CNX Resources Corporation (NYSE:CNX) Q4 2022 Results Conference Call January 26, 2023 10:00 AM ET
Company Participants
Tyler Lewis – VP of IR
Nick DeIuliis – President, CEO and Director
Alan Shepard – CFO
Conference Call Participants
Zach Parham – JPMorgan
Leo Mariani – MKM
Neal Dingmann – Truth Securities
John Abbott – Bank of America
Jeoffrey Lambujon – Tudor, Pickering, Holt
Noel Parks – Tuohy Brothers
Operator
Good day, and welcome to the CNX Resources Fourth Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]After today’s presentation there will be opportunity to ask questions. And please note that this event is being recorded.
I would now like to turn the conference over to Tyler Lewis, Vice President of Investor Relations. Please go ahead.
Tyler Lewis
Thank you, and good morning, everybody. Welcome to CNX’s fourth quarter conference call. We have in the room today Nick DeIuliis, our President and CEO; Alan Shepard, our Chief Financial Officer; and Navneet Behl, our Chief Operating Officer.
Today, we will be discussing our fourth quarter results. This morning, we posted an updated slide presentation to our website. Also detailed fourth 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 4Q 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, followed by Alan and then we will open the call up for Q&A where Nav will participate as well.
With that, let me turn the call over to you, Nick.
Nick DeIuliis
Good morning, everybody. 2022, it marked the best year ever for CNX as a public company with respect to free cash flow generation. The fourth quarter marked 12 consecutive quarters of significant free cash flow generation, which helped produce the annual record of $707 million. We utilized the free cash flow to reinvest into the asset base. We use it to reduce debt, and we used it to acquire our discounted shares Cumulatively, you add all this up, we’ve retired nearly 25% of the outstanding shares of the company since the inception of the share repurchase program in 2020. And to put this in a perspective in terms of the total impact, the cumulative result of acquiring nearly quarter of our company in this short period of time, it’s been matched or vested by only four other companies in the S&P 500 and only by 22 companies in the S&P 1500.
So when you consider the steep discounts in price that we enjoyed when acquiring our shares relative to the low-risk, long-term free cash flow yield and the intrinsic per share value, CNX may very well be one of one in the S&P 1500 universe of public companies. We’re basically doing two things at the same — material share count reduction and at the same time, at a substantial discounted price.
And by the way, while we typically reference share repurchases since the midstream acquisition, is that’s our most recent share count high, we’ve been consistently repurchasing shares since 2017. And we’re potentially just getting started because if we continue to see substantially undervalued shares, we’re going to continue to opportunistically acquire ourselves to grow per share value for owners.
Stepping back for a moment to assess the results of the past few years. It’s clear that at the halfway point of our initial 7-year plan that we provided in 2020, we’ve exceeded our initial expectations. The long-termism that wraps around our sustainable business model and that’s embedded in our decision-making. It’s beginning to add up to incredible achievements on our key objective of long-term, low-risk free cash flow per share and more importantly, allocating that free cash flow thoughtfully to produce, in the end, a drastically reduced share count and reduce debt level. This underpins our ability to grow long-term free cash flow per share in multiple different macro environments, and that those macro environments could play out over the next decade plus. And these results, they’re symptomatic of our consistent strategic thinking as well as our execution.
Now turning back to the shorter-term outlook. Despite the important success of 2022 and the continuing march of our long-term strategy, we find ourselves amid very chaotic times. There are broader macro challenges, I’ll call them, that the industry has to contend with moving forward. In particular, we’ve got increased inflationary pressures in the second half of 2022. You couple that with the rapid deterioration of pricing through this winter, you’re seeing the near-term challenges throughout the industry. In CNX, we’re not immune to either challenge, albeit I will say we are better positioned than most due to our midstream ownership, our focused activity set and due to our programmatic hedging strategy.
So although these two issues are going to impact near-term free cash flow generation, we’re still able to execute the core tenets of our sustainable business model, basically, just as we’ve consistently done year after year across all phases of the macro and commodity cycles. Despite the challenges we see out there today, companies next seven years is going to set up to be vastly improved when compared to the original seven-year look that we laid out again back in 2020.
