understand our intrinsic value.

Moving to slide 7. We're approximately 80% hedged for 2018. In the third quarter, we added 123.8 Bcf of NYMEX hedges and 99.7 Bcf of basis hedges out through 2023. As we have said, our hedging approach is a major component of our strategy. It's an important part of our balance sheet and gives us the opportunity to focus our efforts on risk-adjusted returns and NAV per share.

While discussing marketing, I would like to highlight that our 2018 volumes are expected to be comprised of 7% to 8% liquids, which you can see on slide 8. And in the quarter, strong NGL pricing definitely helped increase overall realizations. However, it is important to note that NGLs are difficult to hedge. And as we have witnessed, very volatile. This is the reason we have taken a flexible approach when it comes to NGLs. Our wet and dry midstream systems and our asset base allows us the flexibility to adjust as liquids prices change, instead of trying to guess what they're going to do next and predict the future.

On slide 8, you can see we have updated some of our 2018 financial guidance. Most notably, as Nick briefly mentioned, we increased our 2018 EBITDAX guidance by approximately $50 million compared to the previous guidance. Our cost and E&P capital guidance remains unchanged and we narrowed our 2018 production range, while keeping the midpoint the same. Our consolidated capital for 2018 increased slightly due to our MLP, CNX Midstream, increasing its 2018 capital guidance this quarter. We'll touch on this in more detail during the Midstream call, but essentially CNXM made a strategic land acquisition, upsized their systems due to CNX well improvements and accelerated some additional projects and construction activity from 2019 into 2018.

With that, I'll hand it over to Tim.

Tim Dugan -- Chief Operating Officer

Thanks, Don and good morning, everyone. We had a very busy and a very successful third quarter. As we've said before, CNX has transitioned firmly into execution mode and we're excited to show how our success in the field is driving NAV per share growth of the company through capital allocation, well quality and operating costs.

Now starting on slide 9, production in the quarter was 119 Bcfe, an 18% increase year-over-year and about a 3% decline quarter-over-quarter, as we expected and as we communicated on the second quarter call. The quarter-over-quarter decline was the result of our activity cadence and turn-in-line timing. And I'll discuss how we expect the end of the year to pan out in just a minute.

On the bottom left of slide 9 is a chart that we're pretty proud of at CNX. As you can see, total production cash costs have fallen to $1.04 per Mcfe or 17% lower than the same quarter last year. The quarter-over-quarter reduction of roughly 4% was driven largely by lower LOE, which benefited from decreased water disposal, as we reused more produced water for our fracs. And by the way, our total Utica shale production cash costs in the third quarter were just $0.56 per Mcfe, driven by the significant per well dry gas volumes.

The chart on the bottom right of this slide illustrates another major driver of our lower cash costs. Our industry-leading low firm transportation and processing commitments, which we feel is a major competitive advantage relative to peers. This fixed high cost transportation does give our peers access to other markets, but the cost of that transport is usually greater than the price uplift they see. We expect this advantage to become clear as additional pipeline projects come online and become an increasing burden to our competitors.

Turning to slide 10, this highlights our third quarter development and what we expect for the remainder of the year. The company turned-in-line a total of 35 wells in the quarter and we're on track to reach our previously stated guidance of 68 turned-in-lines for the year. For those of you doing the math, our implied production growth in the fourth quarter compared to the third quarter is about 10% based on the midpoint of full year production guidance. While this is a significant ramp, we continue to see strong early results from the recent turn-in-lines, which are steadily outperforming legacy wells and we'll have more on that in just a minute.

