BKV Q4 2024 Earnings Report

BKV EPS Results

• Actual EPS: $0.01
• Consensus EPS: -$0.10
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: N/A

BKV Revenue Results

• Actual Revenue: $119.78 million
• Expected Revenue: $183.77 million
• Beat/Miss: Missed by -$63.98 million
• YoY Revenue Growth: N/A

BKV Announcement Details

• Quarter: Q4 2024
• Date: 2/26/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, February 26, 2025
• Conference Call Time: 10:00AM ET

BKV (NYSE:BKV) engages in the acquisition, operation, and development of natural gas and NGL properties. It is also involved in the gathering, processing, and transportation of natural gas. The company was founded in 2015 and is based in Denver, Colorado with additional offices in Tunkhannock, Pennsylvania and Fort Worth, Texas. BKV Corporation, LLC operates as a subsidiary of Banpu North America Corporation.

BKV Q4 2024 Earnings Call Transcript

Key Takeaways

• BKV’s upstream segment exceeded guidance in Q4 with production of 774 MMcfe/d—5% above midpoint—while investing $43 M of CapEx (below forecast), and provided 2025 production guidance of 755–790 MMcfe/d.
• The 1,500 MW combined-cycle power JV in ERCOT delivered a 57% capacity factor in 2024 and is targeting $130–170 M adjusted EBITDA for 2025, underpinned by ~700 MW of hedges and rising data center demand.
• BKV’s CCUS business secured three FIDs (Barnett Zero, Cotton Cove, Eagle Ford) with high injection reliability, targets over 1 M tCO₂ by 2027, and is negotiating a JV partner within 90–120 days to accelerate growth.
• As of year-end 2024, BKV generated $92 M of adjusted free cash flow (15% margin), reduced net leverage to 0.65×, held $436 M of liquidity, and forecasted 2025 CapEx of $320–380 M (split between development and CCUS).

Presentation

[Operator]

Good morning, everyone, and welcome to BKV's Full Year and Fourth Quarter twenty twenty four Earnings Conference Call. As a reminder, today's call is being recorded. And at this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. I would now like to turn the call over to Mr. David Tamarone, Vice President of Strategic Finance and Investor Relations. Please go ahead, sir.

[David Tameron, VP, Strategic Finance & Investor Relations at BKV]

Good morning, everyone, and thank you for joining BKB Corporation's fourth quarter and full year twenty twenty four earnings conference call. With me today are Chris Cowen, Chief Executive Officer Eric Jacobson, President of Upstream and John Jimenez, Chief Financial Officer. Before we provide our prepared remarks, I would like to remind all participants that our comments today will include forward looking statements, which are subject to certain risks, uncertainties and assumptions. Actual results could differ materially from those in any forward looking statements. Additionally, we may refer to non GAAP measures.

[David Tameron, VP, Strategic Finance & Investor Relations at BKV]

For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward looking statements, as well as any reconciliations of non GAAP financial measures, please see the company's public filings, including the Form eight K filed earlier today. We have also posted an updated investor presentation on our website. I'd now like to turn the call over to our CEO, Chris Kelman.

[Chris Kalnin, CEO at BKV]

Thank you, David, and thank you everyone for joining us to discuss our fourth quarter and full year twenty twenty four results. I want to take a moment to reflect on the truly transformational year BKB had in 2024. Throughout the year, BKB delivered solid business performance, driven largely by impressive results from our upstream operations. We also gained momentum in our Power business, actively engaging with prospective customers in the data center sector. Our CCUS initiatives progressed with an additional FID on a new carbon capture project, as well as significant steps towards securing a financial joint venture partner.

[Chris Kalnin, CEO at BKV]

At the same time, we maintained a strong balance sheet providing us with the flexibility to advance our businesses across all our vectors. And of course, we marked the year with a major milestone by making our debut on the New York Stock Exchange at the September. BKV is redefining the concept of an energy company by combining traditional and new energy approaches to offer integrated energy solutions that deliver value to customers. With four business lines, including Power, Carbon Capture, Upstream and Midstream, BKB's businesses generate value standalone and in combination create a winning formula of decarbonized around the clock energy that is scalable, sustainable and profitable. The power markets in particular are evolving rapidly and I'd like to highlight some key trends shaping our power strategy.

[Chris Kalnin, CEO at BKV]

Our power JV is anchored on two modern and highly efficient combined cycle natural gas power plants that have a capacity of 1,500 megawatts and are located in Temple, Texas. Power generation is a key growth driver for the company given the recent power demand forecast across The U. S. And in the Texas ERCOT market. The Power Generation business in ERCOT represents a compelling growth opportunity for BKB.

[Chris Kalnin, CEO at BKV]

Rapid demand growth in ERCOT is driven by several key factors, including electrification, increasing consumer and industrial demand, and importantly, data center and generative AI demand growth. ERCOT's twenty twenty four long term load forecast estimates overall demand could reach 150 gigawatts by 02/1930, nearly doubling the 2023 peak load of 85 gigawatts with data center developments accounting for approximately half of this growth. During the fourth quarter, our Power JV took proactive steps to enhance operational readiness of the Temple Complex, which involve maintenance on our combined cycle turbines and our steam turbine units. Through these activities, we have positioned ourselves to maximize uptime during peak demand periods, especially during the winter and summer months. In the near term, we have seen prices moderate due to benign weather conditions in Texas and new renewable additions to the grid.

