CNX Resources Corp

NYSE:CNX

Earnings Call Transcript 2020-Q3

[Operator]

Welcome to the CNX Resources Third Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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. Go ahead.

[Tyler Lewis, Vice President, Investor Relations]

Thank you, 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 Chief Financial Officer; and Chad Griffith, our Chief Operating Officer.

Today, we’ll be discussing our third quarter results. In a continued effort to simplify our message to reach a broader investor base, we have modified our earnings press release this quarter, and provided an updated investor slide presentation, which is posted to our website. This slide presentation is focused on what we believe are the metrics that matter most to our investors. Also detailed third 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 3Q, 2020 earnings results in supplemental information of CNX Corporation.

One other change this quarter is that in conjunction with the recently closed merger of CNXM, the company has changed its reportable segments to shale, coal-bed methane and other. The other segment includes nominal shallow oil and gas production, which is not significant to the company. It also includes various other items managed outside the reportable segments. More information will be available in our 10-Q, which we plan to file today.

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 and our materials 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 Don, and then we will open the call for Q&A where Chad will participate as well.

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

[Nick Deiuliis, President and Chief Executive Officer]

Thanks, Tyler. Good morning, everybody. I want to start with two simple themes. And I think these themes sum up how we view CNXs future and the investment opportunities that it presents. First one is we do the right thing. And we define doing the right thing is making capital allocation decisions to optimize the long-term intrinsic value per share of CNX for our owners. Second theme, it's just math, our decision making and investment thesis comes down to simple arithmetic.

I want to go over to Slide 2 in the deck that we made available this morning. And I think Slide 2 highlights the four crucial metrics that sets us apart from peers. I'm going to start at the top left of that slide with inventory. The inventory chart that you see there highlights how CNX has the deepest and the longest-lived inventory under a $2.50 gas price as an inventory more than doubled the peer average. And when you look at our total inventory, we're sitting at 49 years, which is more than 3.5 times of peer average.

This independent analysis from embarrass is a ground up technical assessment from a very well respected third-party. And the study confirms exactly what we've been saying for some time and should put the rest any concerns when it comes to CNX having best-in-class and the deepest inventory of future locations. The works at a $2.50 gas price or lower.

More importantly, the steep inventory that's the feedstock for the free cash flow generating factory that extends way beyond our seven year outlook. You also see on the slide there are other metrics that we think are crucial three in particular. As we discussed before, CNX has the lowest cash operating costs in the basin are all in cash costs, which are approaching a buck in the fourth quarter and for 2021 are going to drop even lower and start to approach $0.90 in 2022. At [indiscernible] going to make us the lowest all in cash cost player to base in which is an awesome thing.

We also offer the highest free cash flow yield when compared to our peers. We talked about that in the recent past. And last we got one of the best balance sheets, the balance sheets only getting stronger as time goes on and its debt level is reduced. So in all, we think these four metrics, they clearly set us apart. They illustrate the significant potential upside. We are a free cash flow per share factory that offers de-risk returns for our owners.

If you go to the next slide, Slide 3, you see a graph there also from the invariance study and report that I referenced on the last slide. And this one goes into more detail on what that economic inventory for each peer at different gas prices looks like. And as you can see, we've got the best inventory of low gas price levels, we got the best inventory strip pricing, and we got the best inventory at high gas price levels. We've got over a decade of inventory of the $2 NYMEX price deck over 20 years to today's $2.45 strip and 50 years at $3 of gas.

Now, our industry, it is always full chatter about the metric or strategy of choice for the quarter of the year, sort of what's the color of the flavor [dissolve] but in the end, and over the long haul, there's really three things to truly get excited about our industry. As inventory that works at a $2.50 lower gas price. That's been a low cost manufacturer of natural gas. And that's posting consistent significant levels of free cash flow per share. We hit the mark on every single one of those.

As mentioned, we've got multiple decade’s worth of core inventory that's economically advantageous at that 250 pricing level, or $2.25. We've got an asset basis delineated and we built an industry leading low cost structure coupled with a multiyear hedge book, all those things generate substantial free cash flow per share through all phases of the commodity cycle.

Our low cost structure is made possible by several competitive advantages, it creates a moat, and which our peers can easily replicate. One of the most important and non-replicable of those is that we own our midstream assets. When you're a commodity manufacturer being a low cost, most reliable manufacturer that commodity core and crucial. We're fast approaching all in fully burdened cash costs of $1, when the peer average is somewhere around $1.70.

We expect to generate consistent quarter-on-quarter, year-on-year free cash flow for the next seven years, somewhere to the tune of $3.4 plus billion on a cumulative basis. As genuine substantial free cash flow this nearly 1.5 times our current market cap.

Our business model should quickly drive our debt leverage ratio lower and our competitive advantages, they should lead to our free cash flow per share outperforming peers and staying strong for years to come. This has been many years in the making to create this simple but compelling story. And it's a straightforward one. Again, this is just math and doing the right thing under proven capital allocation methodology. Our free cash flow yield is not only industry leading, but more importantly, market index leading across a wide spectrum of different industries and sectors. Thus, we're shifting our messaging and our focus to appeal to a broader investor group beyond the traditional E&P investors.

Now let's talk a little bit about the state of the world. There's a topic you could spend an inordinate amount of time on today and how it impacts our thinking. Clearly, right, we all know this, the world is faced with challenges and uncertainty. And we think there's a significant risk that those are going to escalate over the next 90 days. So if you reflect on what's happened so far in 2020, this year, of course, has proven to be completely unpredictable, we've had COVID, we've had oil prices collapsing, economic volatility, all kinds of calamities, and what gas prices are going to do next year. That's partly a function of all those things we've already dealt with this year. But we recognize its unpredictability, and we built our company not just to withstand volatility, but to thrive under it and the potential challenges that come with it.

We think the next 90 days present elevated risks given the recent rise in COVID cases, the election that's looming uncertainty on how winter weather shapes up or whether it does strongly or weakly. In the economy, as well as how frankly, the producers of oil and natural gas are going to respond to all that. However, despite this unstable world, we've got a stable platform to continue to execute our plan and adjust the new realities. We expect to produce a significant amount of free cash flow regardless to what happens in the next 90 days.

And given all the uncertainty that exists currently, we plan to use that free cash flow over the next 90 to further reduce debt. It's the prudent thing to do in the near-term, given the uncertainty that we face. And as we enter into 2021, and beyond our main priority still going to be to delever and in rough math, we expect to pay down approximately a $1 billion a debt through 2023. You assume the adjusted EBITDA stays around a $1 billion a year that gets us to about a 1.5 times debt leverage ratio.