We're currently running four horizontal rigs, three in our core Southwest PA Central Marcellus area and one in CPA South on the Shaw deep dry Utica pad we discussed last quarter. We have two top hole rigs running on two multi-well Utica pads in our Morrison, Majorsville areas of our Southwest PA Central region. The Morris 10 activity is a return trip to an existing Marcellus pad with flowing production, which will benefit from stack pay efficiencies and potentially simultaneous operations. The Majorsville six pad is new construction and is situated near our Richhill, Marcellus and Utica field. Both pads are expected to spud in November and wells should be turned-in-line in the second half of 2019. We're applying lessons learned and techniques developed on earlier CPA in Southwest PA deep dry Utica wells like the Richhill 11E and quickly moving into factory mode. To date, the Richhill 11E continues to flow above its type curve and is yet to hit line pressure.

Moving on to slide 11, as I mentioned briefly, the wells we've turned-in-line over the past several months continue to outperform previous wells in the same fields. For example, on the top of the slide, you can see how the Morris wells from 2018 compare to both the legacy Morris wells turned-in-line in 2012 and '13 as well as the expected type curve from our Analyst Day materials. What you'll notice is that the 2018 wells have EURs that are 77% higher than the legacy wells and that the new wells are consistently hitting the expected type curve. This strong performance is the result of carefully designed inter-lateral spacing, stage spacing, increased proppant loadings and optimized drawdown procedures among other technical improvements. These results are proven and repeatable.

In the Richhill Field, latest turn-in-lines are much younger, but the overarching story is the same. Early cumulative production far exceeds the legacy Richhill wells from 2015 and 2016 and are flowing at or above expected type curves as laid out in the Analyst Day materials. These wells are benefiting from shorter stage lengths, higher proppant loadings and wider spacings on top of other technical advances deployed in the Morris field.

So why is this important? Well, the Morris and Richhill wells are expected to make up approximately 80% of our Marcellus turned-in-lines in 2019. This is why we're so confident in our rate of return expectations for the next year and why the drill bit continues to be a top capital allocation priority. And by the way, these pads are all designed for stack-pay development to allow for blending in Richhill and take advantage of other capital efficiencies like simultaneous operations that I mentioned earlier.

Now, let's turn to slide 12 and talk about some of the exciting things happening in the Central PA deep dry Utica. As we previewed on the second quarter call, our fourth rig came online in late June in CPA where it began drilling three laterals on the Shaw pad. Due to the drilling efficiency of those three laterals, consistent, core and log results and the prospects for takeaway capacity, we added a fourth lateral to the Shaw pad. Those wells are expected to be completed in the next few months and turned-in-line in the first half of 2019. In the past few weeks, we turned-in-line the Bell Point 6 delineation well, located just northeast of the Gaut Aikens and Shaw pads. We're excited by the early indications we're seeing from this will.

The charts on slide 12 show just how far we've come regarding drilling efficiency in the deep dry Utica. On the upper left, you can see how much costs have fallen relative to the initial Gaut well drilled in 2015. At the bottom of the slide, the chart demonstrates how quickly drilling has improved on a days versus depth comparison. All of these data points make us more and more confident in our ability to reach full development mode in this region and do it with a high rate of return.

Looking now at slide 13, we often get asked about just how far we can push the efficiencies we've gained over the last few years and what the rate of change looks like now compared to the early days. The fact is, we don't rest on our laurels and Nick highlighted some of the exciting changes in our culture. As such, we're always looking for new ways to optimize every facet of our development process. Since our Analyst Day back in March, we've reached several new milestones, including the drilling of a 7200-foot Marcellus lateral in just under 11 days from spud to TD, a peak completion speed of 2600 feet per day or 13 stages in 24 hours and we're currently averaging seven days from the moving of a drilling rig offsite to the start of a frac job.

These are the kind of metrics that company reaches when everyone's focused on capital efficiency throughout the organization and across our service partners. On the planning front, we've continued to examine and reexamine our development plans and have been able to add more than 700 feet to average lateral length going forward. We've also utilized remote fracturing and subgrade well head designs to mitigate PDP shut-ins, particularly on return trips to existing pads.