[Chris Kalnin, CEO at BKV]

However, overall, we remain bullish about ERCOT's long term demand growth and scarcity pricing as demand growth is projected to outpace supply additions, particularly baseload supply. Our Power business has multiple vectors of growth. First, we have the ability to increase the utilization of our existing assets through higher capacity factors as demand for baseload power increases in the market. Second, BKB is active in the M and A markets and expects significant opportunities for transactions in the next few years. Third, BKV has commissioned a study to explore building additional combined cycle units similar to our temple plants to address the projected mismatch between structural demand growth and baseload supply.

[Chris Kalnin, CEO at BKV]

As we believe, there are customers focused on securing power from new generation assets. PKV's power business model is unique in our ability to decarbonize the natural gas that we combust in our power plants through our carbon capture business. This unique feature is important to future customers. BKV remains bullish on the carbon capture industry, recognizing its vital role in decarbonizing the global economy. In The U.

[Chris Kalnin, CEO at BKV]

S, Carbon Capture enjoys strong bipartisan support, including from the current presidential administration. The economic incentives driving its development, such as the 45 Q tax credit enacted by Congress and codified in the Internal Revenue Code have demonstrated resilience across multiple administrations. BKV is solidifying our leadership position in this business. The evidence of this is in our FID progress and project pipeline that we are continuing to execute. Further, we are in exclusive negotiations with a global energy transition investor to become a joint venture partner in our Carbon Capture business.

[Chris Kalnin, CEO at BKV]

As part of these negotiations, we have mutually agreed to a timeline to finalize definitive agreements and complete standard due diligence within the next ninety to one hundred and twenty days. We believe EKV's CCUS business is standalone attractive and we are in a position to drive our CCUS growth independently. At the same time, we believe a financial partner could help us accelerate this business growth accretively. Later, Eric will talk about the momentum we have at a project level to drive our overall CCUS business. We had a strong quarter in our upstream business.

[Chris Kalnin, CEO at BKV]

Our upstream business continues to be the cash engine driving our ability to grow across all our business lines. We are extremely excited about the strong results from this last quarter. Not only did we see solid performance, but these results also highlight how our business is strategically positioned with low decline rates, allowing us to navigate periods of lower pricing. At the same time, we are able to reinvest, grow production and capture favorable pricing. Overall, I'm very pleased with our team's performance and our continued ability to navigate dynamic market conditions and drive towards the execution of aspirational goals.

[Chris Kalnin, CEO at BKV]

We remain focused on executing our strategy and delivering value to our shareholders across all our business lines. Now I'd like to hand the call over to BKB's President of Upstream, Eric Jacobson to discuss operational specifics for the quarter. Eric, over to you.

[Eric Jacobsen, President - UpStream at BKV]

Thanks, Chris. Building on the upstream theme that Chris teed up, we are very pleased with our fourth quarter upstream performance and are excited about our 2025 program. Fourth quarter production was seven seventy four million cubic feet equivalent per day, outperforming and exceeding the midpoint of the guidance range by 5%. And it was delivered by investing approximately $43,000,000 of development CapEx, which was lower than the amount of investment forecasted. Across the fourth quarter, our new well development performance was at or better than forecasted type curve.

[Eric Jacobsen, President - UpStream at BKV]

We continued our trademark of highly effective base decline management and we accelerated development timing through strong drilling and completion performance. Simply put, in the fourth quarter, we delivered more upstream activity at a faster pace and at lower costs than we had forecast. We brought several wells online at the end of the fourth quarter to boost 4Q production, which resulted in a total average annual daily production of seven eighty eight million cubic feet equivalent per day or $774,000,000 pro form a for the NEPA non ops divestiture. This strong overall performance continues to showcase our advantaged asset base featuring low base decline rates coupled with competitive and robust inventory enabling us to continue our systematic approach to capital investment according to price environment. Given this systematic CapEx approach, we are flexing up our spend in the current environment through developing our long inventory runway of both refracs and new drills.

[Eric Jacobsen, President - UpStream at BKV]

The continuation of this CapEx program is reflected in the guidance we provide for the full year 2025. Our development CapEx investment into refracs and new drills is expected to continue through most of 2025. And on the back of that, our 2025 full year production guidance reflects a range of $755,000,000 to $790,000,000 cubic feet equivalent per day. Our 1Q twenty twenty five guidance includes winter weather impact and following that we expect to realize a production ramp in the second half of the year coincident with strip pricing rising quite favorably in that same period. As we exit fourth quarter of twenty twenty five, we anticipate our production being a couple percentage points above fourth quarter twenty twenty four exit even with our strong outperformance in this latest quarter.

[Eric Jacobsen, President - UpStream at BKV]

In the Barnett, we also have several differentiating factors that further set the stage for success, including an advantaged geographic position with multiple takeaway routes and ample takeaway capacity to Gulf Coast markets, including both the Gulf Industrial Corridor and LNG export terminals. The lower nitrogen content of our Barnett gas has specifically caught the intention of downstream markets as they become increasingly sensitive to certain gas specs. To wrap up upstream, we are looking forward to continued success building on the strong production, inventory development and capital efficiency we delivered in 2024. I will now move into specific CCUS operations updates starting with our actively injecting project Barnett Zero. As of November 2024, our Barnett Zero project had been in operation for a full year and through year end 2024 had injected approximately 173,325 metric tons of CO2 since project startup.