Now while we can consistently generate substantial free cash flow per share goes back to the foundations of our competitive moat, much of that is captured in our Appalachia First vision. I encourage you to review it if you haven’t seen it already or to revisit it. If it’s been a while and you want to take another look at this. But many of the competitive advantages that CNX brings to bear, they are tied effectively to the strength of the Appalachian region itself.
So allow me to summarize the three largest contributors to the CNX competitive moat. On First Advantage, we got unique stack pay position in Appalachia with the Marcellus and Utica, presents an unparalleled opportunity to lead the development of what we think is going to represent one of the world’s top two most prolific natural gas basins. Second major strategic advantage that we’ve got, integrated upstream midstream structure that allows us to make long-term investments to generate high rates of return and basically creating the lowest cost all-in operating costs in the basin. And then the third strategic advantage, it’s our opportunity set that we’re seeing with our new technologies business segment in arenas of things like methane capture and abatements with respect to transportation fuel market development with respect to just overall general technology deployment. They continue to differentiate us and create a growth outlet for CNX as the world continues right to focus on lower emission and lower risk energy solutions.
Now all 3 of these pillars or strategic advantages, they support a sustainable business model that generates that significant free cash flow to simultaneously reinvest into the business to reinvest into reducing debt and to reinvest into acquiring our discounted shares year after year. It’s basically a long-term recipe for success when anchored by that Appalachia first vision at the core or at the route.
In 2023, each of these themes or these advantages are playing out in different ways when you look at our capital allocation. So some allocation decisions, such as our core D&C program, they’re very familiar to all of us. Other capital allocation decisions, such as those in the new technologies segment, they were discussed. We talked about them in 2022, but now they’re becoming tangible decisions in 2023. So allow me to touch on each of these broad buckets of capital investment for ’23, at least, in some reform, Alan is going to cover these in much more detail shortly.
So the first sort of category or bucket, it’s that core of our 2023 capital investment and it’s the continuation of a 1.5 rig plus 1 frac crew D&C program to continue the development of our core Southwest Pennsylvania assets. This is the bulk of 2023 capital spend is expected, and it’s subject to the inflationary pressures that I alluded to earlier. However, today’s higher capital costs, I will point out they are more than offset by the increased pricing outlook that we continue to programmatically hedge. So in other words, our project-level returns, they remain robust in this environment. Thanks to our consistent derisking approach. And some out there, they’re saying inflation is waning and who knows maybe the right. But we assume in our ’23 guidance, current inflationary pressures are going to continue through 2023’s entire activity set. If inflationary pressures drop in ’23, we can adjust capital guidance accordingly at that time. What’s not going to change? It’s our desire to use the highest quality crews and products to make the long-term focus decisions for those inputs and that derisk our plan.
Now the second sort of component of our capital investment plan for ’23, we continue to invest in our fully integrated midstream and water infrastructure. So similar to last year in ’22, we invest capital in ’23 to enjoy the returns and the benefits over the next, call it, 30 years. And while the core projects that underpin our long-term plan, they very little, the magnitude of these investments, it’s going to vary from year-to-year with those inflationary pressures that I discussed, as well as with shifts in planned timing as we’re always looking constantly evaluating how to best de-risk and delineate and profitably develop our stacked pay fields.
And then additionally, many of these highly accretive life of field investments, they not only solidify us as the region’s low-cost operator, but they also raised the level of our ESG performance. I’ll give you a great example of that this year. It’s a significant one as well, I think. And that’s the construction of a centralized aboveground water storage tank facility in our Southwest Pennsylvania field, that not only provides life of field low-cost, low-risk water supply, but that will also start the phase out of in-ground impoundments without adding trucks to the road, and that’s a really good outcome from our perspective.