Now lastly, we continue to push the envelope from a technological standpoint across all of our operations. As we announced last quarter, the evolution all electric frac crew will be starting up in the first half of next year, which will drive meaningful cost efficiencies and HSE benefits. We're also very excited about a new casing design program that helps to reduce frac-treating pressure, which in turn reduces non-productive time and allows for higher rate of treatment in greater fracture complexity.

We believe this design could result in potential net savings of $250000 to $500000 per well when implemented. We're continually evaluating the latest technology and advances that we see across the industry that we can apply here in Appalachia. And like I said at the beginning, our focus remains on driving the NAV per share growth of this company and we have an array of tools at our disposal and the best sandbox to make that happen.

And with that, I will turn it back to Tyler.

Tyler Lewis -- Vice President, Investor Relations

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

Questions and Answers:

Operator

(Operator Instructions) The first question will be from Kevin MacCurdy with Heikkinen Energy Advisors. Please go ahead.

Kevin MacCurdy -- Heikkinen Energy Advisors -- Analyst

Hey, good morning, guys. My first question is on the repeatability of lower LOE cost. Will that roll forward? And is there any room to increase the amount of water you are reusing?

Don Rush -- Executive Vice President and Chief Financial Officer

Well, Kevin, I think when you look at our track record and the efforts we have put forth on managing costs and our drive for continuous improvement and then you look at the cash costs trends that we highlighted for both the deep dry Utica and the Marcellus, I'd say that over the long term, the results are very repeatable and there is room for additional improvement. And on the waterfront, we continue to utilize as much of our produced water as we can in our completions. And we'll continue to do that moving forward.

Kevin MacCurdy -- Heikkinen Energy Advisors -- Analyst

Great. And on the higher NGL volumes this quarter, how much of that was driven by ethane recovery? And how maybe has that trended throughout the year and what will trend throughout the winter?

Chad Griffith -- Vice President, Marketing

This is Chad Griffith. Kevin, I'll take a shot at that answer. We did have increased ethane recovery during the quarter. It was a little bit of a -- we sort of hit the floor, and we had to increase recovery of ethane at well processing facilities. So that's going to increase your NGLs recovered for the quarter and because it was ethane, it sort of brought that weighted average NGL barrel down for the quarter. It's probably a one time thing. When we look at ethane recovery, we have a lot of optionality with ethane. We have available de-ethanization capacity and we really just look at what's the best economics for that ethane, is it better rejected or even in the gas stream, it recovers ethane and so, and we found a lot of optionality there and we optimize that really on a month-to-month basis.

Kevin MacCurdy -- Heikkinen Energy Advisors -- Analyst

Got you. So the economics are not in favor of recovery at this point?

Chad Griffith -- Vice President, Marketing

It's pretty neutral. It's really very neutral right now. So recovering a barrel of ethane is almost exactly equivalent to the value of the heat content of that I think.

Kevin MacCurdy -- Heikkinen Energy Advisors -- Analyst

Great, guys. Thanks for answering my questions.

Operator

The next question will come from Holly Stewart with Scotia Howard Weil. Please go ahead.

Holly Stewart -- Scotia Howard Weil -- Analyst

Good morning, gentlemen. Maybe just the first one, given the majority of your 3Q wells are brought on in kind of the latter half of the quarter, could you provide us an exit rate for 3Q? And just give us a sense of kind of your ramp in to 4Q?

Don Rush -- Executive Vice President and Chief Financial Officer

Holly, I think with the majority of the turn-in-lines coming in the third quarter and then the quality of the wells, we're going to see our peak production for the year in the fourth quarter. But, at this point, I don't think we've laid out a exit rate.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay. And then maybe Nick is the plan still for 2019 guidance in January?

Nick DeIuliis -- President and Chief Executive Officer

That's the plan we're looking at like I said in the commentary, all the capital allocation opportunities that we've got across the drill bit that Tim highlighted, share count reduction options and how that all balances out, we'll have more to say about that, looking into the future come January when we cover Q4 results for the year.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay. Great. And then a couple of your projects on the pipeline side went into service in October. Curious if you're utilizing that in excess capacity right now? I guess the same question for Mountaineer XPress? And then kind of how do we think about those two projects impacting 4Q GP&T?

