BKV Corp (BKV) 2025 Q2 法說會逐字稿

Good morning, everyone, and welcome to BKV's Second Quarter 2025 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. Michael Hall, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for joining BKV Corporation's Second Quarter 2025 Earnings Conference Call. With me today are Chris Kalnin, Chief Executive Officer; Eric Jacobsen, President of Upstream; and David Tameron, 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. In addition, we may refer to non-GAAP measures. For a more detailed discussion of the risks and uncertainties, including those associated with the closing of the bedrock acquisition, which remains subject to customary closing conditions and integration of those assets into our existing portfolio, which could cause actual results to differ materially from any forward-looking statements as well as the reconciliations of non-gap financial measures, please see the company's public filings, including the Form 8-K filed 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 Kalnin.

Thank you, Michael, and thank you, everyone, for joining us to discuss our second quarter results. I would like to start this call by taking a moment to reflect on the recent flooding in the Texas Hill Country. Our hearts are with everyone in Kerr County, across the hill country and around the world, we're feeling the devastating effects of the flooding. We are holding you all in our thoughts and prayers.

We're proud to be part of the Texas community, and we're actively responding and doing our part as well. We have made a $50,000 contribution to the Kerr County Relief Fund and are matching all donations made by BKV employees 2 to 1 for every dollar they give to agencies that are actively responding and assisting to those impacted by the floods.

Turning to our results, the second quarter was marked by significant macro and regulatory events that have overall strengthened the business environment for BKV across our natural gas, carbon capture and power businesses. In particular, the macro backdrop for natural gas remains bullish. While this summer has been marked by typical seasonality for natural gas, the expected ramp in Gulf Coast's natural gas demand is well underway, with new LNG facilities coming online and ramping into the second half of 2025 and throughout the full year of 2026.

The ERCOT power market has continued to show long-term strength as a recently released EIA study projects ERCOT to be the fastest growing electricity sales market in the US, with over 20% growth projected between 2024 and 2026. This slow growth is being driven by residential, commercial, industrial, and importantly, AI and data center electricity demand. In the near term, we will be actively monitoring Texas power markets throughout the remainder of the summer and early fall, as these months are the most significant months for power demand.

Our carbon capture business has benefited from One Big Beautiful Bill Act that solidifies the durability of the 45Q tax credit and demonstrates strong support for carbon capture. Further, we believe that progress in securing emitter volumes remains one of the key gating items in the carbon capture business. And BKV's strong progress in this regard underscores our leadership in this space.

Overall, I'm excited to share with you another exceptional quarter that demonstrates our continued progress across all our business lines, highlighting our cultural value of delivering on promises. Our upstream business significantly exceeded our second quarter guidance from a production and capital efficiency perspective. Our production came in above the high end of our production range, while our operating teams were able to keep development and total company capital spending at the low end of our prior ranges.

On the back of these results, we are increasing our 2025 production guidance midpoint to 800 million cubic feet equivalent per day, while reducing our overall corporate capital budget midpoint to 320 million. This was made possible in part by our proactive forward planning and domestic supply sourcing strategy, which has positioned our company robustly to help mitigate impacts of future anticipated tariffs.

Further, we are pleased to announce that we have signed definitive agreements to acquire Bedrock's Barnett Shale assets. This acquisition is a strong strategic fit, as it extends our leadership position in the Barnett and improves our reserved life with low decline PDP assets and meaningful well inventory.

Subject to customary closing conditions, we anticipate that closing will occur in the third or early in the fourth quarter of 2025. Upon closing of the asset acquisition, BKV will add over 100 million cubic feet equivalent per day of production and nearly 1 TCFE of 1% reserves to our Barnett portfolio.

In our power business, BKV is pleased to share that we have reserved manufacturing slots for natural gas turbines with a major power plant manufacturer. The optionality provided by these turbine slots enhances our ability to discuss additional power needs with large data center companies and hyper scalers. BKV remains in active discussions with these potential customers regarding long-term PPAs and is actively analyzing the market dynamics around PPA transactions to optimally position our temple power generation assets for maximum value.