And then last, when it comes to the different major components of the capital program in 2023, we’ve targeted several discretionary capital allocation opportunities whose risk-adjusted returns, they compete for investment and they reinforce our Appalachia first vision. For example, in ’23, we will be participating as a major non-op partner in PAD related to the Pittsburgh International Airport project. The continued development of our Pittsburgh airport project, it’s critical to CNX and our Appalachia First vision. It’s critical to the airport as it continues with the terminal modernization program, and it is critical to the wider region, given the key — the key role that the airport plays as an economic development engine for the area. Now this project, along with several other emission reduction business opportunities in that new technologies business unit, they’re laying the cornerstone to once again support that Appalachia first vision.
So now I want to pivot to some comments on our 2023 production outlook. Production, as you know, it’s a result for us, not an objective within our strategy and business model. And while our focused activity set results in lower overall operational risk and long-term certainty of execution, any short-term delays or disruptions to that program is going to create noise when look into production on a quarter-to-quarter or year-to-year basis. For example, as we discussed on the Q3 call last year, we experienced delays associated with an abandoned Utica wellbore. And while we initially expected to be able to make schedule adjustments to offset those delays and basically hold production levels flat year-over-year, weather-related and other operational delays in last year’s fourth quarter completion schedule, it further impacted production levels in early 2023. And as such, we’re now expecting production in ’23 to be modestly lower rather than flat compared to 2022. And we expect production levels to be the lowest in the first quarter, build throughout the year as TILs accelerate. Most importantly, we’re expecting to return to our 2022 production level run rate around midyear 2023 and plus or minus. And from there, return to more elevated annual levels in 2024 and beyond. So a short-term issue.
And if you take all this into account, the planned for 2023, it’s pretty simple. Continue the march of our sustainable business model. And before I do hand it over to Alan to discuss the quarter in a little more detail, I do want to introduce our new Chief Operating Officer, that you heard from Tyler with the intros, Nav Bhel. He has no overstatement to say that Nav has seen and done it all. His view of this incredible potential of our asset base that drove this decision to join us. It’s just, I can tell you, contributes to our collective excitement about the future. So from overseas North American operations for a Fortune 500 oil and gas producer to his proven track record of building effective teams and successfully developing new shale plays to work in offshore basically across the globe, his diverse set of experiences and Nav’s impressive technical expertise, I can tell you they’re already valuable as we continue our efforts to pioneer the benefits of the deep Utica here in the Appalachian Basin and of course, site, remain focused on the daily safe and compliant execution of our operational plan.
In the end, this is a highly competitive business. We aim to win on behalf of our owners. So whenever we see an opportunity to improve the team, we’re not going to hesitate to act. That’s what we were lucky enough to be able to do with Nav, and you should expect to see and hear much more from Nav in the future.
With that, I’m going to turn things over now to Alan.
Alan Shepard
Thanks, Nick, and good morning to everyone. As Nick mentioned, this quarter represents the 12th consecutive quarter of free cash flow generation through the execution of our sustainable business model that is grounded in clinical capital allocation to optimize long-term free cash flow per share growth. In the fourth quarter, we generated approximately $276 million of free cash flow or $707 million of free cash flow for the year. This brings our 3-year cumulative total free cash flow to close to $1.6 billion or approximately 55% of our current market cap.
Let’s first turn to the capital allocation side of the business as highlighted on Slide 5. As you can see, we continued our market-leading shareholder return initiatives by purchasing 12.6 million shares in the quarter and another 1.3 million shares after the close of the quarter through January 17. Said differently, we bought back nearly 7% of our total shares outstanding over that time frame. And since we started this program in Q3 of 2020, over the last 9 quarters, we have repurchased approximately 24% of the outstanding shares of the company.
We continue to see this as a remarkable low-risk capital allocation opportunity moving forward. And although we have not given an explicit capital allocation framework, if you extrapolate these levels of buybacks moving forward, you can see that we will continue to dramatically reduce our denominator and thereby meaningfully grow our long-term free cash flow per share.