Now, if you look at those next three years that I just talked about, I think those next three years are great illustration of how our derisk cash flow per share factory is poised to allocate capital into very intrinsic value per share creative ways. The great thing about generating approximately $0.5 billion in free cash flow per year is that it gives you some flexibility without sacrificing the debt reduction goal that I laid out.

And if our free cash flow yield stays around 20%. We're going to have the wherewithal to return capital along the way through share buybacks while still achieving our debt leverage target of 1.5 times. We kept around a $1 billion of pre-payable debt on revolvers that are due in 2024 and we expect to generate approximately $1.5 billion in free cash flow before they expire. So you can see that we got the ability for opportunistic capital returns via share buybacks along the way if we so choose.

And if we continue to have around a share price that reflects a 20% free cash flow yield, I suspect we'll use some of that $1.5 billion in free cash flow over the next three years. And between now and a 1.5 times leverage ratio to do just that.

So in the near-term of 2021, budgeting a portion of our free cash flow towards share repurchases. If our stock continues to yield 20% on a cash basis, it gets us off to a really good start. Where we actually land is going to depend on all the facts and circumstances and comes down to there's that time again, the math, but you can see the optionality and the value creation potential that are presented by doing the right thing under sound capital allocation and following the math.

I like to talk a minute about M&A, we always remain open minded to considering M&A that makes sense for our owners. For CNX to acquire something, it's going to have to have a risk adjusted rate of return the beat our other capital allocation options. With our stock at a 20% cash yield acquisitions are going to have a really tough time competing.

Larger M&A as emerging with base and peers and alike, you're going to need to find someone who's not going to dilute or weaken our best-in-class attributes that harken back to Slide 2 that I covered a couple of minutes ago. So M&A that dilutes our best in base and on inventory, that wouldn't be attractive. As we've established, we don't need inventory. And since we leave the base and on inventory that works at $2.50, gas prices are lower, both in terms of locations and years that maintenance activity levels. There's really a compelling case there that the inventory we've got is fully within the grasp of what we own and control.

M&A that increases cash costs, that wouldn't be attractive, to said we've got the lowest cost in the basin, those costs are guiding even lower. So any merger that would increase our go forward costs would be difficult to rationalize when we're in a commodity manufacturing business.

M&A dilutes our free cash flow per share. That can be a problem, avoiding dilution of free cash flow per share and having a clear path to long-term growth in free cash flow per share. Those are essential for the creation of long-term shareholder value. In M&A that would harm balance sheet to high debt, and are off balance sheet commitments like unused FT, that's probably the wrong direction, balance sheet strength, and the ability to delever organically and avoiding burdensome long-term gathering processing and transportation contracts the GP&T contracts. Those are critical factors to future success in our industry.

So to sum up these points, again, always open to considering moves that improve shareholder value. But we're not interested in value eroding M&A that takes our industry leading metrics and balance sheet and degrades them to improve someone else's metrics and balance sheet it expensive our shareholders and employees pretty simple approach.

So in summary, consistent with our long-term, multiyear plan, we intend to invest our free cash flow in the right places to optimize the long-term intrinsic value per share of the company. We expect our sustained competitive advantages to create enhanced value for our shareholders. We’ve remained committed to our strategy. And we've never been more excited about the opportunity we've got in front of us. I'm going to end where I started. We do the right thing under sound capital allocation theory, and it's just math.

With that now, I’ll turn things over to Don Rush.

[Don Rush, Chief Financial Officer]

Thanks, Nick, and good morning, everyone. I would like to start on Slide 4, which highlights our quarterly results in a much simpler concise format. As you can see, in the quarter, we continued to generate strong cash operating margins dropping $121 million of free cash flow. We also expect to generate a significant amount of free cash flow in Q4 and in 2021, which results in our industry leading free cash flow yields.

Our trailing 12-month leverage ratio was 2.6 times and we continue to expect this to improve to approximately 2 times by year-end 2021. As we move closer to our 1.5 times leverage ratio target.

Year-to-date, we have fully retired approximately $900 million of our 2022 senior notes through a combination of debt refinancing, and organically generated free cash flow. We were able to accomplish this while shutting in one-third of our volumes to take advantage of seasonal price contango while simultaneously increasing our projected 2020 and 2021 free cash flow throughout the course of the year.

Slide 5 shows our strategic plan and action, a plan that is delivering substantial free cash flow. Year-to-date, the company has generated over $270 million in free cash flow. And we expect this positive trend to continue in Q4 and beyond. With the projected -- with a projected annual average of approximately $515 million and the 2022 through 2026 time period, which assumes an average NYMEX commodity price of approximately $2.50. Our ability to generate substantial, consistent free cash flow at low commodity price levels is a testament to our competitive advantages.

One final point to note is that our current free cash flow calculation takes into consideration working capital changes, whereas many of our peers exclude these and other items. We believe this all in approach more accurately reflects the current funds available for potential debt repayment, and shareholder returns.

As we transition into 2021 and beyond, we plan to provide additional discussion around these working capital changes. To help investors more clearly compare the free cash flow generation potential of our company, relative to our industry peers reported numbers, as well as those and other industries. And for reference, our 2020 free cash flow would be well over $400 million if we excluded working capital changes like our peers do for a more apples-to-apples look.

Slide 6 shows how we have not been satisfied simply with good results. Since we have started discussing our 2020 and beyond guidance in the second quarter of 2019, we have been steadily increasing our free cash flow estimates for 2020 and 2021.

We believe we have built this seven-year plan with conservative assumptions, and will work to continuously improve the plan.

Slide 7 shows how our costs have come down in Q3, despite the shut-ins, and how we see them continuing to decrease in Q4 and beyond with all of our volumes back online. Also, the operating margins shown in -- on the slide include non-cash DD&A. And as we have said in prior calls, our go forward capital intensity is much lower. So moving forward, we expected these numbers will be even better, with cash margins over 50%.

Slide 8 illustrates our new capital structure, which has ample liquidity with RBL recently reaffirmed at $2.5 billion between our two facilities. It's also important to note that we have significant runway as it pertains to our maturity schedule with our first unsecured bonds not coming due until 2026. All this is even more impressive when you consider we expect to produce over $500 million in free cash flow per year, which gives us the ability to control our own destiny.

Our liquidity position, coupled with our assets, low costs and hedging strategy are all working towards a balance sheet that is strong and strengthening and gives us leeway to navigate periods of uncertainty in any macro environment.

Slide 9 is our guidance slide. For 2020, we are tightening up the guidance ranges for production and capital with one quarter to go. And we expect our EBITDA to be around $900 million, the high end of our previous guidance. For 2021, we have increased our 2021 EBITDA up to approximately $960 million on improved pricing. And we are currently leaving our capital and free cash flow guidance the same for now.