Don Rush -- Executive Vice President and Chief Financial Officer

Thanks, Holly for the question. For our Nexus capacity, our capacity has not yet actually started. They only turned their greenfield portion into service. And so we're still waiting for the full path to come into service, which we're really expecting at any time. So that portion is not in service for us yet. And so we're not yet using Nexus, so that demands also not yet started for us.

On the Mountaineer Xpress piece, as you know, that's sort of a two-piece project. The portion that reaches back to Majorsville and Southwest PA is much more, I think, strategically important for Appalachia. It was only the West Virginia portion that came into service. And we have been able to find some gas to buy and fill the capacity and we've been releasing some portion of that capacity that we've not been using. But by and large, the most important piece of that to us is the Majorsville piece and we're expecting that early Q1 of next year.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay. And then I guess any impact that we should kind of think through for that 4Q expense line with those projects?

Don Rush -- Executive Vice President and Chief Financial Officer

I mean I think that's already backed into the guidance we provided. It's baked into the full year guidance, Holly.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay. Great. Thanks guys.

Operator

The next question will be from Welles Fitzpatrick with SunTrust.

Welles Fitzpatrick -- SunTrust -- Analyst

Hey, good morning.

Nick DeIuliis -- President and Chief Executive Officer

Good morning, Welles.

Welles Fitzpatrick -- SunTrust -- Analyst

Can you talk about -- so obviously, there's no expiration on the buyback. Can you talk about your plans in that regard? I mean, are you going to try and I know you have an NAV-based approach, but is that going to be cared with drops? Are you allowed to use the RBL to buy back shares, if you see something, especially accretive to the NAV? Can you talk about the methodology going forward?

Nick DeIuliis -- President and Chief Executive Officer

Yes. Sure. And I think the easiest way to explain it is, it will be a similar approach that we've used here to date. As we've stated, we're comfortable using our balance sheet capacity below our leverage ratio of ceiling and as you kind of hit on, we do use NAV per share risk-adjusted return-based approach to make the decisions and we weigh the opportunity to buy back shares against current and in future opportunities that the company has outside of share buybacks. So I think going forward, you'll see a lot of the same that we've been doing, which is I guess a blend of being opportunistic coupled on the other hand with being prudent and patient when appropriate as well. So comfortable either direction, whether it's balance sheet or future changes in the business to go ahead and take advantage of things when we see an opportunity.

Welles Fitzpatrick -- SunTrust -- Analyst

Okay. Perfect. And then if we could talk about this new casing design a little bit, is that something that you see as applicable to across your acreage or are there certain portions that you will be testing first as we go forward?

Nick DeIuliis -- President and Chief Executive Officer

Right now, we see it as being most applicable to our deep dry Utica development.

Welles Fitzpatrick -- SunTrust -- Analyst

Okay. Perfect. And then so for the, I believe, there is a blended stack 9500-foot lateral. Would that apply in that quarter to $0.5 million savings? Does that take that under $8 million? Am I doing that right?

Don Rush -- Executive Vice President and Chief Financial Officer

You're referring to the targeted well cost for the type curve assumptions, Welles, I am assuming?

Welles Fitzpatrick -- SunTrust -- Analyst

Yes, that's correct.

Nick DeIuliis -- President and Chief Executive Officer

At that -- if you're talking about drilling and completion dollars, $8 million would be more of a Marcellus target. We're below that on the Marcellus, but right now, we put out our Utica target of $12 million and we're quickly approaching that and we would expect this new casing design to have an impact on that.

Don Rush -- Executive Vice President and Chief Financial Officer

Yeah. Welles, the $12 million we talked about, it was a $12.5 million target, assuming a 7000-foot lateral for the Utica.