On the balance sheet side, this quarter, we also reduced adjusted net debt by $57 million during the quarter, bringing our annual total reduction to $107 million or $360 million since we started the program in Q3 2020. More importantly, our robust liquidity position and long debt maturity runway enable us to take advantage of any deepening valuation disconnects that might occur in either the equity or debt markets.
Let’s now shift to our updated 2023 outlook on Slide 6. First, from a macro perspective, we expect the recent pricing volatility to continue in 2023 as the U.S. domestic markets continue to fluctuate with shifting weather expectations, uncertain domestic production levels and continuing LNG demand from around the world. How gas prices unfold in 2023 will depend on a difficult to predict combination of those 3 core elements. Despite that uncertainty, CNX’s focus will remain on safely and efficiently developing our assets and generating free cash flow to clinically allocate towards reducing our debt and share count. The outcome of the combination of those core elements is easy to predict. High rates of return on our capital investments and sustainable growth and long-term per share value.
With that in mind, let’s now turn to the specifics of the 2023 guidance. For 2023 production volumes, our initial expectations are between 555 and 575 Bcfe, which is a slight decline based on the midpoint of the guidance range when compared to the 2022 production total of 580 Bcfe. As we discussed on previous earnings calls in 2022, we experienced various operational delays and challenges, including most significantly in abandoned Utica wellbore that resulted in lower overall production in 2022, which are now expected to result in the year-on-year decline. Most recently, further weather and operational delays to the frac line in Q4 2022 are expected to result in Q1 volumes being the lowest quarter during the year with volumes ultimately building quarter-over-quarter as we move forward.
Despite the operational delays that were encountered in 2022, we believe that we have made the necessary operational and organizational adjustments that will result in a return to our 2022 production level run rate of approximately 1.6 Bcf per day around the 2023. Based on our 2023 production range and using January 5 strip pricing, we expect the annual EBITDAX range to be between $1.1 billion to $1.25 billion. Given that our 2023 gas production volumes are roughly 80% hedged, this EBITDAX range includes estimated open volumes of around 100 Bcfe.
As we’ve seen throughout 2022 and in recent weeks, while the extreme volatility in the natural gas markets will significantly impact near-term results, prices along the strip are still materially higher than in recent years. And as such, the rates of returns on previous capital investments remain not just high but improved in this environment. And the future business plan not only remains intact, but even stronger.
Let’s turn now to the 2023 capital outlook. As we discussed on the Q3 call, we are expecting a capital range for the year between $575 million and $675 million. This capital range reflects the continuation of our operational plan that utilizes roughly 1.5 drilling rigs and 1 continuous all electric frac crew. Additionally, this annual capital budget assumes a full year of the increased inflationary cost environment that we experienced during the latter part of 2022 and reflects our desire to use the highest quality crews and products and to make the best long-term focused decisions to help derisk our plan.
If we are to break the capital budget down into components, approximately 75% of the total is allocated to D&C capital, which includes pad construction and production equipment. Approximately 20% is allocated to non-D&C capital towards the core business, which includes midstream and water pad hookups and other centralized infrastructure. And then the remaining 5% is allocated to what we are calling discretionary capital, that is per definition, capital that we don’t need to spend this year to maintain production, but have determined that the investments outcompete other opportunities for that capital. For instance, we are spending discretionary capital this year on a major non-op pad, which Nick highlighted in his remarks. That opportunity to provide a number of benefits in economic terms, but also helps to unlock our Appalachian First vision.
Also, we are spending targeted capital in our new tech business group to further our mine methane abatement operations and other emission reduction technologies. We believe that these discretionary investments will generate significant returns and that they are prudent investments to make today.
Lastly, with respect to 2023 free cash flow. Using the midpoint of the guidance ranges, we are setting our initial free cash flow outlook at approximately $375 million. Based on that free cash flow estimate, using our current share count, free cash flow per share is expected to be approximately $2.20. Importantly, that estimate is not based on any potential end of year share count projection but rather based again on our latest share count. We summarize this guidance slide. The current 2023 free cash flow is lower than our expected future run rate due to 3 main factors: First, the lower first half production for the year that we discussed; second, the impact on capital of assuming annualized second half 2022 inflation levels persist throughout the year; and third, incremental investments and high IRR discretionary capital projects. Overall, our goal remains the same. To grow the long-term free cash flow share of the company, and our 2023 business plan is another step in continuing to do that this year and beyond.
