What happened

Shares of natural gas driller CNX Resources (NYSE:CNX) are rallying today, up nearly 14% by 10:45 a.m. EDT. The company's MLP, CNX Midstream Partners (NYSE:CNXM), on the other hand, was heading in the opposite direction, with its units tumbling 31% this morning. Fueling the big moves were first-quarter results and an update to operating plans.

So what

Slumping commodity prices weighed heavily on CNX Resources' first-quarter results. The gas driller reported a loss of $329 million, or $1.76 per share, as weaker pricing forced the company to write down the value of its midstream unit as well as its coal bed methane operations in southwestern Pennsylvania.

A natural gas well with pipelines at sunset.

Image source: Getty Images.

Lower pricing also forced the company to make changes to its operating plan. CNX Resources will reduce its 2020 capital budget by 10% to a range of $530 million to $610 million. It expects capital spending to continue falling in future years. This lower spending level will keep its production volumes roughly flat through 2026, enabling it to generate about $500 million of annual free cash flow if commodity prices cooperate. That excess cash will allow it to create a fortress-like balance sheet so that it can more easily weather future storms in the commodity market.

The capital spending reduction by CNX Resources will impact the growth profile of its MLP, since fewer volumes will flow through that company's gathering systems than initially expected. So CNX Midstream slashed its distribution to investors by 80%. That move, which it hinted was likely, will enable the company to retain $30 million of additional cash flow each quarter that it can use to strengthen its balance sheet, including paying down the $347 million outstanding on its $600 million credit facility.

Now what

With commodity prices plunging this year due to abundant supplies and weak demand, drillers like CNX Resources are turning off their growth engines. While that will enable the company to shore up its balance sheet by paying down debt, it will impact the growth profile of its MLP. The formerly high-yielding company had to slash its payout and follow its parent in redirecting cash toward paying off debt.