As we have indicated in the past, we always try to shape our activity set to better match the price curve if there are material differences to take advantage of. So depending on how the winter and 2021 gas price drip shapes up, we could move some completion activity up into 2021. However, we did not plan on adding incremental activity to our seven-year plan, just optimizing the shape of our production profile to match short-term pricing events.

And as we have demonstrated, we can do this while increasing both near-term free cash flow and long-term value. Our primary focus will continue to be increasing our free cash flow per share over the seven-year plan.

We believe that our cash flow projections are low risk and to provide the sensitivity, even if NYMEX gas prices were to average $2.25 from now until the end of 2026. We project that the business would still generate approximately $2.9 billion in free cash flow even when holding our costs the same, which in a world like that they would likely come down and improve that number.

This is primarily due to our best-in-class hedge book leading inventory position and low cost structure. That is extremely impressive report $2.25 NYMEX downside sensitivity case. And like we have said many times before, if gas prices get to and stay at $3 for the long-term, there's a massive amount of additional free cash flow and value creation for CNX. Everybody looks good at higher gas prices though not many do it low.

Slide 10 simply reiterates, how strong our 2021 numbers are not just within the E&P space, but against the market in general. For instance, our free cash flow yield and operating margins are within the 93rd and 88th percentile when compared to the S&P 1,500 index. Not only do our 2021 metrics look strong, but our 2022 and beyond look even better even with commodity prices currently below $2.50 for the long-term. To repeat these leading metrics indicate CNXs exceptional results, versus the S&P 500 index will persist at a sub $2.50 NYMEX gas price.

To sum it up, we are excited about our future. We have ample inventory to produce for decades, and our plan will create substantial value for our shareholders, no matter what gas prices do, and without the need to go to the capital or debt markets or resort to M&A for it to work.

With that, I will turn it back over to Tyler for Q&A.

[Tyler Lewis, Vice President, Investor Relations]

Thanks, Don. Operator if you can open the line up for Q&A at this time, please.

[Operator]

We will now begin the question and answer session. [Operator Instructions] At this time, we will pause momentarily to assemble our roster. Our first question is from Leo Mariani from KeyBanc. Go ahead.

[Leo Mariani, KeyBanc]

Hey, guys. Just wanted to follow up a little bit on the 2020 production guidance, looking at the range for the full year, I'm doing the math, right, it's still implies maybe 100 million a day range in Q4. If I look at the full year range, just kind of wanted to get a sense of what's going on there. Obviously, we've seen much wider Appalachian gas price dips of late. Is there any wiggle room for potential shut-ins or is this more just to allow for shifting activity, maybe from Q4 to Q1 and winter doesn’t 100%, cooperate just trying to get a sense of the range here?

[Chad Griffith, Chief Operating Officer]

Yes, this is Chad, I'll start off and maybe Don could add in on the backend, if he wants to add anything. But as we sort of move into, we talked previously about the shut-ins over the course of the summer, we are moving towards having basically offer production online now. We're in the process of flowing back earlier our last pad that we had shut-in -- I'm sorry, opening up the last well -- last pad that we had shut-in, and we should be up to full rate, basically within a couple of days.

So we're going, we're going into the winter season with our production going strong, we have one more pad till before the end of the season or before the end of the year. And things should be good. I think the range on the production number was, there's probably going to be a little bit of -- it give us a little bit of flexibility to optimize on the revenue line. But I think the biggest thing we need to focus on here is the end of the day, a little bit of shift in timing, or a little bit of shift in production from month-to-month, or quarter-to-quarter or a little bit of shift within this range is really, it is really, I was called noise but it's sort of what we need to focus on, I think, is our free cash flow that we continue to generate year-over-year over the seven-year plan, a little bit of production here, a little bit production there, we're going to optimize that every day as the market conditions change.

And we're going to continue to try to, pull out every little bit of value that we can from our molecules. But even with conservative assumptions, assuming we don't squeeze that extra last, penny or $0.50 out of each of our molecules, this company continues to generate phenomenal amount of free cash flow over that seven-year plan.

[Leo Mariani, KeyBanc]

Okay, that's helpful for sure. And just wanted to ask a question on the inventory chart that you guys showed here, when you guys look at the inventory kind of below 250 talking about 22 years does that assume, I'm assuming maybe a fixed number of wells, per year, kind of over that whole period? Is that largely just comprised of Marcellus to the Utica also competitive at 250 or less? Any comments you can provide around that?

[Nick Deiuliis, President and Chief Executive Officer]

Yes, so the interest reports, which I encourage folks to get with. We've talked about our inventory for a while now. And it's good to see third parties verifying what we've seen for a long time. So the basic mechanics and like I said, the reports out there to get is they take kind of what your run rate is over the ‘22 ‘23 timeframe, and they just use that as the proportionate amount of wells, you need to drill a year. And going through on a high level, it's roughly three quarters on the Marcellus side as far as how they're thinking about itself 250.

[Leo Mariani, KeyBanc]

Okay, we're good. That's helpful. And then just lastly, when the date -- see if you guys can clarify your stock buyback commentary, obviously, you've got some really nice debt reduction targets over the next couple years, but certainly to point, if we don't see, I guess, commensurate stock appreciation, you guys would look at the buyback pretty hard here. Is that something that realistically could show up and in ‘21 or do you kind of want to get the debt down before we could look at that buyback more seriously?

[Nick Deiuliis, President and Chief Executive Officer]

Frankly, as we discussed the -- the primary focus will continue to be reduced debt, but when you look at the 2021, there is the where with all and when you look at the next three years of the $1.5 billion of free cash flow generation $500 million a year, there is the wherewithal to reduce share count, and then 20% plus percent free cash flow yield. If that remains right, I would be shocked to get through ‘21 and not see some reduction in share count. As to how much, as to what we budget between that free cash flow and debt reduction versus share repurchases that will be driven by the facts and circumstances of those moments in time.

So that's a quarter-by-quarter unfolding story. But we've got the wherewithal. And with the rate of returns, we see on share count reduction, we see the ability to get to 1.5 times over the next three years and debt reduction coupled with the reduction in share count as well.

[Leo Mariani, KeyBanc]

Okay.

[Don Rush, Chief Financial Officer]

Yes, and when you look at the magnitude of free cash flow that the businesses produces a quarter, right over $100 million a quarter. So if you, if you allocate $100 million share counts is hypothetical, it moves to your leverage ratio target date by quarter. So net with the cash flow that this business produces. And the certainty beyond these cash flows, like I mentioned, even in a 225 NYMEX, or seven-year cash flow plan would generate $2.9 billion, there's a lot of wherewithal to allocate that cash along the way. But rest assure the debt paid down is important. And we recognize that, the industry and the ecosystem, it's more difficult to have that data and access to capital markets and access to the bank facilities the way the world used to be.