[Eric Jacobsen, President - UpStream at BKV]

The project has had an incredibly high 97% reliability rate and high fidelity injection. For 2025, we expect an injection volume range of 120,000 to 170,000 metric tons per year of CO2. Our Cotton Cove project, which previously reached FID remains on track for first injection in the first half of twenty twenty six. The monitoring, reporting and verification or MRV plan was submitted to the U. S.

[Eric Jacobsen, President - UpStream at BKV]

EPA in November 2024 and the Class II injection well permit has been approved by the Texas Railroad Commission with drilling expected to commence in the third quarter of twenty twenty five. The forecasted peak injection rate at Cotton Cove is 42,000 metric tons per year of CO2. During the fourth quarter, BKV also reached FID on yet another CCUS project with a leading midstream energy company at a currently operating natural gas processing plant located in the Eagle Ford Shale. BKV will own and operate the compression and injection facilities and receive all of the environmental attributes and 45 Q tax credits associated with the CCS project. The Texas Railroad Commission has approved the project's Class II injection well permit and an MRV plan has been submitted to the EPA for approval.

[Eric Jacobsen, President - UpStream at BKV]

The project is expected to have initial injection in the first quarter of twenty twenty six subject to us receiving all required plans and permits and the facility is forecasted to achieve an average sequestration rate of approximately 90,000 metric tons per year of CO2. This project further paves the way for additional NGP carbon capture partnerships. The announcement of the Eagle Ford Area CCUS project accelerates our progress and gives us line of sight to achieving our goal of injecting over 1,000,000 tons of CO2 by the end of twenty twenty seven, largely from NGP and ethanol. Our confidence in achieving this injection goal is underpinned by our three carbon capture project FIDs to date, three received and four filed Class II well permits and two filed and deemed administratively complete Class VI permit applications that are under technical evaluation. For additional information, we've included our projections for the CCUS business from 2025 to 2027 and beyond in our updated investor presentation showing details of our internal buildup for the CCUS business over the period.

[Eric Jacobsen, President - UpStream at BKV]

We are incredibly proud of the progress we've made in our CCUS business and are looking forward to 2025 and beyond. With that, I will hand the call over to our CFO, John Jimenez, to share company financials and results from our Power JV, another key piece of BKB's winning formula.

[John Jimenez, Chief Financial Officer at BKV]

Thanks, Eric. Before I share the power results, I'd be remiss to not acknowledge my recent retirement announcement. It's been an absolute honor to serve BKB as CFO for the last four years. I'm incredibly proud of all that we've accomplished in my tenure, most notably the company's successful IPO process this last year. BKD is well positioned for the future and I'm confident that the experienced leadership team soon to include David as CFO and its talented employees will take the company to even greater heights as they move forward.

[John Jimenez, Chief Financial Officer at BKV]

I look forward to continuing to support the team in an advisory capacity and I'm ready to enjoy my retirement with my family later this year. And now for an update on our power operations. As expected during shoulder seasons, the fourth quarter was characterized by moderate power demand. Taking advantage of this shoulder season, we use the period to conduct scheduled major maintenance, which resulted in downtime for the plants. The average capacity factor for the Temple plants during the quarter was 38% and total generation was 1,200 gigawatt hours.

[John Jimenez, Chief Financial Officer at BKV]

For the full year, the average capacity factor was 57% and the total generation was 7,400 gigawatt hours. During 4Q, power prices averaged $36.9 per megawatt hour with average natural gas costs of $2.5 per MMBtu, resulting in an average spark spread of $19.37 per megawatt hour. For the full year, the average spark spread was 21.96 per megawatt hour. BKV's implied proportionate share of the Power JVs net loss during Q4 was about $17,000,000 including major maintenance expense and adjusted EBITDA was $500,000 For the full year, BKV's implied share of the JV's net income was $10,000,000 and $34,000,000 for adjusted EBITDA. As a reminder, our Power JV is non consolidated.

[John Jimenez, Chief Financial Officer at BKV]

Beginning with 1Q twenty twenty five results, we expect to begin reflecting our portion of the Power JV's results within BKV's reported adjusted EBITDAX. As we look towards 2025, the Power JV has hedged approximately 700 megawatts of generation. Based on our pricing outlook and the current hedge position, the Power JV is targeting a gross 2025 adjusted EBITDA range of $130,000,000 to $170,000,000 This guidance reflects the impact of additional renewable generation combined with lower forward pricing in the short term. However, BKB still anticipates robust long term demand growth leading to increased periods of scarcity pricing in the ERCOT market. Now shifting to the rest of BKB's financial performance.

[John Jimenez, Chief Financial Officer at BKV]

You've heard about BKB's financial framework, which underpins our strategy. Our low decline inventory, our strong free cash flow margin and our disciplined CapEx enabled us to continue to invest in the base while supporting the future growth of the company. Well, this quarter is another proof point, which showcases our ability to execute against our strategy. Accrued capital expenditures in the fourth quarter were $60,000,000 which included $43,000,000 for development and $3,000,000 for CCUS. This is notably below the low end of our fourth quarter guidance range of $65,000,000 evidencing not only our ability to respond to the market conditions, but also our ability to drive capital efficiency.