Welles Fitzpatrick -- SunTrust -- Analyst

Okay. Okay. That's perfect. Thank you.

Operator

The next question will be from Sameer Panjwani with Tudor Pickering and Holt. Please go ahead.

Sameer Panjwani -- Tudor, Pickering, Holt & Co. Securities, Inc -- Analyst

Good morning, guys. You talked a little bit about future monetization opportunities, but the focus on potential drop downs. I think the EBITDA potential here is expected to grow to 200 million by 2020. So can you just give us an update of where that stands today on a run-rate basis, kind of heading into 2019? And if any of the retained assets are entering a phase of maturity or fit within the development program, where it would make sense to move them to the MLP in the near future?

Nick DeIuliis -- President and Chief Executive Officer

Yes. So going back to some of the Analyst Day materials that were posted, (inaudible) we've walked through sort of the EBITDA ramp from where it sits currently to 200 million, which was like a 2020 type timeframe number. So the assets that are comprised of that are in various stages of maturity. I can tell you that between CNX and CNXM, we're always hard at work, trying to find win-win opportunities that make sense. So as to when and if these get done and which ones in the order of which ones would go in, still very much a work-in-progress. But I can tell you we're constantly searching for opportunities to create win-win scenarios and once we do find, one, I think our track record is showing we're quick to act on it, once we do kind of figure out what we want to do.

Sameer Panjwani -- Tudor, Pickering, Holt & Co. Securities, Inc -- Analyst

Okay. Great. And then given the focus on NAV per share, how do you think about moderating go-forward growth with the forward curve approaching 250? I think, some of your peers have already messaged lower growth in 2019. And I just wanted to get your thoughts on allocating capital more aggressively toward buybacks. I think you kind of mentioned this a little bit kind of referenced in some of the Q&A, but I think, will it be helpful, I was just trying to get some context as to how you rank the opportunity side of the rate of return between buybacks and D&C activity given where the forward strip sits today?

Don Rush -- Executive Vice President and Chief Financial Officer

Yes. So a few different pieces that are questioned. First, I mean, we're eyes wide open on the forward strips. I think, we do a good job of paying attention to them and making sure that we're making decisions with it in mind and not just drilling and hoping they get better. Second, we're constantly reevaluating our capital allocation opportunities with the new variables and inputs that occur, whether it's NAV per share or technological advantage or what the peers are doing, so it's a constant mix as we're reranking these opportunities going forward. Third, production process is simply an output. We don't solve -- back solve for 5%, 10%, 20%, that's all just really an output.

The focus really is on risk-adjusted returns and where to best put our capital to use. And then I think going forward, you'll see similar to going backwards. It's hard to do all of one and none of the other in a lot of these circumstances. So, it'll be a mix that kind of help each other out. I mean, the more returns we're able to create via the drill bit, the better returns look on other pieces of our portfolio as well. So, they kind of go hand in hand and we're constantly screening them and making decisions as variables change.

Sameer Panjwani -- Tudor, Pickering, Holt & Co. Securities, Inc -- Analyst

Okay. Thank you.

Operator

The next question will be from Jane Trotsenko with Stifel. Please go ahead.

Jane Trotsenko -- Stifel, Nicolaus & Co., Inc -- Analyst

Good morning. The press release highlights that your production costs are lower in Utica than in Marcellus. Could you please comment on the competitiveness of your remaining Utica assets, as it relates to the Marcellus assets in your portfolio? And if you see a higher rate of change in Utica versus Marcellus?

Don Rush -- Executive Vice President and Chief Financial Officer

Well, I think, I mean, the Utica and Marcellus compete very well with each other, but they're very different. The Utica is dry gas, the Marcellus has a blend of wet and dry gas. But when you look at the rate of change, right now, the rate of change is more significant in the Utica because we're earlier on in the development of that play. But they are both, they both generate great returns. We put our development plan together in a way that maximizes our returns and that's really what we focus on. But we're continuing to move forward with the Utica. We're a first mover there. We're a front-runner and with that, we have a significant competitive advantage. So we take advantage of that as much as possible.