Fortunately for us, like we've said many times, I mean, we got $2.6 billion in debt roughly $3.4 billion is way more than the debt we carry. So we have the wherewithal to control our own destiny and pay down all of our debt if we choose and still have plenty of money left over for interesting things like share repurchases. So where we say it with inventory and cost structure and balance sheet and cash flow generation just opens up the ability to do things along the way. But as Nick mentioned, we'll be smart debt paid on prudent, we don't have much to do and feel very good about being able to be thoughtful, while still accomplishing the 1.5 leverage ratio without creating any [indiscernible].

[Leo Mariani, KeyBanc]

Very helpful. Thank you guys.

[Operator]

Our next question is from Neal Dingmann from SunTrust. Go ahead.

[Neal Dingmann, SunTrust]

Good morning, Nick and Don. Just want to compliment you on the team for that the new reporting format, I think it looks really good. But first question is around your second slide. You'll clearly mentioned and definitely on the prepared remarks talking about your strong inventory life. Just wondering, do you all believe, you're being adequately rewarded for this? And if not, is there things you would consider to unlock some of these significant upstream assets or even you mentioned that, given the solid midstream assets as well. Anything you can do on those side to maybe realize some of that.

[Nick Deiuliis, President and Chief Executive Officer]

Yes, no, a couple of answers that I'm glad you asked the question. So one, I mean, we've heard a lot about our inventory and maybe not being what other peers have. So first-off, I hope this puts that issue to bed that CNXs inventory is best-in-class, peer leading. And if you look back over the last five years, I mean, we're really the only peer that has sold substantial amounts of undeveloped locations.

There's been some people that sold royalty interest, there's been people that sell PDPs but if you look purely at undeveloped acres, we've sold more than [eight] acres, I mean, most of them are buying stuff, which I think tells you where the inventory positions really sit who's selling acres and who's buying acres.

So historically, we sold a lot of acres. And going forward I mean this is something that is mix that we follow math, I mean if there's an opportunity to cash in some acres for money for acres that we're not going to do for a while we'll do it. We'll invest those dollars into places that are more appropriate, so. No, I don't think we're getting credit for our inventory as it sits today. But I think we have a track record of being thoughtful and smart around where we choose to kind of sell acres if it's something that we're not going to get to for a while.

[Neal Dingmann, SunTrust]

Now great details. And then just one follow up on that you've done a great job on the free cash flow [come] three quarters more now in a row and Nick you were stressing and again you guys have done a great job of highlighting the debt repayment I guess my question is gas prices remain high and given you are so highly hedged with some nice hedges. I'm just wondering in order to take advantage of continued higher prices you guys have mentioned for the debt pay down Leo was asking on and I know you guys had talked about buy -- share buybacks, but would you consider even potentially further growth given how just officially you've been on operations in order to maybe get some more volumes beyond what you have hedge next year, if prices remain high.

[Don Rush, Chief Financial Officer]

Yes, so the two pieces and like I said, I think, one of it's the [inverse] of what we did this year, we shut in production in low gas prices for a couple quarters to take advantage of the arbitrage for the high gas prices, seasonality.

So you could see, potentially how the price trip unfolds the [indiscernible], we could pull up a little bit of completion to take advantage of a high ‘21, if it doesn't flow through ‘22 and beyond. So the one side of this is just called a near-term gas price increase, which will just optimize production, cash flow, go up net, net, but capital over one to two year period, no new activity shows up.

For new activity to come into the equation, which again, the inventory chart shows, we have a tremendous amount that we can get online in an efficient manner, we'd need to see the fourth strip change, not just a one year anomaly. I mean, there's a lot of bull cases out there that think, a lot of a lot of consensus, and folks have gas prices beyond ‘21 being $3 or $3.50. That's great, we'd love that.

But we're not going to bet on it. We follow the math as Nick said. So the fourth script, changes materially and gets to that level. We'll do with -- done historically, which is take some of the risk off the table via hedges, and then go ahead and add activity once you have that kind of price locked in and the rate of return for incremental activities is warranted and locked in. So we watch it, but we're going to use the strip and follow the strip as opposed to call it drilling and hoping that the gas prices in the future turned out good.

[Nick Deiuliis, President and Chief Executive Officer]

And Neal, just to sort of even take a further step back from Don showing you how the process and the math works. We talked about the reference slide to right, you got the inventory pole position, you got the cost pole position, at those great things for your free cash flow per share in your balance sheet. And if we just follow the math to do sound capital allocation, if we do not add activity, in the seven-year plan, you can look at the next three years, you can look at the seven years in total pick whatever time cut, you want, that. If we do not add activity from that seven-year plan, then say three years out, that will be materially lower, share counts going to be material lower, and free cash flow per share is going to be significantly higher.

We're going to be insulated from the capital markets and all the twists and turns it takes. We're going to be insulated from gas price volatility. That's a really, really good base case. So for me just looking at the bigger picture, the math that we follow, I think incremental activity outside of like Don said, a multiyear change step change and NYMEX forward is going to have a really tough hurdle to meet when you compare it to these other things that we're able to do with the base case.

[Neal Dingmann, SunTrust]

Yes, great. Thanks, Nick. Thanks, Don.

[Operator]

Our next question is from Michael [indiscernible] from Stiefel. Go ahead.

[Unidentified Analyst]

Good morning, everybody. First question, just clarification. Chad based on your comments around timing, it sounds like some of the capital that was maybe originally intended for third quarter or when in the fourth quarter that was a conscious decision upon based upon where gas price are on management's part, or was there something operational that that contributed to that as well?

[Nick Deiuliis, President and Chief Executive Officer]

Yes, I'll start and Chad can kind of add to it. So one part is, I mean, you got that the non D&C side, and one of the land type situations that was forecasted for Q3 is going to hit Q4, which, again, is a good thing, anytime you can keep the cash for another month or two without having an impact. That's a good thing. And the other, which we've talked a lot about and just to kind of emphasize again, it's hard getting quarter-to-quarter, annual cut offs, like perfect, like, there's, call it, that's why we try to look at things as a project.

And then Chad's team has more of a project management approach. And the way we run the business is more on each one of these pads or project. So developing them that way and tracking that we've been very successful in our execution and plan. But you get a little bit of wiggle between quarters, but nothing materially on slow down on operation side just kind of happens that way sometimes.

[Unidentified Analyst]

Okay, got it. And -- on the ’21 EBITDA guidance, you increase that by $40 million was that's strictly due to improvement in the ‘21 strip or is there anything else that contributed to that?

[Nick Deiuliis, President and Chief Executive Officer]

Yes, no, we just kind of, again, not to hit it perfectly every time. I mean, I think, want to call it the pros and cons. We're one of the only companies that are given guidance out there in ‘21 and beyond. And we try to do it to help folks understand what our business looks like and give some transparency on that stuff. But it's hard to keep it continually a little bit move in here. And so we kind of tried to market the market with where gas prices moved. So that kind of gave you where we're sitting there. So like I said in my remarks on the D&C, on the capital side and on the, the free cash flow side, we kind of left it alone for now you can see those moving a bit. And as we transition into the year we'll try to help bracket it a bit with ranges.