[John Jimenez, Chief Financial Officer at BKV]

As Eric emphasized earlier, our commitment to capital discipline serves as a clear example of BKB's continued focus on managing capital expenditures in alignment with market conditions. Our full year 2024 accrued capital expenditures were approximately $118,000,000 including $82,000,000 for development capital and $35,000,000 for CCUS and other. This represents a 28% reduction in accrued capital expenditures year over year. For 2025, we're anticipating an increase in upstream development. We believe that total capital expenditures will land between $320,000,000 and $380,000,000 with approximately $220,000,000 going towards development and approximately $130,000,000 going towards CCUS and other.

[John Jimenez, Chief Financial Officer at BKV]

Despite our elevated capital investment in 4Q, we generated positive adjusted free cash flow and continue to delever the business. As of year end, our outstanding RBL balance was $165,000,000 representing a net leverage ratio of 0.65x. We also had cash and cash equivalents of approximately $15,000,000 combined with the availability on our RBL, our total liquidity as of year end was $436,000,000 dollars During 2024, the company generated positive adjusted free cash flow of $92,000,000 with an overall adjusted free cash flow margin of 15%, which included our investments in CCUS. This is a strong result considering our return to a more robust development period during the fourth quarter in anticipation of stronger overall pricing going into the new year. We are already seeing that stronger pricing trend come to fruition in the early weeks of 2025.

[John Jimenez, Chief Financial Officer at BKV]

We had a net loss in the fourth quarter of $57,000,000 or negative $0.68 per diluted share. This loss was heavily driven by net derivative losses of $58,000,000 After adjusting net income for unrealized derivative losses and other non recurring items, we had an adjusted net income of approximately $1,000,000 or a positive $0.01 per diluted share in the fourth quarter of twenty twenty four. For the full year of 2024, after adjusting net income for unrealized losses and other non recurring items, we had an adjusted net loss of $40,000,000 In regards to our hedging strategy, I'd like to reiterate that we hedge at least 50% of PDP production for twenty four months. Based on our year end hedge position for CAL25, we have natural gas hedged at an average price of $3.43 per MMBtu and NGLs are hedged at an average of $21.82 per BKV weighted barrel. For 2025 guidance and going forward, BKV is providing current quarter and full year guidance, which we will update as appropriate on a quarterly basis.

[John Jimenez, Chief Financial Officer at BKV]

I have covered a handful of our guidance ranges already and you can refer to our complete 1Q twenty twenty five and full year 2025 guidance, including our per unit operating costs and average natural gas price differential in the press release that was posted this morning. With that, I'd like to turn it back over to Chris to wrap things up.

[Chris Kalnin, CEO at BKV]

Thank you, John, and congratulations to you on your forthcoming retirement. And we look forward to hearing about your travel adventures during this next chapter of your life. Only 34 countries to go on your path to 100. It has been a joy and a pleasure working alongside you and I wish you many more successes as you pursue life to its fullest in your retirement. Before we open the call for questions, I want to emphasize a few key messages.

[Chris Kalnin, CEO at BKV]

First, BKV offers the winning formula through a combination of natural gas production, carbon capture and power, which we believe will attract a premium in the marketplace. Second, BKV has multiple paths for disciplined growth across all our business lines. We We have the ability to grow both organically and inorganically with the balance sheet and the organizational readiness to support that growth. Finally, our strong performance in the fourth quarter and throughout 2024 reinforces our ability to deliver shareholder value in line with our aspirations. With that, operator, we're ready to take any questions.

[Operator]

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from Scott Garber with Citigroup. Please proceed with your question.

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

Yes. Good morning. Hey Scott. Hey, a lot of good color on the Texas power market, Chris. You have excess capacity at your temple facilities, data centers are getting bigger.

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

So I'm curious, as you think about the PPA opportunity, how much of your capacity would you be comfortable dedicating to a PPA? You could power a large data center with your two plants, but that would obviously reduce the spare capacity you provide to the ERCOT system. I'm not sure how the interaction with regulators kind of comes into play given that ERCOT is a competitive market. So you just shed some color on kind of your comfort level around how much capacity at the plants you'd be comfortable dedicating under PPA?

[Chris Kalnin, CEO at BKV]

Yes, Scott, good question. So appreciate it. Yes, if you look at ERCOT, it's obviously a hot topic right now as it is across the grid around how much are people able to take off to kind of do these private use networks or what we call puns. For us, we have two modern combined cycle power plants, each about seven fifty megawatts. So, if you think about sort of a PPA structure, you're probably not going to want to go more than seven fifty megawatts on those.

[Chris Kalnin, CEO at BKV]

You're going to be able to take one down for maintenance, keep the other one running, as that redundancy is really important to a lot of these data center companies. So when you think about us, I would say sort of that seven fifty is about the right kind of upper limit of what we'd be comfortable with as we think about these options around sort of private use network and sort of behind the meter deals.

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

And what's the latest color on your progress with discussions on that front? Do you think an agreement is possible here in 2025? And then you mentioned starting to look at building additional plants down the road. So are you focused on getting that agreement on the existing plant? Are you starting to look at agreements for new plants? Are those separate opportunities you're pursuing both?

