BKV Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Chris Kalnin: Highlighted BKV's transformational 2024, strong upstream performance, progress in Power and CCUS, and NYSE debut. Emphasized BKV's ability to offer integrated energy solutions and the growth potential in the ERCOT power market due to factors like electrification and data center demand.
• Eric Jacobsen: Discussed upstream fourth quarter performance, 2025 production guidance, and CCUS projects. Noted upstream production outperformance, ongoing CCUS projects like Barnett Zero, Cotton Cove, and the newly FID Eagle Ford project.
• John Jimenez: Shared financials, including Power JV results, 2025 capital expenditure guidance, free cash flow, and hedging strategy. Mentioned positive adjusted free cash flow in 2024 and deleveraging of the business with a net leverage ratio of 0.65x as of year-end.

Segment Performance

• Upstream: Fourth quarter production was 774 million cubic feet equivalent per day, outperforming the midpoint of the guidance range by 5%. 2025 full year production guidance is a range of 755 million to 790 million cubic feet equivalent per day. Development CapEx investment into refracs and new drills is expected to continue through most of 2025.
• Power: Fourth quarter average capacity factor for the Temple plants was 38% with total generation of 1,200 gigawatt hours. Full year average capacity factor was 57% with total generation of 7,400 gigawatt hours. The Power JV has hedged approximately 700 megawatts of generation and targets a gross 2025 adjusted EBITDA range of $130 million to $170 million.
• Carbon Capture: Barnett Zero project had injected approximately 173,325 metric tons of CO2 since startup in 2024, with 2025 injection volume range of 120,000 to 170,000 metric tons per year. Cotton Cove project is on track for first injection in H1 2026. Eagle Ford CCUS project FID, initial injection in Q1 2026, with average sequestration rate of approximately 90,000 metric tons per year of CO2.
• Midstream: Part of BKV's business lines, but specific financial performance details were less prominently detailed in the transcript.

Guidance

• Upstream: 2025 full year production guidance ranges from 755 million to 790 million cubic feet equivalent per day.
• Power: Power JV targets a gross 2025 adjusted EBITDA range of $130 million to $170 million.
• Capital Expenditures: 2025 total capital expenditures expected to land between $320 million and $380 million, with approximately $220 million for development and $130 million for CCUS and other.
• Carbon Capture: Injection volume targets for 2025 and beyond, including the Eagle Ford project's initial injection in Q1 2026.

Risks

• Regulatory Uncertainties: Delays or issues in obtaining permits for CCUS projects like Cotton Cove and Eagle Ford.
• Market Fluctuations: Impact of weather conditions and new renewable additions on power prices in the ERCOT market.
• Bid-Ask Spreads: Potential widening of bid-ask spreads in the Barnett gas operations affecting transaction activity.
• JV Uncertainties: Uncertainties in finalizing the joint venture partner for carbon capture, as negotiations are subject to completion of due diligence within 90-120 days.

Q: Scott Gruber asked about the comfort level of dedicating capacity at Temple plants for PPA and progress on discussions.

A: Chris Kalnin stated BKV would be comfortable dedicating up to 750 MW per plant for PPA, with active discussions and momentum in the ERCOT market for deals in the next 12-24 months, and also mentioned looking at new power plant studies for customers wanting new generation assets.

Q: Nitin Kumar inquired about CCUS CapEx guidance and production taxes.

A: Eric Jacobsen said about $90 million of 2025 CapEx is for CCUS, and John Jimenez explained production taxes, noting ad valorem tax true-up in Q4 caused the variance, with severance tax remaining relatively constant.

Q: Betty Jiang asked about CCUS contract margin and power from CCUS volume.

A: Eric Jacobsen said the CCUS contract margin is comparable to Barnett Zero at ~$50 per ton EBITDA, and Chris Kalnin discussed decarbonized power from carbon capture initiatives.

Q: Tim Rezvan asked about carbon capture JV progress and risks.

A: Chris Kalnin expressed optimism about finalizing the JV within 90-120 days, citing bipartisan support and momentum in carbon capture, but noted no deal is done until complete.

Q: Jacob Roberts asked about CCUS regulatory aspects and power investment predicated on carbon offset.

A: Eric Jacobsen discussed favorable regulatory states for CCUS projects and Chris Kalnin explained power investment depends on the customer's net zero goals and sensitivity to decarbonization.