So we're giving you this kind of insight to what the business looks like is a helpful tool. But these things change daily and weekly as gas prices change and slight timing, differences change.

[Unidentified Analyst]

Understood. And last one for me, you look at your Slide 6, and you guys have been focused on it for quite some time now. But you look at that free cash flow projection for the seven-year plan. I guess as you think about it outside of gas prices, what do you see as the biggest risk to achieving those targets?

[Nick Deiuliis, President and Chief Executive Officer]

I think there is the obvious need to execute on a consistent quarter in, quarter out basis, which we've been able to do to-date. And we get more and more confident moving forward. Our programmatic hedging, tried to address one of the biggest risks out there, which is at least the front couple years commodity exposure risk, these capital allocation methodology, the risks, doing something silly or bad with the proceeds of free cash flow, we do generate, right, if we're following the math and using sound capital allocation methodology, we should protect against that.

So and then I think last but not least, the ability to control the flexibility on your capital allocation decisions, because you own and control your midstream. That's something else that we work hard in ‘20, to address and resolve. So from my perspective, the big drivers of risk and ability to mitigate that risk, have largely been addressed or embraced as a philosophy or approach within the company, and our expectations to generate a $3.4 plus billion over the seven years and to use that math, and a methodology to put it in the right places at the right time.

[Operator]

Our next question is from Kashy Harrison from Simmons Energy. Go ahead.

[Kashy Harrison, Simmons Energy]

Good morning, everyone. Thanks for -- Thank you for taking my questions. So I appreciate definitely appreciate that you're trying to transition away from industry jargon towards simple financial metrics. And definitely appreciate the emphasis on operating margins. But I was just wondering if you maybe provide an update on where leading edge Marcellus, and [indiscernible] well costs were trending given that that has implications towards D&A, which eventually impacts operating margins?

[Nick Deiuliis, President and Chief Executive Officer]

Yes, no, for sure no. I'm glad you asked this question. And I'll flip it over to Chad to give you some more details, but I'll kick it off at first. So the way we looked at this, and they're called -- there's been an overemphasis, in my opinion on just the D&C per foot metric.

On the ultimate, how good is a well, and whether what's the breakeven and what's the inventory, there's a whole bunch of goes into that equation. And then I think on the D&C side, we end up seeing is I mean, we always use the same vendors, we always use, use the same service provider.

So you see convergent -- convergence on it, you don't see a sustainable advantage from one to the other case in point, we move to an evolution practically two years ago. And now we're going to manage for us, but now, a lot of our peers are kind of following suit and getting into that same zone and, and work in that same thing. So what is the plan, we've laid out on the D&C per foot, as we've mentioned, before, we're already beating it, we expect to beat it.

But when you look in the grand scheme of things, it's not just the D&C performance, what are you getting out of the ground per foot? So what's [indiscernible] per foot? So how much of the dollars are you spending? Does it actually translate into production coming back up and go, what, cheap well, you don't do a big completion job on so it's easy to do cheap well.

So whenever you look at what the production is for the dollars you're spending for the well, and then triangulate that on the cost that it takes to get the production from the well to the sales point is really the copy economic return you get from that, that pad that well.

So we look at this, we look at that, that those all together. And then dollar per foot, something we manage and Chad, like I said in teams have been ahead of the curve on where these efficiencies and dollar per foots have gone.

But that when you look at it, just to put it in context, like $10 a foot on a D&C change for a similar [URL] equates to less than a penny of F&D cost or like the charge-off, the first five years worth of production from that well.

So it's important, but whenever you look at a $0.60 cost advantage on OPEX, $10 a foot is like a penny whenever you apply it over the production of the wall. But Chad wants you go ahead and walk through some of the things we're doing and stuff we're hitting. And then like I said, we're happy to share more stuff offline with Tyler. So we're not trying to change it. We're just trying to emphasize what's the big needle movers have the cash flow plan?

[Chad Griffith, Chief Operating Officer]

Yes, so the -- so just to give you two examples of where we're at. Our two most recent Marcellus pads that we brought online. This quarter, we’re [1,713] a foot and this is the second pad was below $7 a foot. And these are right in the course with Marcellus field.

[Nick Deiuliis, President and Chief Executive Officer]

So I mean that lateral length plays a big role in this focusing on NPT focus on quality control, focus on [QMS] all play into this. And frankly, there's a lot of innovation that's going on in our teams, as well, when you have a very defined footprint activity level, the teams can stay focused on that they can plan for that they can see what's coming. And they can focus all their energy on optimizing that activity set, optimizing that opportunity, and deriving pulling out as much value and efficiency as they can on that opportunity set.

This has led to a lot of leading edge things that we've done, not only in D&C, but also on facilities and midstream as well. I don't know, Don already mentioned our moving evolution. And really, we've made a lot of learnings with evolution over the last two years, that's led to a lot of efficiencies that we've seen on the seaside of D&C. But there's also a number of technological advances we've made on the drilling side, that frankly, I don't want to disclose publicly, because it's hard, it's so hard to maintain this competitive advantages. Because it's onset, eventually, there's convergence, because we're all using the same service providers and crews.

So sort of keep those in our back pocket as much as we can. Another great example of innovation from our team is where we combine upstream and midstream. And our midstream guys got together with the upstream guys and said, why are you handling past separation the way that you guys are? Why are GPUs? Why are your gas processing units on each wellhead, the same that they've been for the last ‘20 years. We -- here's how we've been handling separation on the midstream side, let's take a look if there's something we can do there.

And what we've developed is, this is something that we've called the super separator got to work with the marketing team a little bit, maybe a little bit better brand. But we've received a provisional patent for it, we have pad -- we have IP protection for this. It's basically a step change in a way that on past separation is going to be conducted. And it's -- we're still working through the exact numbers, but it's going to be material savings on what you're on pad facilities wind up looking like and what the wind up costing. And it could potentially change the way that we go about flowing back our wells.

So these are the example. These are real examples of innovation that our teams are doing, and how we're driving, sort of the cutting edge cost per foot, and all in capital efficiency that our teams have been able to deliver.

[Kashy Harrison, Simmons Energy]

That's helpful. Thanks. And we'll look to the queue for call for the super separator details. And then on I was looking through one of the releases and it looks like maybe there was a CPA, Utica well, that was turned in line. I was just wondering if maybe you could discuss how that was doing relative to the other projects in the area or is it just maybe too early to comment?