Now let’s shift to Slide 7. This is a new slide that is meant to highlight how our hedging strategy is programmatically locking in higher future gas prices. The dark blue portion of the graph represents the percent of hedges as of Q1 2022. The light blue portion of the graph represents the hedges that we have added over the last 3 quarters. Lastly, the tan dash line portion of the graph represents the open volumes when assuming the midpoint of our production guidance in 2023 of 565 Bcfe and assuming 590 Bcfe for 2024 through 2027, less 7.5% for liquids.
As Nick mentioned, today’s higher capital costs are more than offset by the increased pricing outlook that we continue to hedge into. In other words, our project level returns remain robust in this environment, and thanks to our consistent derisking approach. That is exactly what this slide highlights. Through the consistent execution of our hedging strategy we have and will continue to add higher priced hedges in what is an elevated natural gas price environment compared to when a lot of the hedges were originally put on. For instance, looking at 2023, as of Q1 2022, we were already 77% hedged at $2.37 per Mcf, which is a realized price net of basis differentials. Over the last 3 quarters, we have added 21 Bcf of hedges for 2023 at an average price of $4.46. Similarly, if you look at 2027, we had very low hedged as of Q1 2022. However, over the last 3 quarters, we have added 113 Bcf of hedges at $3.51 per Mcf, up from $2.10. Locking in these increased pricing levels translates to significant future margin expansion that will add material free cash flow compared to the original 7-year plan that we put out in 2020.
In conclusion, we believe that the volatility that we’re seeing in the commodity markets is simply noise as it relates to our sustainable business model and long-term plan. Despite the uncertainty in the gas markets we are currently seeing in 2023, along with the uncertainty around the broader economy, we are confident in the sustainable business model that we have created. Our focus in 2023 will remain on safe and compliant execution to develop our extensive asset base and our clinical capital allocation to grow our long-term free cash flow per share. In other words, as always, we will continue to operate with an owner mindset.
With that, I will turn it back over to Tyler for Q&A.
Tyler Lewis
Thanks, Alan. Operator, if you can open the line up for questions at this time, please. .
Question-and-Answer Session
Operator
[Operator Instructions] And our first question today will come from Zach Parham with JPMorgan. Please go ahead.
Zach Parham
Nick, I know you mentioned that project level returns are robust at current prices and that — you’ve got a significant amount of volumes hedged. But just given the pullback in natural gas prices that we’ve seen recently, would you consider maybe delaying some completions or slowing activity at all? And I guess if not, is there a price level where you might consider slowing down?
Nick DeIuliis
Zach, yes. So there’s always obviously going to be a price level where we adjust activity set or capital allocation with respect to repurchases, debt, all those different avenues. And the process that remains constant, remains the same. So we’re continually running this math that you speak of. And to sort of cut it short with regard to a conclusion, there is a substantial risk-adjusted acceptable rate of return on our 1 frac crew, 1.5 rig activity set sort of under any foreseeable gas price moving forward. We continue to run it. The reason we continue to run the math is to always be thinking about how that might impact the NAV per share of the company with respect to other allocation decisions like share repurchases. But whether it’s share repurchases or this activity set that we’ve laid out with that 1.5 and 1 sort of activity set, we’re good to go. .
Zach Parham
Just one follow-up. I know a lot of things have changed since you initially rolled out the 7-year plan several years ago. But in that plan, you expected operating costs to kind of tick lower over time. Maybe could you just update us or give us a little detail on how you expect those cash costs to trend in 2023 and going forward?