[Chris Kalnin, CEO at BKV]

Yes. Good for you to pick that up. I mean, I think on the existing power plants, we have, as you can imagine, Scott, an incredibly unique position in the AerCap market where we have 1,500 megawatts that are undedicated. We're right in the heart of the state. So those discussions, as I said, are active and we look forward to announcements.

[Chris Kalnin, CEO at BKV]

You can imagine in the next twelve to twenty four months, there's going to be a lot of deals struck in the ERCOT and then broader U. S. Market. I think for us, it's certainly right there. We're active.

[Chris Kalnin, CEO at BKV]

We can decarbonize it. We have those assets today. And so we feel very excited about the momentum we see in the market and you're hearing that not just from us, but other producers of gas and power. So we see that very, very much and we see that activity actually picking up pretty substantially in the last, I would say, ninety, one hundred day sort of timeframe. With regards to the new power plant study that I mentioned, that's all about what customers want.

[Chris Kalnin, CEO at BKV]

And there's some specific customers out there that want new generation assets as part of kind of doing deals. They don't want to be seen as taking power off the grid. And so our ability to kind of offer both is actually super compelling to them. And I think that that's where we see BKV being flexible, having the balance sheet, having the strategy to kind of go after both types of customers is being exciting and I think puts us in a really great position when we talk about kind of near term agreements and or ability to kind of strike some longer term deals as well.

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

Very interesting. Thanks, Chris, for the color. I'll turn it back.

[Chris Kalnin, CEO at BKV]

Thanks, Scott.

[Operator]

Our next question comes from Nitin Kumar with Mizuho Securities. Please proceed with your question.

[Nitin Kumar, Senior Analyst at Mizuho Financial Group, Inc.]

Guys, thanks for taking my question. I want to start on the CCS side. You mentioned the potential for a JV, but you had one FID here, congratulations on that. As I look at the capital guidance, you're guiding for about $130,000,000 of CCUS and other. Your other CapEx is running around $15,000,000 a quarter.

[Nitin Kumar, Senior Analyst at Mizuho Financial Group, Inc.]

So should we expect more I guess what's baked into this guidance for CCS capital spending?

[Eric Jacobsen, President - UpStream at BKV]

Hi, good morning, Nitin, and thank you for the question. This is Eric. Yes, within that CCUS and other category of the $130,000,000 about $90,000,000 of that is expected CCUS spend. So we'll look to further develop the FIDs that we have announced. We hope and anticipate there'll be more FIDs coming and we'll be quite active in starting to develop these projects for startup in early twenty twenty six.

[Nitin Kumar, Senior Analyst at Mizuho Financial Group, Inc.]

Got it. And you're not assuming a JV, just as clarification, right? This would be a 100% CapEx on CCS as of today?

[Eric Jacobsen, President - UpStream at BKV]

Yes, correct. That would be our reported CapEx 100% at the $90,000,000 range.

[Nitin Kumar, Senior Analyst at Mizuho Financial Group, Inc.]

Got it. And then my follow-up, I just want to quickly ask on production taxes. It looks like production taxes were a lot lower than expected. Is that just a timing impact and should we see that reverse out here in the first quarter?

[Executive]

Thanks, Sitton for picking that up. Actually, taxes other than income have two components, one of which is called a severance tax, which is essentially a production tax. It's a percentage of revenue. And although pricing and production volume vary, that percentage typically sits around 3% and that didn't create any of the variance you're seeing in the quarter or in the year to date. What was creating the change in the quarter had to do with ad valorem.

[Executive]

That's the other part of taxes that come through that line. This is a real estate and personal property taxes that are assessed based on the assessed value of the assets. And a couple of the counties were a little bit delayed in terms of their processes and finalizing those assessed values. Those happened in the fourth quarter and hence we had a true up once those were finalized in the range of $4,000,000 to $7,000,000 So that's what's suppressing the quarter. But the year to year, the assessed values will fluctuate on ad valorem, but severance stays pretty constant.

[David Tameron, VP, Strategic Finance & Investor Relations at BKV]

Yes. So, Nate, it's Dave. Just for going forward for modeling purposes, just assume it's back to historical levels, that was kind of a one time hit in the fourth quarter.

[Nitin Kumar, Senior Analyst at Mizuho Financial Group, Inc.]

Sure. And if I can sneak one more in, just on the upstream side, gas prices have obviously been much stronger. As I look at your upstream guidance here. There should be some growth through the year, but you're not leaning in to the upstream just yet. Could you talk a little bit about what you're seeing there and sort of why the current level of activity?

[Eric Jacobsen, President - UpStream at BKV]

Yes, sure. Thanks again for the follow-up there, Nitin. As we've shared before and as is included in the slide in the finance section of our investor deck, we'll remain committed to that systematic disciplined CapEx investment approach and we remain focused on free cash flow. Within that framework, if we see prices remaining very strong in the second half of twenty twenty five and through 2026, I would expect in the coming months we'll have a hard look at upping our CapEx investment in the second half of twenty twenty five. We certainly have the available and quality inventory, both new drills and refracs in NEPA and Barnett to invest additional CapEx.

[Eric Jacobsen, President - UpStream at BKV]

So that's there. So over the coming months, we'll have a hard look about reinvesting additional in the second half of twenty twenty five. And should we do so, I think what we'd expect to see is a nice ramp at the very back end of 2025 setting us up for a really strong 2026.