BKV's continued investment in carbon capture has solidified our leadership position in this industry and has allowed us to accelerate momentum in our CCUS business. Consistent with this, we recently announced yet another CCUS emitter agreement with our major midstream partner at another of their plants in Texas. We have seen continued momentum in our discussions with additional emitters, and our partnership with CIP continues to provide us with the opportunity to accelerate our CCS project pipeline.

We are also excited to announce that we have inked a seminal deal for the supply of carbon sequestered gas, or CSG to Gunvor, a global leading commodities trader. CSG enables the decarbonization of our energy and allows end users to utilize around the clock carbon neutral energy that commands a premium in the marketplace.

Overall, BKV has demonstrated strong progress around our closed loop strategy, which combines the winning formula of gas, power, and carbon capture to create premium value in one of the fastest growing energy markets in the world, the state of Texas. We believe we are ideally positioned to benefit from megatrends that are driving the energy markets, and we are excited to continue to demonstrate the uniqueness of our business model as we progress our business strategy and execute on our said and did culture.

Now, I'd like to hand the call over to BKV's President of Upstream, Eric Jacobsen, to discuss operational specifics for the quarter. Eric, over to you.

Thanks, Chris. The second quarter was indeed exceptional for our operations as we continued to demonstrate the strength of our assets and our operational excellence. Our upstream business continued to outperform expectations for the second quarter while we maintained capital discipline. Our upstream teams have accelerated activity versus our budget, drilling and completing longer and more technically demanding wells in fewer days.

Importantly, our production outperformance has been about more than just pulling activity forward. We have also meaningfully outperformed our sanctioned type curves across the 15 tills this quarter and tills from previous quarters as our continuous improvements in completion and subsurface optimizations have borne fruit. As a result, in the second quarter, our upstream segment continued its history of beating projections, delivering net production of 811 million cubic feet equivalent per day, exceeding the high end of our guidance range of 805 million cubic feet equivalent per day.

Additionally, our teams have delivered all of this at lower than expected capital investment as we continuously find new ways to increase efficiencies and push our unit costs lower than planned. What's particularly impressive is that we've achieved these results while keeping development CapEx at $63 million the low end of our guidance range.

Our Barnett development costs continue to trend lower with an approximate 11% reduction in dollar per lateral foot well cost compared to our last continuous development activity, reducing from a $632 per lateral foot average in 2023/2024 to approximately $560 per lateral foot through 2Q of 2025. To highlight a few details behind our $560 per lateral foot cost performance, our Upstream team achieved several notable company records this quarter, all while maintaining our top-notch safety track record.

We drilled the longest well in company history, reaching a total measured depth of over 20,000 feet. Year-to-date, we have also drilled 7 wells with greater than 90 degree as mutil-bends in the lateral, including a U-turn well. We are also hitting company records on the completion side.

During the second quarter, we averaged over 22 pumping hours per day on two pads in the Barnet, resulting in the two fastest pads completed in BKV's history, in addition to our lower than projected development capital spend. Company-wide lease operating and workover expense came in below the low end of the guidance range for the second quarter at $0.46 per MCF equivalent, reflecting the success of our cost reduction initiatives, as well as our increased vertical integration and production outperformance.

As Chris mentioned, we are pleased to revise the midpoint of our full year 2025 production guidance range up to 800 million cubic feet equivalent per day, an increase of nearly 4% over our previous midpoint, while maintaining the same development capital range of $205 to $235 million as originally guided. For the third quarter, we expect production midpoint to be at 820 million cubic feet equivalent per day, with a range of 805 million to 835 million cubic feet equivalent per day. This guidance excludes the anticipated impact of the bedrock acquisition, which, subject to customary closing conditions, is expected to close late in the third or early in the fourth quarter.