[Nick Deiuliis, President and Chief Executive Officer]

It's too early to comment. We brought that well online, right at the beginning of the quarter, we were basically in the area performing some general through well, service well, maintenance well. And while we had the snubbing unit in the area, we went ahead and drilled that well out brought online. We've sent had to -- we tend to shut that well back in line because we are now fracking adjacent wells to that well, so we only had several weeks of production. So it's really true there's not enough data really to get to speak to how that work done.

[Kashy Harrison, Simmons Energy]

Got it. Got it. And then if I could just sneak one more in, there was earlier commentary on potentially shifting projects within the seven-year plan. I just want to make sure I understand this. Can you maybe just go into some detail on how we should be thinking about the shift specifically, what would you need -- what would you need to see on the strip before you started, reallocating capital projects? And would this shift be more related to say, Marcellus wells, Utica wells, or would it or is it, too early to tell which projects you'd be shifting?

[Nick Deiuliis, President and Chief Executive Officer]

Yes, not it's, it's more along the lines of just whether you want a little bit of lag in your drilling to completion cycle, or you could shrink some up. So we do have the ability, the easiest example is, potentially there's a pad that would come online, and December, January, December of ‘21, or January of ‘22. And for whatever reason, the ‘22 strip comes down with the ‘21 strips stays high.

We have some flexibility in our system to instead of trying to get that pad done in December we'll get it done in April. So, net, net your capital over the 2021 timeframe or 21-22 timeframe doesn't change, but some of that completions capital they might end up flowing into ‘22 falls into ‘21. But net net, you're way better off from free cash flow perspective for the same capital because you got that well online in a better price environment sooner.

So that's sort of the way to think about it. It's just -- if there's a little bit of slack to get a pad on a couple months sooner, do you take it or not.

[Chad Griffith, Chief Operating Officer]

And just to sort out again, take a bigger step back Kashy is the way we think of the seven-year plan in total, we keep referencing this as sort of the free cash flow per share factory, right. And that requires effectively a regular frack crew to set up across the seven years and our core areas with this great sort of inventory metrics at different gas price tax. That generates the free cash flow. Certainly we want to either optimize that to grow it within that activity set or derisk it. And what Don is talking about to your question, is to do one of those two things, right, either derisk it, and you increase the likelihood of the free cash flow coming on the [rules] or you create some upside because of some pricing arbitrage within a year or two year period.

But the overall activity of it does not change. And the reason we don't anticipate that changing right now is when you look at what we do with the free cash flow generation, there's some pretty awesome opportunities out there in the form of debt reduction and share count reduction.

So again, until something changes on the macro input assumptions that would change the math that we're following, i.e. multiyear, gas price change or share price change or something like that. Our view is we keep that activity pace as is over the seven years. We optimize it as pad quarter-to-quarter as we see opportunities to either divest it or slightly improved incrementally. And then we deploy that free cash flow as best we can see today, sitting here into debt and share count.

[Kashy Harrison, Simmons Energy]

Super helpful. Thanks, guys.

[Operator]

Our next question is from Nitin Kumar from Fargo. Go ahead.

[Nitin Kumar, Fargo]

Hi, good morning. It's Nitin Kumar from Wells Fargo. Nick I appreciate the comments around, having the wherewithal to reduce that in share count. You really haven't talked about dividends. And I'm curious, how are you prioritizing potential return of cash flow between dividends and buybacks? You focus a lot on buybacks. I'm just really curious, why not talk about dividend?

[Nick Deiuliis, President and Chief Executive Officer]

I think dividends are – I mean obviously that's an option for enhancing the intrinsic per share value of the company in shareholder return, so. We're not against that as a vehicle to consider. I will say when we look at our seven-year plan dividends are probably something that's we are considering on a second half of the seven-year plan. The reason I say that is that right now, when you look at the rate of return tied, basically the risk adjusted rate of return tied to a share buyback, it is significant.

And you also have sort of the other sort of competing advantages with share buybacks where you give the individual owner the choice of whether they want to sell or hold. With that rate of return, I think that's a very difficult hurdle to overcome.

Now, again, things change, right. So not only will gas prices change, at some point, share price changes, et cetera. And we still got this free cash flow factor, right free cash flow per share [indiscernible] that we've built. So dividends, as I said, down the road, probably on the back half of the seven-year plan. It's something I think we keep an eye on it and we see where these different metrics and input assumptions go. And it's definitely a tool and the toolbox that we should always be open minded and willing to consider. But right now, I don't see that front and center being able to compete with that reduction and our share count reduction.

[Nitin Kumar, Fargo]

Great. Appreciate the color. I wanted to touch -- in your opening remarks you had mentioned a very volatile next 90 days and you specifically mentioned the election. Could you help us understand specific to CNX and maybe the Appalachian Basin? What are the risks that you see from the upcoming election and just maybe the regulatory [indiscernible]?

[Nick Deiuliis, President and Chief Executive Officer]

Yes, I think it -- again, this is maybe somewhat opinion, I don't know if anybody really knows the answers to these things. But if you just look at what's going on with the equity markets, the last week or so and probably what's going to be happening for the coming weeks, a lot of its attributed to COVID and certainly COVID and COVID incident rate and infection rate is certainly a driver of all that and it's picking off right. But we’ve also got a lot of election uncertainty, I think it's very within this volatility. And election uncertainty just with respect to even the process itself and what happens on November 3, the night of November 3 versus weeks down the road.

So I think that's [indiscernible] and creating volatility across a lot of these capital markets. I don't think it's necessarily unfounded. But I think we need to be ready for it. And I think we’ve positioned the company to be able to be ready for just about anything. So if you look at Q4 is an example of one right front and center to us. Basically, no matter what happens in Q4 with respect to COVID, election, gas prices, global GDP, all those things, we are going to generate free cash flow and we will get 2021 same story. So we position the company not just to navigate through these things, but as I said, the comments to really drive in those situations where disconnects may occur.

And I just sense that when you net everything out the next 90 days, 2020 has already been an unbelievably interesting year, sometimes that interest has been on the pad side of things. I think the next 90 are just going to be as interesting as 2020 today.

[Nitin Kumar, Fargo]

Got it. So just to clarify, there's no specific regulatory changes that you you're aware of like for guiding New Mexico's for federal lands or something like that. You're not looking at anything for the Appalachian?

[Nick Deiuliis, President and Chief Executive Officer]

No, no, what happens with respect to the regulatory environment long-term that's more of a 2021, as we see what happens in November, and then what shapes up for 2021 agendas, et cetera. But Don will tell on that.

[Nitin Kumar, Fargo]

Thank you. Good answers.

[Operator]

Our next question is from Jeffrey Campbell from Tuohy Brothers. Go ahead.

[Jeffrey Campbell, Tuohy Brothers]

Good morning. My first question refers to Slide 3, I just wondering I am reading it correctly that in excess no inventory above $3 per million VTU. And if that's correct, does this illustrate any PA Utica inventory outside of Southwest PA?