Alan Shepard
Yes. So I think we still have the expectation that the cash cost will trend lower. I think what you saw kind of in the ’21, ’22 time frame was a higher mix of wet as we brought on some of the additional Shirley-Penn pads, to have those higher process and costs associated with that. And you also saw the impact of kind of higher severance taxes as pricing has moved up. I think moving forward, what you’ll see is some of our kind of third-party areas, particularly the legacy Ohio production and the legacy West Virginia production in Shirley-Penn as that leads off and we replace that with our wholly owned kind of gathered infrastructure up in the SWIP CPA, you’ll see those prices come down, or average costs come down.
Zach Parham
Can you quantify what level of decline you expect?
Alan Shepard
Yes. I think rashly, we’re always targeting to get back to kind of that $1 range.
Operator
And our next question will come from Leo Mariani with MKM. Please go ahead.
Leo Mariani
I was hoping you could speak a little bit more on some of the operational slippage that you kind of discussed on the fourth quarter. You mentioned there was the issue with the abandoned Utica well. But just wanted to kind of get a sense. I mean, it certainly seems like with the — as you’re seeing lower production in 4Q, something you expect a little bit lower production in the first quarter of ’23. Were there any other just like major supply chain issues? Or do you guys have any like labor issues on the frac side or certainly hearing from other operators? And if you a piece of equipment that breaks or something, it’s just really hard to kind of get these days in a rapid fashion, just given the tight supply chain market. So I just wanted to get a little bit more kind of color around what’s been kind of happening with the ops here of late.
Nick DeIuliis
Yes. So Leo, basically, the way to think about it is we have a 1 frac crew program, right? So any kind of delay pushes all the future as to the right a little bit. And obviously, the biggest signal contributor last year was abandoned Utica wellbore. And then in the Q4, we had weather and a couple of other issues. So it more — it’s more on our side as opposed to anything you see. I mean, certainly, we experienced the same sort of supply chain issues everyone else does in the basin. But it’s more just things slipping to the right on that end.
We’re constantly evaluating opportunities to potentially get back on that cadence. You run that math, we just thought it made more sense to let kind of the production dip a little bit in Q1 and just focus on getting back to our 1.6 Bcfe run rate.
Leo Mariani
And then just can you speak a little bit to the CapEx range in ’23 at $575 million to $675 million. I guess that’s just eyeballing the math kind of 15% to 18% range or whatever in terms of the numbers here. You talked about how you kind of assumed inflation continued in that range. So maybe just help us out a little bit with how to get to the lower end versus the higher end?
Alan Shepard
Yes. So I think the way you want to think about it as kind of the 2 big buckets that we split out this time. So on the D&C side, basically that range is reflective of the potential for inflation to kind of soft in the back half of the year. I think you’ll probably see elevated prices for the first half. And then as prices have come down pretty rapidly, you should see some softening in the supply chain cost in the second part of the year. Then on the non-D&C side, if you think about those projects, a lot of pipe construction and midstream construction. And most of that stuff is bid kind of currently as it’s being done. So you need a wider range there because you’re not sure what environment you could be bidding into in the next kind of 5 or 6 months. So just with kind of the uncertainty in the world, we went with wider ranges this time. And as Nick mentioned, as those could tighten up through the year, we’ll provide that color to you all.
Operator
And our next question will come from Neal Dingmann with Truth Securities. Please go ahead.
Neal Dingmann
My first question is on OFS inflation and specific. It sounded like you all suggested a bit that your day rates might be a bit higher than potentially some other rigs. I’m just wondering, do you all believe I would call it, your higher-end rigs and fracs are worth these incremental costs. And my second just on that, just quickly. So a brief period year-to-date. I’m just wondering if you could talk about what you’re seeing on OFS inflation year-to-date.
Alan Shepard
Yes. So our focus on OFS is always locking in consistent crews that are not recent spot crews that have been called together. We want long-termism in our supply chain that kind of underpins our business model. So to get that, you might have to pay a little extra here there. When a supplier comes, you ask it for a price increase because they could potentially go somewhere else. You’re willing to pay that just for all the kind of other externalities that creates to have that consistency. And that’s our focus. We’re not trying to pennies and chase spot crews to save a buck here or there. We want long-term is in the supply chain [Indiscernible]
Neal Dingmann
And then OFS year-to-date, anything?