In addition, while still remaining within the upper range of our original development capital guidance, we anticipate an additional 3 to 4 drilled and completed Nipah wells in late 2025 beyond the initial full year 2025 plan, which should put us in a very good place heading into 2026. We are delivering more production in 2025 than planned, and more activity within the same original CapEx range.

As mentioned, we are excited to share that our proven platform for success in the Barnett should be enhanced by the acquisition of Bedrock Energy Partners Barnett assets for a total purchase price of $370 million subject to customary closing conditions, which will further solidify our leadership in the basin and extend our reserves significantly. The assets include over 1,000 producing wells, the vast majority of which are located in the heart of our Barnett acreage and are very complementary to our existing footprint.

Upon closing, these assets will allow for extending laterals on our existing acreage, adding a creative near-term inventory, and pulling multiple levers for cost optimization. The assets really fit hand in glove with our current acreage, and we anticipate applying BKV's proven Barnett playbook to these locations very quickly. The acquisition is expected to add over 100 million cubic feet equivalent per day of production, and nearly 1 TCFP approved reserves and over 70 undeveloped new drill locations, approximately 50 of which are Tier 1 locations with a weighted break even average of about $2.50 per MMBTU consistent with our current inventory portfolio.

There are also 80 refrac locations, giving the KB the opportunity to further our refrac program leadership. The base decline complements our current leading low decline position at around 7% on both a one-year and five-year basis. We view the pending Bedrock acquisition as further evidence that we are in the sweet spot of all shale basins with low decline, GDP-weighted, and cash flowing assets, low nitrogen gas to deliver to Gulf Coast demand centers, and a long runway of exceptionally capital efficient inventory.

Turning to our CCS business, the tailwinds Chris mentioned are supporting a robust deal pipeline. In addition to our operating Barnett facility, we now have 2 additional CCS projects that have reached FID, with 3 more projects progressing towards FID. All told, we have 4 Class 2 well permits that have been approved, 7 Class 6 well permit applications submitted and under review by the EPA. And 2 recently approved MRV plans keeping our project pipeline on track.

The new East Texas project we announced will be co-located with an existing natural gas facility and is the sixth such facility to be announced by BKV. We forecast that the project will achieve an average annual sequestration rate of approximately 70,000 metric tons of CO2 per year in a Class 2 injection well.

While initially owned by BKV Decarbon Ventures, this project may be transferred to BKV's CIP joint venture in the future. On CIP, our partnership with them is now underway and has really energized this portion of our business through funding, a strategically aligned vision for CCOS, and additional project potential. It is a relationship we are very excited about.

Regarding the macro environment, I'd like to reiterate that the passage of the One Big Beautiful Bill Act and its preservation and expansion of the 45Q tax credit was a big win for us and the industry. Transferability for the life of the credits made the investment horizons significantly more certain and attractive as well. During the second quarter, we progressed projects successfully across multiple fronts. The interoperation Barnett Zero facility remained on track with 99% reliability and with over 30,000 metric tons of CO2 injected.

On the CCS project development side, we finished drilling in June and completing in July the injection well at our Eagleford project with our major midstream partner. This is an important milestone and one which we are incredibly proud of, especially as the work was completed to specifications and at around $1.5 million below budget.

The quickening pace of our CCS project development is very encouraging, and we are confident that our goal of 1 million tons per year of CO2 injection run rate by the end of 2027 is attainable. Consistent with our commentary during the 1Q call following resequencing of projects on the back of the CIP partnership. We have reduced our full year guidance for CCS and other CapEx to a range of $85 million to $115 million with a midpoint of $100 million down from a midpoint of $130 million.

And with the passage of 03BA, we are excited about the consistent and robust cash flow potential and investment opportunities in the space moving forward. Overall, our team's performance in the second quarter extended our leadership position and legitimate high-fidelity delivery on the CCOS front.

I'll now turn the call over to our CFO, David Tameron, for a review of our power business and financial results.

Thank you, Eric. Our power business delivered strong results in the second quarter, and as Chris mentioned, we're making excellent progress in our discussions with several hyper scalers and data center operators. The Tipple Complex, which sits at the center of major data center buildouts at ERCOT, uniquely positions BKV to provide any energy solutions for those looking to address their power needs today.