Jane Trotsenko -- Stifel, Nicolaus & Co., Inc -- Analyst

So let me just kind of elaborate on that. So Utica, you have three assets right and a little bit what is left in Ohio and then West Virginia and Central PA? Could you just maybe talk in terms of regions, is it like Central PA has the highest returns relative to other assets?

Nick DeIuliis -- President and Chief Executive Officer

No. I think they all provide significant rates of return and they are all different and they all provide different benefits. In Southwest PA, as we've talked about in the past, the Utica is critical to our blending strategy with the damp Marcellus wells. And they both provide -- the stack pay provides increased rate of returns for both the Marcellus and Utica. In Central PA, we have the same type of uplift, but the Utica in Central PA is really the driver there and that Utica, because of the existing assets, that will already be in place for Utica wells will uplift any Marcellus development that takes place on a stack pay basis.

Jane Trotsenko -- Stifel, Nicolaus & Co., Inc -- Analyst

Okay. Got it. The next question relates to the realized natural gas pricing. I saw that it improved by more than the improvement in Henry Hub pricing in 3Q. Could you please comment on your exposure to in basing pricing? And how much gas is sold on a spot basis versus (inaudible) pricing?

Don Rush -- Executive Vice President and Chief Financial Officer

Sure. So we take a little bit different approach to FTE (ph), differentiates us from a lot of our peers. We have the lowest FTE commitment of any of our peer group. And that, which ultimately results in us selling a lot of gas locally and then taking advantage of these other projects that are coming online to lift that in basin price. And that's really what we saw, the trend here in Q3 coming into Q4. These projects coming online, moving gas out of the basin and improving our local price. And we were able to receive the benefit of that improved local price without really signing up for big pieces of this export capacity like some of our peers have had to.

Jane Trotsenko -- Stifel, Nicolaus & Co., Inc -- Analyst

Okay. On spot basis and bid rig pricing, like, how much is sold on a spot basis if you sell any of your gas on a spot basis?

Tim Dugan -- Chief Operating Officer

Well, we optimize our sales book sort of on a real-time basis, right. So we've got a mix of seasonal deals, we've got a mix of term deals, mix of first of month and a mix of spot. And really, we look at market conditions every month and sort of optimize that portfolio based upon what we see happening in the marketplace.

Jane Trotsenko -- Stifel, Nicolaus & Co., Inc -- Analyst

Okay. Thank you so much.

Operator

The next question will be from John Nelson with Goldman Sachs.

John Nelson -- Goldman Sachs -- Analyst

Good morning. Thank you for taking my questions and certainly, our hearts and condolences also go out to the Pittsburgh community. Nick, I'm afraid I might be one of those folks you referenced in your prepared remarks who needs a better understanding of the leverage target. So, hoping to kind of focus a little bit on the text on slide 3. So not trying to mince words, but I guess to better understand the leverage target, is it something that you folks would be comfortable going above for a period of time in particular to be opportunistic on the share repurchase program? Or should we be thinking of it as a ceiling?

Don Rush -- Executive Vice President and Chief Financial Officer

Yes. So this is Don. I'd think of it in a couple of different ways. So I've got asked this question a lot, are you looking at trailing-12 months? Last quarterly, you were annualized next 12 months and really we look at this as just a growing concern kind of business leverage ratio target. So we look at not only 2018, but 2019, 2020, 2021, we look at the gas board strips. We stress test it. So, it's a blend that allows us comfort coupled with our hedge book, low-cost position and kind of where assets sit on the cost curve to allow us to really have the strategy unfold. So taken any of the pieces in isolation, it doesn't quite make as much sense if they do altogether. So the 2.5 times is really a ceiling, but how we think about that 2.5 times is much more dynamic and all encompassing as opposed to a snapshot point in time measurement.