Alan Shepard
Like I said, I think you’re still seeing levels where we’re at the second part of 2022. And right now, the range we’re showing here reflects that those kind of persist throughout the year. But again, as prices come down, OFS will soften as it always does in a lower price environment.
Neal Dingmann
And then, Nick, if I could ask one more. I’m just curious, looking at your sort of financial operational strategies. I’m just wondering you’ve laid this out, you’ve stuck to this. And I’m just wondering. Do you all go back — would you, I guess, what I’m wondering, would you all consider altering these plans to potentially more growth, dividends or I don’t even know, maybe even something strategic with your midstream given the sizable position you have there? Again, why as this is just looking at — I know 1 year doesn’t make history, but for the past year, your stocks up 6% despite the share returns versus your 3 closest peers up somewhere around 30% to 60%. So I’m just wondering when you kind of look back if you would consider any of these alternatives.
Nick DeIuliis
It’s a good question, Neal, because it really speaks to the broader strategy and philosophy that we apply within the company. So first thing I’ll say, like any option when it comes to sort of realizing the NAV per share of the company and the share price, we’re obviously wide open to considering it and running the math. But just sort of walking through the overall strategy and approach. The first chapter, which wasn’t all that long ago was really trying to set us up to execute the strategy, to your point, that we’ve been employing in the past couple of years. And that was no small task. That was a massive lift. We had a figure out how to reintegrate midstream. We had to figure out how to spin coal. We had to figure out how to refi our balance sheet and build it into what we wanted it to be. We had to delever, right? So all those things were accomplished and it really put us in a position to be that positive free cash flow generator and then be able to allocate the capital.
Now when we started on sort of the capital allocation side, once we had all that other stuff accomplished, we didn’t hide anything and told Mr. Market exactly what we intended to do. We’re very clear about that. Our Chairman of the Board, he wrote a book on it literally the outsiders and if you want to get a read into how we think about our decision making, just give that book a read. It’s almost just a perfect road map how we think on behalf of owners. And I’ll say it’s not rocket science, but it is absolutely different for the space that we’re in. And it’s also, I think, incredibly effective over the long term. So you look at from 2020 to today, the strategy and the execution from our perspective under that philosophy, it is clearly working. A quarter of the company has been taken in. That’s not noise, that’s hugely material. And more importantly, this is like the crucial point or piece of it, it was done at very attractive prices compared to the intrinsic value of the company.
And amazingly, to me, at the same time, we delevered the balance sheet. So like we said in the commentary, that’s rarefied air. And it might be one-on-one in a public company universe when you look at other public companies are out there beyond energy. So is the strategy working, I don’t want to go into a rate here, but I’ll say — Mr. Market might have been sleeping on us a bit, and quarter of the company was retired over that time. And if Mr. Market is still asleep, we’re still on the move with the strategy execution. And before you know it, these numbers start to get very substantial almost to the point where they get absurd. So we know this is going to work because, frankly, from our perspective, it’s working. It’s working as we speak.
And the last thing I’ll say is everything to keep on doing this is entirely within our control. So we don’t need to issue debt to win. We don’t need to do a major acquisition to win. We don’t need high gas prices to win. All we need basically is time to run the play and execute. So we’re very pleased with where we’re at. And I understand exactly, right, the questions and the points that you’re making and what you’re looking at, I just want to put that in the context of how we approach it with our philosophy.
Operator
And our next question will come from John Abbott with Bank of America. Please go ahead.
John Abbott
First question is just more on your ability to how the opportunities that you see to potentially add to your inventory in this sort of pricing environment? Could you discuss the potential bolt-on opportunities that your acquisition opportunities you see in Appalachia at this point in time?
Alan Shepard
Yes. I think the kind of the bolt-on opportunities are fairly reduced at this point. There’s not a lot of private equity operators left. We always compare any potential M&A opportunity to the opportunity of doing M&A in ourselves through our buybacks. So it’s a pretty high hurdle when you come at it from that perspective. So there’s currently nothing kind of on our radar from that perspective, given where our share prices are trading.