During the second quarter, our typical plants delivered a combined average capacity factor of 59%, and total generation was over 1900 gigawatt hours. Power prices averaged 4,6$0.34 per megawatt hour with average natural gas cost of $2.98 per MMBTU resulted in the average spark spread of $25.15.

BKV's implied proportionate share of power JV adjusted EBITDA was $18 million and gross power JV adjusted EBITDA of $36 million was above the high end of our guided range for the second quarter in a row, as favorable weather conditions and advantage pricing drove out performance late in the quarter.

As we look to the remainder of 2025, we expect gross third quarter power JV adjusted EBITDA of $55 million to $75 million and are maintaining our annual guidance of $130 to $170 million. This guidance range factors in normal seasonal downtime currently scheduled for the temple plants in the fourth quarter of 25, as well as our current hedge position. As a reminder, fourth quarter '24 included major maintenance downtime that impacted our results.

Now shifting to BKV's corporate financial performance. Our strong results were led by our upstream business as those assets and our operating team continue to drive exceptional outcomes.

Net income in the second quarter came in at $105 million or $1.23 per diluted share, which was $0.39 per share on an adjusted basis with combined adjusted EBITDAX attributed to BKV of $88 million. Strong production combined with lower than forecast at Lloe largely offset the impact of widening differentials experienced during the quarter.

Accrued capital expenditures in the second quarter were $79 million which included $63 million for Upstream development and $16 million for CCOS and other. The combined $79 million was 12% below the midpoint of guidance. Quarter after quarter, we continue to do more with less. Big picture, while staying within cash flow, throughout the quarter, we continued to grow Upstream business. We invested in our CCS partnership and achieved a modest amount of debt pay down.

Moving to the balance sheet. As of June 30, outstanding draws on our RBO were $200 million, representing a net leverage ratio of only 0.63 times. We also had cash and cash equivalent of just over $21 million. Combined with the remaining availability on our RBL, our total liquidity stood at $472 million at the end of the second quarter. This does not include the anticipated borrowing to fund the pending Bedrock acquisition, which subject to customary closing conditions, is expected to close late in the third or early in the fourth quarter.

With respect to Bedrock financing, the transaction is expected to be funded with $110 million of seller issued equity, equivalent to approximately 5.2 million shares, which are subject to a 60-day lockup provision, with the remaining $260 million being put on our RBL. Based on a recent strip, on a combined basis, we expect our updated net leverage ratio to be at the lower end of our 1 times to 1.5 times targeted range.

Moving on to hedging. I'd like to reiterate that we had at least 50% of forecasted PDP production for 24 months. Based on our current position for the second half of 2025, we have 58% of our anticipated natural gas production hedged at an average price of $3.45 per MMBTU. NGLs are hedged at an average of $21.73 per weighted barrel.

Our 2026 position stands at approximately half of our natural gas PDP production, hedged at $3.84 per MMBTU, and roughly 40% of our NGL PDPs hedged at $22.01 per weighted barrel. Finally, for third quarter of 2025 guidance and for a comprehensive look at our updated full year guidance ranges. You can refer to a complete schedule, which can be found in the press release that was posted this morning.

With that, I'd like to turn the call back over to Chris to wrap things up.

Thanks, David. BKV delivers on what we say we will do. And as you can see, we have continued this trend.

In Upstream, we outperformed on our natural gas production and capital efficiency expectations, driving us to raise full year production guidance within the originally guided capital expenditure range. We further expanded our position in the Barnett with our acquisition of Bedrock, bringing in an accretive asset to expand our Barnet portfolio.

In carbon capture, we extended our leadership position with the East Texas project and the continued momentum with emitters and our joint venture partner, CIP. Additionally, we signed a seminal deal with Gunvor for the purchase, marketing, and sale of carbon sequestered gas, demonstrating premium pricing potential for the unique combination of our gas and carbon capture assets.