[David Tameron, VP, Strategic Finance & Investor Relations at BKV]

And then just sorry, Dave again, just to make sure you and everybody else are clear. Our current CapEx guidance is consistent with what we told the analysts on the roadshow, which was we're using a $3.50 deck to get that capital spend. So as prices stay stronger, as Eric indicated, we'd revise as appropriate if need be.

[Nitin Kumar, Senior Analyst at Mizuho Financial Group, Inc.]

Great. Thanks guys.

[Operator]

Our next question comes from Betty Jiang with Barclays. Please proceed with your question.

[Betty Jiang, Managing Director at Barclays]

Hi, good morning everyone. John, congrats again on your retirement. I want to start asking about the natural gas processing CCS contract. It's really great to see that momentum with additional contract. How does how's the margin economics of this contract compared to your net zero?

[Betty Jiang, Managing Director at Barclays]

And then once you start rolling in the additional CCS volume, how much more low carbon power can you offer to the market once you bake that in?

[Chris Kalnin, CEO at BKV]

Eric, why don't you take the margin question and I'll follow-up with the power question.

[Eric Jacobsen, President - UpStream at BKV]

Sure. Yes. Good morning, Betty, and thank you for the question on the CCUS business. As we mentioned, we're very excited about to announce this third FID continuing on with our Forte in the natural gas processing space with a very large and reputable midstream operator. You can think about the margin that we're realizing from this deal, this latest NGP FID announcement, very comparable, right in line with Barnett Zero and what we've shared before there. The $50 a ton sort of EBITDA margin range.

[Chris Kalnin, CEO at BKV]

Yes. So betting on the power, so as you know, you're going to decarbonize around the clock with carbon capture. Our Barnett 0 project at sort of that 150,000 to 100,000 tons a year utilizing that kind of base price. So we've released our releases that we can reach 1,000,000 tons of revenue per year in time that increases proportionately, right. So the amount of power that we can carbonize kind of scale, sort of the impacts come out, you can see how our business

[Betty Jiang, Managing Director at Barclays]

I think I got some Chris. I think you were cutting off in and out a bit there for me, but we can follow-up. And then my follow-up is on the power EBITDA guidance that for 2025, it came in a bit light versus what we were expecting before. So could we just get a bit more color on what's the underlying assumption with your power price assumption and maybe spark spread?

[Chris Kalnin, CEO at BKV]

Yes. I think just to give the context with regard to the market in 2025, we saw three weeks summer in that carried over into the markets. We did layer on about 700 megawatts of hedges into 2025. I think that's going to moderate the overall outlook to some degree. And then again, we're seeing more builds that are happening in the market, which are kind of legacy from two or three years ago, those projects coming online.

[Chris Kalnin, CEO at BKV]

That's depressing prices in the peak hours in the near term. The positives there, Betty, is if you look out to '26, '20 '7, '20 '8 in particular, there is a huge amount of contracted base load demand coming on the market. That's where we see big, big risk to scarcity pricing in ERCOT in particular. And so we're very excited about our assets as we look into the next two to three years being positioned ideally for the market. In the near term, there's a little bit of headwind with as I said with regards to kind of weather online.

[Operator]

Got it. That's helpful. Thanks.

[David Tameron, VP, Strategic Finance & Investor Relations at BKV]

We're hearing we're breaking up on our end. I'm getting feedback on that as well.

[Operator]

Yes. Please hold. The conference will resume shortly. Okay. It seems like we have our speakers back and we're about to begin our Q and A again.

[Operator]

Our next question comes from Bert Johns with Truist Securities.

[Bertrand Donnes, Financial Analyst at Truist Securities]

Hey, good morning guys. Thanks for picking that. I was worried it was on my side. First of all, just want to say congrats to John. I might be thirty years behind you, but I'm happy for you.

[Bertrand Donnes, Financial Analyst at Truist Securities]

And then on the first question, maybe you could share your thoughts on how the rest of the Barnett operators might be looking at this improved gas strip. Do you think they're willing consolidators as they see higher prices? Maybe they think maybe we can get a higher price now? Or does this widen the bid ask spread? I think sometimes the conventional thinking is that some of those locations that weren't previously economic have now kind of flipped into a profitable category and so maybe that bid ask spread widens?

[Chris Kalnin, CEO at BKV]

Yes, that's a good question, Bert. I think what we expect is if we stabilize in the price and I think I shared this in our last earnings, we should see more transactions. I think it's about bringing together expectations on the Strip. I think the last couple of years has had some pretty significant bid ask spreads due to kind of varying views on what that Strip looks like. I think if we can kind of really keep the Strip in and around where it is even today for the next call it three to six months, I think that triggers a lot of transactions because I think then you can all agree on sort of what that reserve base looks like.

[Chris Kalnin, CEO at BKV]

Of course, if we start to see expectations that prices go even higher, I think that plays to your point where then that bid ask spread widened again. But if we're kind of hanging around where we are today and stabilize, I would expect that the second half of the year we'll see quite a bit of transactions particularly on the gas side.

[Bertrand Donnes, Financial Analyst at Truist Securities]

Got you. And I imagine you mean in the Barnett right now outside?

[Chris Kalnin, CEO at BKV]

Yes. I mean I think in Barnett and then of course you know that we're always looking to expand our portfolio to low decline kind of Gulf Coast access basins as well.