[Don Rush, Chief Financial Officer]

I think the just the above $3 doesn't have a color code to it. So once you get above $3 I mean, you can put all of our CVM locations in there to so you did just yes, that was just to highlight near medium-term, up to three bucks. But like I said that, that inverse reports out there. It's a good read, encourage because you -- we got plenty of inventory up above that, too.

[Jeffrey Campbell, Tuohy Brothers]

Okay. And thinking about future capital allocation? I think you've said in the past that central Utica can actually be competitive with the Marcellus with significant infrastructure investment. I'm just wondering, is there a variable within the seven-year plan to begin that, that sort of investment or is that something that's going to happen after the seven-year plan?

[Nick Deiuliis, President and Chief Executive Officer]

Now, I mean, I think, it is competitive. When you look at the D&C, and you look at [EOR] and you look at the cost, like, again, the three legged stool here, some folks get hung up on D&C per foot, but D&C per foot, [EOR] per foot and actually it costs to get the well, get the gas from the well to the sales point, we put all three together CPUs, it looks great.

Yes, we would need more infrastructure to do a meaningful growth in that region. So and as we said, in the call of front and some of the questions we need to see the fourth gas strip justify it. So net, net, if you look, we did a tremendous build out and Southwest PA, hedged a bunch to make sure that we got the returns justified from the infrastructure build out and the cost position and a lot of the seven-year free cash flow you're seeing here today is because of the investments that we put into the business over the course of several years prior to today, I think you could see something similar there.

But net net scale wise, we build out all the infrastructure we need in Southwest PA, for $300 million or so, for the midstream side and so whenever you're producing 3.4 billion, if you want to do an investment in a midstream infrastructure to unlock, the next cash flow of manufacturing factory, which could be up there, we got it well within our wherewithal to do and any number of different ways and that's could be partnering with another midstream service provider, it could be doing ourselves, I mean, the flexibility that we have just opens up a ton of opportunities, and we've been able to partner with some of our midstream kind of counterparts, since we got half peers that are midstream, and half peers that are upstream.

So we've cooperated with midstream peers, and we'll continue to do that going forward. And we got a lot of interesting opportunities happened at midstream, midstream is a part of our business, which others don't.

[Chad Griffith, Chief Operating Officer]

Yes, so that we've got the seven-year plan that generates $35 billion of free cash flow over seven years. And it does so primarily utilizing Southwest PA Marcellus acreage. As a sprinkling of some Utica in there, but by majority it is with the Marcellus. That doesn't, to Don's point, there's some infrastructure investment that will have to happen to unlock that CPA, Utica. But that CPA Utica is sitting there waiting to either be accelerated if justified by gas prices and our capital allocation decisions, or sitting there to tack on at the tail to seven years and continue generating significant free cash flow year-over-year beyond the seven-year window we've already provided. So it provides a lot of optionality, a lot of flexibility. And we're -- it sitting there as one of our options in our capital allocation decisions.

[Jeffrey Campbell, Tuohy Brothers]

Okay, thanks for that color. And my last question is when we combine the presentation slides and mix commentary, it sounds like CNX M&A and Appalachia is fairly unlikely. With the hurdles that have to be jobs, I was just wondering if you guys cast your net outside of the Basin and your investigations are has that already been eliminated by due diligence?

[Nick Deiuliis, President and Chief Executive Officer]

Yes, Jeff, I think we got too much M&A within our company would be right now. And that, like you said, I think you summed up the invasion view pretty well and out of outside of Basin and even risk your rate, even more subject to unknown so we don't give much thought beyond the Basin and beyond what we're doing within our seven-year plan.

[Jeffrey Campbell, Tuohy Brothers]

Okay, great. Thank you.

[Operator]

Our next question is from Holly Stewart from Scotia Howard Weil. Go ahead.

[Holly Stewart, Scotia Howard Weil]

Good morning, gentlemen. Maybe just a couple of follow up. First, Nick, you made some comments about M&A. I couldn't tell are those comments really directed at being the consolidate R or the consolidate E it sounded like you were addressing your thoughts on inventory and cost structure as a consolidate R. But I just wanted to, to ask if it was applied to being a consolidate E as well?

[Nick Deiuliis, President and Chief Executive Officer]

I think there were two sort of components of the comments, one was with respect to us acquiring more what I would call assets within Basin those acquisition opportunities right now we don't see them competing with the risk adjusted rate of return or something like a share count reduction opportunity or level of debt reduction. So on the sort of putting free cash flow to work, or liquidity to work to acquire assets, with what we've got in front of us in the seven-year plan and our opportunity set, don't see that competing right now. On the second sort of grouping of the metrics we laid out. As with respect to combinations, I don't know you can call us the acquirer or acquire is basically a combination but and under any combination theory, right, the inventory, you don't want to dilute the cost structure, you don't want to dilute by raising it, your balance sheet you don't want to weaken because of unused FTA and or leverage or negative free cash flows. And your free cash flow per share and your free cash flow yield. You don't want to damage that those are the drivers that put us in the pole position.

[Chad Griffith, Chief Operating Officer]

Yes, and that said, definitely, like our main goal is to create long-term value for our shareholders. And we have a base seven-year plan that is set up to do just that. So anything that you would look at to put yourself in a better position than your current one. So our ultimate goal is create long-term value for our shareholders and for the CNX shareholders. We have a lot of work to do that in our seven-year plan, and we wouldn't want to put the CNX shareholders in a place that's not as good as the place we already have.

[Holly Stewart, Scotia Howard Weil]

Yes, yes. Okay, that makes sense. Maybe just one follow up really, on kind of the macro supply dynamics, we've seen some obviously, changes happening given the consolidation. So no more Shell, right, no more, no more Chevron, Southwest are consolidating [indiscernible], how do you see sort of the supply dynamics in the Basin changing just given all that consolidation I say all that, but the consolidation that we've seen thus far?

[Nick Deiuliis, President and Chief Executive Officer]

No, it's a good question. So I think some of these, it goes back to some of the earlier comments about sort of inventory and acquisitions and what motivates some of our peers to acquire, what are the factors involved, I think if you're going out and paying a premium or you're potentially diluting your existing shareholders in order to pick up more inventory, you're going to need to derive value from that pickup in order to, keep your existing shareholders for a neutral.

So I know, there's a lot of talk about remaining disciplined and picking up inventory to be the rationalize supply. But I think there's going to be pressure from some of these folks to be able to, show value for what it is that they have acquired. So what that means long-term, I think that I think what the price -- the local prices, we're seeing and NYMEX prices we're seeing and some of these consolidation news, I think there's going to be some real pressure on some of our peers to be able to sort of grow some supply now whether or not they have the cash or the capital to be able to do so it's still sort of to be determined.