John Nelson -- Goldman Sachs -- Analyst

So it could be more 2.5 times ceiling on a forward expectation is maybe the way to interpret that?

Don Rush -- Executive Vice President and Chief Financial Officer

We bought back shares in Q1 and Q2 and we weren't at the position that we're at today. So it's --we had a clean line of sight. And we've prudently and patiently did it over time with the visibility that we would be here where we're at today with confidence. So it's a blend of Utica as a ceiling, it's a blend of what our hedge position looks like going forward. And so, I'd say, blend of kind of all the factors that really stress test the viability of the business. So the 2.5 times ceiling is a kind of a linear one way to look at it. But it's encompassed with a bunch of other pieces that kind of roll into ensuring that you have a strong balance sheet, a strong business. And if that answer is yes, then we feel comfortable using our capacity for opportunistic NAV per share accretive uses.

John Nelson -- Goldman Sachs -- Analyst

Okay. And again, I'm not trying to mince words, I really just wasn't sure how to interpret the adaptability kind of line item there, is that kind of signaling that you think that should go down over time or really just wasn't clear on kind of what the takeaway should be from that word?

Nick DeIuliis -- President and Chief Executive Officer

John, this is Nick. The adaptability was mentioning and referencing our ability to move quickly, because a part our balance sheet is conditioned to change. This could be forward pricing, this could be EUR improvements, this could be share price changes with respect to CNX stock and being at the 2 to 6 or so leverage ratio in Q3 and then with the guidance that we put out, looking at what Q4 EBITDAX is doing, that leverage ratio, all things being equal is only going to be lower. So adaptability specifically just speaks to the ability to move quickly as these extraneous and external and internal assumptions change and then the leverage ratio being where it's at coupled with our cash flow ramp in Q4 puts us in a position that Don was talking about.

Don Rush -- Executive Vice President and Chief Financial Officer

Yeah. And to add to that too, the hedge position really gives us time to adapt. So things change, it doesn't change for us next quarter. We have a hedge book that gives us a runway to modify as we stay fit for circumstances in the future with gas prices. So, it gives us time to adapt as circumstances change around us.

John Nelson -- Goldman Sachs -- Analyst

That's really helpful, the clarification. And then just last one for me, the 300 million kind of incremental program the board authorized, any color on just how that figure was targeted? And I know it has an open-ended time horizon on it, but is there an expectation that over what period of time you'll expect to be able to complete that?

Don Rush -- Executive Vice President and Chief Financial Officer

I think as we've been kind of talking to for a while now, it's just constantly going to be a tool in our toolbox that we'll have to use. So ultimately kind of pointing to time horizons is unnecessary, we view it just as a part and parcel of the way we -- to run the business and we run the company. So it's just part of our ongoing decision making that will always be there for us to use, if we choose.

John Nelson -- Goldman Sachs -- Analyst

Great. I'll let somebody else hop on. Thanks again.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks.

Tyler Lewis -- Vice President, Investor Relations

Thanks, Chad and thank you everyone for joining us this morning. We look forward to speaking with you again next quarter. Thank you.

Operator

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

Duration: 44 minutes

Call participants:

Tyler Lewis -- Vice President, Investor Relations

Nick DeIuliis -- President and Chief Executive Officer

Don Rush -- Executive Vice President and Chief Financial Officer

Tim Dugan -- Chief Operating Officer

Kevin MacCurdy -- Heikkinen Energy Advisors -- Analyst

Chad Griffith -- Vice President, Marketing

Holly Stewart -- Scotia Howard Weil -- Analyst

Welles Fitzpatrick -- SunTrust -- Analyst

Sameer Panjwani -- Tudor, Pickering, Holt & Co. Securities, Inc -- Analyst

Jane Trotsenko -- Stifel, Nicolaus & Co., Inc -- Analyst

John Nelson -- Goldman Sachs -- Analyst

More CNX analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.