[Bertrand Donnes, Financial Analyst at Truist Securities]

Perfect. And then the second question, same thing on the upstream business. It outperformed our expectations, but I believe you pointed towards newer well performance as well as base decline. Could you maybe talk about which one maybe pushed that lever harder and maybe if you're making any changes as a result of the success? Thanks.

[Eric Jacobsen, President - UpStream at BKV]

Yes. Hey, good morning, Bert, and thanks for the question on the upstream side. Yes, we're very pleased as well with the fourth quarter performance on and outperformance on production. It was driven by a few factors as we shared. One is at or mostly above type curve performance on our new wells.

[Eric Jacobsen, President - UpStream at BKV]

It's driven by our execution excellence and ability to drive turn in lines earlier in the quarter than we expected. And then we did continue that trademark of ours, which is a resting already industry leading low base decline even further. And I would say our performance in the fourth quarter was driven largely by the new drills and new wells, which we're very pleased with that performance on type curves and accelerated tills. I think we expect to continue that performance into 2025 and beyond, Bert. We've applied a lot of lessons and learnings and we continue to get better and more efficient with our new drills and refracs alike.

[Eric Jacobsen, President - UpStream at BKV]

And then we'll carry that into that decision I mentioned per the question earlier about whether to deploy additional CapEx in the second half of twenty twenty five as we potentially grow even further coincident with strip pricing depending on how that lands in our decision making in the next few months. But certainly on the back of how we performed and executed our new drills, it lends itself to high confidence going forward.

[Bertrand Donnes, Financial Analyst at Truist Securities]

Understood. Thanks, team.

[David Tameron, VP, Strategic Finance & Investor Relations at BKV]

And operator, before you take the next question, just if anybody had any we understand there was some issue and we were breaking up. If anybody has any questions, feel free to get back in the queue and clarify anything you missed. We're happy to cover that again. Operator, back to you.

[Operator]

Okay, great. Our next question comes from Tim Rezvan with KeyBanc Capital Markets. Please proceed with your question.

[Tim Rezvan, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Good morning folks and thank you for taking my question. Some of mine have been answered. So I just had one for you, Chris. I appreciated the specificity you provided on the potential JV on carbon capture as well as the timing. So I know it's been a sort of frenetic new presidential administration, but this ninety to one hundred and twenty day kind of window you provided us is consistent with comments now about the middle of the year.

[Tim Rezvan, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Can you talk about your confidence on getting something over the finish line and maybe what the risks are along that path? Thank you.

[Chris Kalnin, CEO at BKV]

Yes. Appreciate it, Tim. Look, with regards to getting a deal over the line, I feel optimistic as I mentioned in our earlier discussion. With regards to the partner, they're very committed to it. As you know, the big question that a lot of folks have needed to navigate is sort of the scenarios with regards to how this looks in terms of policy.

[Chris Kalnin, CEO at BKV]

And that's really what we are hammering out in the next sort of ninety to one hundred and twenty days. I think when you look at where folks are at on the carbon capture side, I think it's incredibly optimistic. This is a bipartisan supported agenda. It's incredibly embedded into the tax code. It's in red states.

[Chris Kalnin, CEO at BKV]

It's supported by big oil, big ag. And so there's a lot of momentum around that and BKV is really taking a leadership position. So I would say all those factors give me a lot of confidence and with sharing that number with you all. At the same time, you know that nothing is a done deal until it's a done deal. So we are able and excited about delivering our business standalone and that's the way we've guided you guys in the market.

[Chris Kalnin, CEO at BKV]

But we're confident enough to come out and give you a date, timeline and when we think that's going to happen. So I think that speaks to our overall perspective on the matter.

[Tim Rezvan, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Okay. I appreciate that. And just a quick follow-up. The general terms you've provided about kind of a 49% participation with potentially some sort of CapEx carry, those general parameters are still I guess safe to think about?

[Chris Kalnin, CEO at BKV]

Yes. I think it's consistent with what we've talked about before.

[Tim Rezvan, Managing Director & Equity Research Analyst at KeyBanc Capital Markets]

Okay. All right. Thank you.

[Chris Kalnin, CEO at BKV]

Thanks Tim.

[Operator]

Our next question comes from Jacob Roberts with Tudor, Pickering, Holt and Co. Please proceed with your question.

[Jake Roberts, Director - E&P Research at TPH&Co]

Good morning.

[David Tameron, VP, Strategic Finance & Investor Relations at BKV]

Hey, good morning, Jacob.

[Jake Roberts, Director - E&P Research at TPH&Co]

Good morning. I wanted to take a look at Slide 21. And just given the FID down in South Texas, I'm wondering if there's any regulatory or geologic aspects we need to think about when looking at this map and perhaps where you guys are focusing and expanding this business. And then maybe if I could add on a quick follow-up to Tim's question. Should we be thinking about the JV potential partnership on a project by project basis or kind of a blanket agreement on multiple Ford projects?

[Eric Jacobsen, President - UpStream at BKV]

Sure. You bet. Jake, good morning. I'll take the first half of that question and then hand to Chris on the second half on the JV. So yes, referencing Slide 21 and the natural gas processing plants that we've highlighted across The United States, There are the nice thing is most of those are in very favorable regulatory states from an oil and gas and CCUS perspective.