In power, we remain active in PPA discussions with hyper scalers and data center operators looking for energy solutions in Texas as we have the unique combination of gas, power, and carbon capture in place today and available to be delivered to the market at a premium. We look forward to future announcements in this regard.

Finally, I would like to take a moment to thank our incredible employees for their hard work and dedication. I would also like to thank our shareholders for your continued belief in the BKV vision.

Operator, we are now ready to take questions.

(Operator Instructions)

Scott Garber, Citigroup.

Yes. Good morning and congrats on the deal.

So obviously, one of the key benefits of purchasing its adjacent acreage is improving your ability to lengthen laterals and continue to drive better economics in the play. I guess, the question in the Barnett is, with the producing wells in existence, how much running room do you have to increase lateral? So maybe just some color on kind of long laterals as a percentage of the program today and you know how that improves with the acquisition.

Sure. Yes. Good morning, Scott. This is Eric, and thanks very much for the question.

Yes, you're absolutely correct. The lengthening of laterals and the accretion of inventory is certainly one of many advantages of the Bedrock deal that we're very excited about. In addition to it, fitting complementary with low decline base, with adding infrastructure scale and contiguous acreage to our portfolio, with selling more low nitrogen gas to data centers and to Gulf Coast demand centers, for example.

We're also excited about the inventory accretion, as you mentioned. I think we announced 50 kind of equivalent tier one lateral ads plus another 20 Tier 2, so a total of 70, up to 70 equivalent. A 10,000 feet lateral lads, of that 50 Tier 1, roughly close to half of those are extending existing laterals from our current acreage, as you mentioned. And then on top of that, I'll reference the 80 refracts that have been additive as a result.

So all to kind of 70 equivalent 10,000 feet laterals, 80 refracts. It adds another couple of years of inventory and even better, capital efficient inventory with the lengthening of laterals and the accretion of those high-quality sticks from Bedrock acreage.

I appreciate the color. And you guys have made a lot of progress on the cost per foot. I think you guys brought in a high spec rig to help with that, and you mentioned a U-shaped well as well. But just as you think about the cost per foot, maybe just some color on how much you think you can continue to drive that with longer laterals, U-shaped wells. Just some color on thoughts around cost per foot heading into '26.

Yes, sure. Thanks for that follow up there, Scott.

Yes, we're very pleased as you referenced, to have reduced our cost per foot lateral by 11% compared to our previous kind of continuous '23, '24 programs in the first half of this year. I would say that Barnett was the first to receive shale technology and now two decades later we're able to to implement the best of shale technology. And we're seeing that we're certainly not in the late innings of that. We have more room to run.

The resulting cost improvements have been from definitely extending lateral lengths from optimal subsurface placement, from enhancing and improving frac designs, from setting records and learning lessons every day and lateral feet per day on completion of pumping hours on records on rig modes, et cetera. And those -- the nice thing about those, Scott, is those are structural changes, and we expect those to remain as we continue to add additional structural changes from the lengthening of laterals as a result of Bedrock for one, as you mentioned, from advancing completion designs. We're trialing and evaluating new completion designs right now more on that in quarters to come.

And there's certainly our use of data and analytics trending towards AI. We have the largest data set of anybody in the Barnett and quite possibly one of the largest data sets of anybody in the shale basins in the US. And we are using that on the upstream PDP production side as well as our DNC platform to to advance our, structural cost reduction. So more to come there on a number of fronts.

We did reference the seven wells we've drilled with 90 degree as bends, including one U-turn well. I would say those high-angle and U-turn wells represent about 5% of our inventory going forward, so we can certainly drill them, and we've proven the competency and capability of drilling those, but our preference is to drill 10,000 feet and much longer straight laterals with flight jogs or bends, and that's the 95% kind of platform of our inventory going forward.

I appreciate all the color. I'll take it back. Thank you.

Chris Baker, Evercore ISI.