John Abbott
Appreciate. And also, I understand the — that you continue to focus more on swaps. What hasn’t been the appeal in terms of collars from your perspective — from a hedging perspective?
Alan Shepard
Yes. I mean when we look at it, we just don’t think it’s a free lunch to have the caller. I mean we get the SKU and everything, but we like having the certainty of the fixed kind of swap number. And particularly in this environment where you’ve seen us be able to layer into some pretty attractive hedges, we’re going to stick with that strategy.
John Abbott
I understand because I’m just — what I’m trying to understand is, so when you hedge I mean sometimes it’s I guess it could be at higher prices, but sometimes it can be a lower prices and you have a buyback program, so if the stock goes higher, you’re using hedges that may have been like hedge at alower price. So I’m just sort of trying to understand that value proposition. Why not go with the callers?
Alan Shepard
Yes. Again, we evaluate all sorts of hedging strategies, and we always come back to the swap is the most effective. There’s nothing that we can point to with a caller that says that’s going to be any more effective than just a straight swap, right? There’s just — there’s no implied free launch by going the caller over the swap. And then when we think about buybacks to your question, we think the stock is materially disconnected from its intrinsic value. So we’re more than happy to kind of pay the prices we’re at today.
Operator
And our next question will come from Jeoffrey Lambujon with Tudor, Pickering, Holt. Please go ahead.
Jeoffrey Lambujon
First one was just on free cash allocation to repurchases in 2023 and going forward. I know you just hit on this in a lot of detail on how aggressive you all been and taking advantage of market conditions. For the buyback, which, I guess, most recently in Q4 was maybe 75% to 80% of free cash flow for the quarter. So the share price where it is today and just given your comments on not really seeing much that competes in terms of M&A on the radar relative to share price. I guess we can pencil in more of the same, but is there anything else you mindful of as we think about that?
Alan Shepard
No. We just remind folks that it’s a continuous process. Capital allocation is a constant discussion. If any of the variables change, we would change our strategy so.
Jeoffrey Lambujon
And then as my follow-up, I just wanted to dig a little deeper on the non-weather-related operational issues you mentioned in Q4, specifically aside from the Just wanted to get a sense like what exactly contributed there and to what magnitude and if those are in the rear-view at this point in time.
Alan Shepard
Yes. So I think certainly, as I mentioned in my comments, we believe those are in the rear-view Outside of the weather, nothing individually material. There’s still a lot of smaller delays that added up to the frac line pushing to the right.
Operator
And our next question will come from Noel Parks with Tuohy Brothers. Please go ahead.
Noel Parks
Please excuse my background noise, I’m the move here. I apologize if you touched on this already, but with the free cash flow calculation, there was a pretty big swing in accounts receivable in the quarter that contributed to the free cash flow. I just — it just seems larger than I had seen before. Is there any particular on that?
Alan Shepard
Yes. So one of the things we’ve been working on from a liquidity and risk management perspective is matching up the physical payment timing on the derivatives with the physical cash receipts. So a lot of that started to take hold in Q4. So some of the notes that we saw that were asking about that difference between the realized loss and the cash out the door on the derivatives. That’s what caused that. From our perspective, it’s a great opportunity to eliminate that kind of 50-day lag between when we have to pay those. And when we get the physical sales ourselves. And so that’s kind of a great derisker particularly, it was more important when the gas prices were trading around $10, but it’s still important from a liquidity management and risk management perspective. So you see that unwind in the upcoming quarters as we effectively done is slid cash from period to period.
Operator
And this will conclude our question-and-answer session. I’d like to turn the conference back over to Tyler Lewis for any closing remarks.
Tyler Lewis
Thank you. Thank you, everyone, for joining this morning. Please feel free to reach out to us if you might have any additional questions. Otherwise, we will look forward to speaking with everyone again next quarter. Thank you.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time.
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