[Eric Jacobsen, President - UpStream at BKV]

If you look at many of the states where there are concentrated plants, those are states which have already received permitting primacy from the EPA, even though Class II doesn't and the NGP doesn't require primacy. I think it's indicative of the regulatory environment. States like Louisiana, Wyoming, North Dakota, all of which have received primacy. West Virginia, we're pleased just recently did. And then a large concentration in Texas, where we've had already very nice success with the Texas Railroad Commission.

[Eric Jacobsen, President - UpStream at BKV]

We've received three approved Class II permits, a fourth has been filed and that's the heart and soul of our NGP business. So we look at the regulatory framework in those states where the plants are concentrated is very favorable overall with some already nice success we've had in some of those states. And then as far as geology to the point of your question, yes, geology matters. You'll remember our point source high concentration philosophy, which we think is unique to BKB. And part of that is we don't build a lot of new infrastructure, but what we do build is new and robust, meaning we like to have the pore space very close or ideally right underneath the source of emissions.

[Eric Jacobsen, President - UpStream at BKV]

And that is the case on many, many of these plants in Texas, Oklahoma, Wyoming, North Dakota. There's a lot of favorable geology in many of those states. So not for all, but largely there is. So we think again this map lends itself to our natural gas processing Forte and one of the foundations of our CCUS business as we grow to that million tons of injection on the back of natural gas processing and some ethanol in the next few years. Chris, over to you on the JV.

[Chris Kalnin, CEO at BKV]

Yes, Jake, on the JV, the deal would be a platform deal. So there would be a certain amount of capital that they would commit and that would then give us kind of the platform to deploy that capital alongside of them, the JV partner. And so once we're through that, then you're obviously either re upping or you're going to going on your own. So that's how you should think about it. So it does cover all our kind of deals in the future as you think about that amount of capital that's being committed.

[Jake Roberts, Director - E&P Research at TPH&Co]

Thanks. That's helpful. And then my second one on the power side of things, just thinking about an inorganic opportunity or the potential to build out a new facility, and I apologize if I missed this, are you willing to look outside ERCOT for those types of things? And, yes, I guess that's about it.

[Chris Kalnin, CEO at BKV]

Yes, it's a good question, Jake. We absolutely are willing and currently are looking outside of ERCOT as well, right? As you think about our model, which is gas, carbon capture and power, that scales and that scales across The U. S. So a lot of the discussions that we're active in are involving customers that have positions obviously in Texas, but also outside of Texas.

[Chris Kalnin, CEO at BKV]

And we believe that their interest in BKV is around our ability to offer that around the clock decarbonized power. So clearly getting assets in addition to kind of the ERCOT market would make a lot of sense to match their portfolios. And that's exactly how we're thinking about it because we think Texas is a great starting point. But when you think about the issue of data center growth, you have multiple places certainly in PGM and other markets that are going to be prospective and BKB is very active in looking at that as well.

[Jake Roberts, Director - E&P Research at TPH&Co]

Your answer actually reminded me of the second part of that question. Would these investments be predicated on the ability to offset the carbon?

[Chris Kalnin, CEO at BKV]

It depends. There are certain customers you can imagine the certain customers that have made strong commitments on their net zero goals by sort of end of the decade. Those customers are going to be highly sensitive to your ability to decarbonize. And actually, that is critical for them as part of this because they can't just take sort of brown what they call brown power and not decarbonize it. There are other customers in the market that are very just focused on time to power, how quickly can you get me the megawatts.

[Chris Kalnin, CEO at BKV]

Those customers are less sensitive to it. So it really is sort of a tale of who is the customer you're talking about and what they're looking for, and we price accordingly. If you're looking for non decarbonized power and you just want time to market, there's a price point for that. If you're looking for decarbonized round the clock power, there's a different price point for that, a bigger premium. So it really depends on who you're talking about.

[Chris Kalnin, CEO at BKV]

And as you can imagine, these customers all have different agendas that they're pushing for and BKB can offer either customer what they want.

[Jake Roberts, Director - E&P Research at TPH&Co]

Great. John, enjoy the retirement and I appreciate the time as always.

[John Jimenez, Chief Financial Officer at BKV]

All right. Thanks. Appreciate

[Operator]

it. There are no further questions at this time. I would now like to turn the floor back over to Chris Kelman for closing comments.

[Chris Kalnin, CEO at BKV]

Great. Well, listen, everyone, we're excited about the quarter we've had and the year we've had. Really appreciate everyone's interest. John, congratulations on your retirement. David, I know you're going to do a great job.

[Chris Kalnin, CEO at BKV]

We look forward to continuing the discussion and to deliver on our goals and our promises as BKV does have the winning formula today and is excited about the future of the energy market. Thank you for your time.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• David Tameron, VP, Strategic Finance & Investor Relations
• Chris Kalnin, CEO
• Eric Jacobsen, President - UpStream
• John Jimenez, Chief Financial Officer

Analysts

• Scott Gruber, Director - Oilfield Services & Equipment Research at Citi
• Nitin Kumar, Senior Analyst at Mizuho Financial Group, Inc.
• Executive
• Betty Jiang, Managing Director at Barclays
• Bertrand Donnes, Financial Analyst at Truist Securities
• Tim Rezvan, Managing Director & Equity Research Analyst at KeyBanc Capital Markets
• Jake Roberts, Director - E&P Research at TPH&Co