[Don Rush, Chief Financial Officer]

Yes. And I think, ultimately, folks seem to be on the capital discipline, supply discipline. We hope that's where everybody kind of stays and sort of sticks to. That has kind of been something kind of kicked about before that it hasn't always actually resulted in capital discipline and supply discipline. We hope this time, it's different and the cash flow we generate, if that's true, just goes up materially. But as we've found out and everyone's found out, it is really hard to predict with, what hundreds of companies are going to do. And that's what kind of creates the supply stack if you look across the United States and couple that with, the recent ‘21 gas bull thesis was mostly derived by an OPEC fight and COVID-19 global pandemic. So I mean, these things are just really, really hard to predict. So we try to, to the next point, keep it simple. We know if we're by far the lowest cost and the best inventory and got a strong balance sheet we will do very, very well, it [indiscernible] 40 to 50 gas. We will do very, very well to 25 NYMEX and if the world gets better, three bucks, great. We're all for it. We hope that folks stay disciplined and gas prices go up.

[Holly Stewart, Scotia Howard Weil]

Yes, that makes sense. Thank you guys.

[Operator]

Our next question is from David [indiscernible] Energy Advisors. Go ahead.

[Unidentified Analyst]

Good morning. And Holly asked a good question. The question on your commentary is a political environment. In Pennsylvania that sounded contrary to some of the perspective we've heard from other public and private operators as they're considering, really, the political risks of Pennsylvania assets could be the next environmental target behind Colorado and having more Ohio and West Virginia might be better. Do you have any thoughts around that or is that they are reading too much into your comments on the political environment?

[Nick Deiuliis, President and Chief Executive Officer]

I hope I didn't give you the inference through what I said that there's a concern with respect to Pennsylvania losing the natural gas industry, that's certainly not the case. If anything, if you look at what's going on…

[Unidentified Analyst]

Oh, not that being a target, I mean, losing is an extreme. But being a target is a risk that you would try to mitigate. So please don't go down the losing path.

[Nick Deiuliis, President and Chief Executive Officer]

Yes, I'm still understanding question. From a Pennsylvania regulatory perspective, we don't see any material change that's being bantered about are coming down the pike. If you look at the last 5 to 10 years, what's happened within the Commonwealth in the natural gas industry, it has grown exponentially and that growth is I think, more importantly, correlated to a live inclusion across different factors of the economy in the state with respect to that growth itself. So initially, right, everybody focused on landowners and, and multi generational farms and things like that they got a benefit via the land [indiscernible] base. But when you look at the employment side of things, the employment has become much more organic within the state used to have not long ago, a lot of sort of expertise and disciplines coming from Oklahoma and Texas, et cetera.

That's now basically taken root in state and what you're seeing with respect to jobs, kids either coming out of high schools or people already in the workforce, right, the older workforce, getting into the industry. You seen all the downstream service economies sort of feeding off of this, you've seen a resurgence of manufacturing.

In Pennsylvania, it's feeding off the feedstocks in the low cost side of the energy side of the equation, which is big for manufacturers. And you've seen basically the local governments and the state government benefiting from this to the impact fee, so and that's up to billions of dollars since it's been created. So I think, Pennsylvania has sort of been an example of a well integrated growth story with respect to natural gas and how it's a fundamental sort of building block of an economy.

[Unidentified Analyst]

Okay, so West Virginia equals Pennsylvania equals Ohio from a risk assessment or maybe it's even better?

[Nick Deiuliis, President and Chief Executive Officer]

Yes, Northern Appalachia, pretty much -- then Ohio Western PA, Northern West Virginia context.

[Unidentified Analyst]

Can you help on some simple math of just reconciling what the market must be factoring into your $2.9 billion of true free cash flow over seven years versus your market cap and EV I think you tried to hit that with the inverness inventory assessment. But I'm just trying to see if there's anything other than inventory that you hear that, that makes people question that gap between $2.9 billion and $4.38 billion dollar EV.

[Chad Griffith, Chief Operating Officer]

Yes I will start and Nick [indiscernible]. And so I think, ironically the folks that actually spend time with us and study as well asked me that same question all the time. And I think two things the ecosystem hasn't caught up to us on what how much we have changed over the last several years and in regards to cost and cash flow generation inventory, you name it. I mean, it's -- it hasn't caught up to us.

So part of it is, if you look at just coverage, but we don't -- we're one of the least coverage from research analysts, out there, which is absolutely great. Since we've been a standalone EV we're number one performer. Like we've built the model that everybody in ecosystems like clamoring that they want to want to see built.

The ecosystem hasn't caught up to this yet. A lot of the major research shops haven't even started covering us for example. Second, when you get into this, the ecosystem hasn't started valuing companies offer free cash flow, you still see even multiples, which in high capital intensity business, that you got to spend capitalist stay the same EBITDA multiples are just not an efficient way to look at companies.

But if you look, historically, there wasn't free cash flow being generated by companies. So that was the only metric that folks could use to compared separate companies. I think as we move into the next phase, if the ecosystem catches up to the phase that they're trying to say that we're going to move into, which is free cash flow generation and return to shareholders, or free cash flow yields going to get attention. Free cash flow yield, ironically, can only be high trading that.

That's -- yes, that's kind of what we're saying. Yes the opportunity right now is tremendous for a new investor in CNX and as Nick said, if folks take a little longer to catch up to it, well, we invest in ourselves. I mean, it's there, the numbers are there, the ecosystem hasn't caught up. And we'll keep printing quarters and do good things with the money. And hopefully the ecosystem catches up to us.

[Nick Deiuliis, President and Chief Executive Officer]

And to the broader picture, over seven years $3.4 billion of legitimate free cash flow. I look at it this way, if the yield unchanged, as we talked about this, I think on an earlier question, if you project out three years of the front seven, or that's going to be material, our share count will be substantially lower, and our free cash flow per share is going to be significantly higher. And we're going to be insulated from the various nuanced twists and turns of the commodity space in the capital markets. That's it. That's a base case, that one way or another will rectify. What we're talking about here.

[Unidentified Analyst]

It is the fixed plus variable dividend that year three plus it could be something you might include in your plan just for from the [indiscernible] gallery. But I do think that is resonating, particularly in the larger cap space. So thank you for answering my questions and your perspective.

[Operator]

This concludes our question and answer session. I would now like to turn the conference back over to Tyler Lewis, for closing remarks.

[Tyler Lewis, Vice President, Investor Relations]

Okay, thank you. And we appreciate everyone joining us this morning. If you have any follow on questions, please feel free to reach out. Otherwise, we look forward to speaking with everyone again next quarter. Thank you.

[Operator]

The conference is now concluded. Thank you for attending today's presentation.