Good morning, just want to stick on the Upstream. First question for Eric, just curious given the success you guys continue to see there, how does that kind of shake out in terms of maintenance CapEx at this point and maybe just how you see Bedrock fitting into the picture there?

Yes, sure. Great question. Good morning to you, Chris.

So I think to the Bedrock piece first, as we mentioned before, it just -- it does fit hand in glove with our acres position and our low decline kind of base portfolio. So at a roughly 7% base decline that Bedrock brings to us, it fits in perfectly with our cash flowing PDP wedge and perfectly, Chris, with a lower reinvestment rate and a lower maintenance CapEx rate.

We've said with our current 800 million cubic feet a day or so, re-guide raise to 800. Our maintenance CapEx is in the $170 million to $180 million range. That probably increases by around $20 million to $25 million with Bedrock because it's such low decline. And because the asset is so nicely accretive to our acreage position with the extended laterals and continued efficiencies in the capital program. So all told fits in very nicely. It's a hand in glove sort of match for us, and our maintenance CapEx is still extremely low with the with the addition of Bedrock.

That's great. Thanks. And as a follow up, maybe Chris, can you talk a little bit about to the extent you can. Just the turbine slots you mentioned earlier, delivery window, scale of the units, any additional color there would be great. Thank you.

Yes. Thanks. So on the turbines, as we mentioned, this gives us tremendous, optionality as we talk with hyper scalers and data center companies. The idea there is that, as you think about SB6 and other regulations in the market, I think increasingly, folks are going to be concerned if you're taking power off the grid and behind the meter type setups. You need to be able to displace that power with additional generations.

So the thought there is that we would -- we can point with certainty to time frames that we could do that and we would link those deals clearly with a PPA so that any incremental capacity we'd be building against would be very low risk funded by these PPAs. So that's the thought there we continue those discussions. Stay tuned for for future announcements, but we think it's incredibly positive and it puts us in a tremendous position with the hyper scalers and data center companies.

Great. Thank you both.

Betty Jiang, Barclays.

Good morning. I want to first ask about the CIP partnership. Now that you're moving forward and what are the initial focus areas of the partnership? How's the any changes in the project sourcing process and any new development that you could highlight so far?

Yes. I'll start with the partnership there. Feel free to chime in on some of the projects.

But in terms of the partnership, it's tremendous. As we mentioned in the last earnings call, CIP is a global infrastructure investor. They've got really a global view on carbon capture, think about things like the carbon offset markets, clearly very active in Europe, and they have BKV's exclusive platform to invest in carbon capture here in the US. So it's incredibly synergistic in terms of their plans right now in the joint venture. We have two projects, as we mentioned, Barnett Zero, and our Eagleford project.

Clearly, when projects mature to the right stage, we bring them into the joint venture. And then as we've mentioned, it's a 51%, 49% joint venture where BKV holds the majority and consolidates. And then there's some reversionary interest over certain return hurdles. So that's the structure that's continuing. You can see that from our financials that they're investing into the joint venture, and that will ramp over time. They've committed up to $500 million and so we're excited to be able to deploy that alongside our capital.

Eric, maybe give some color on sort of sourcing and additional projects that we're thinking about there.

Sure, yes. Good morning, Betty. I'll just build on Chris's comments there with the projects.

We are on track as mentioned for the Eagleford project that's in the JV along with Barnett Zero to start that up in 1Q of next year. We're progressing outside of the JV at the moment. The other announced projects to gas plants in the Western Hainesville with Comstock of Bethel and Maray as well as the recently announced East Texas project we have with our major midstream partner.

As those progress towards qualified status and eventually FID, those will be contemplated in the JV. And then further, as Chris alluded to, one of many benefits that CIP brings is relationships with emitters and other project contacts. So they brought a lot of projects to the table. Those are in the sort of advanced appraisal stage to pre-FID, and so more on those to come as they mature.

Great. Thank you for that. And then my follow-up is on the carbon sequester gas deal with Gunvor. I know the volume initially is still fairly small, but does that start with the test of concept around how you are thinking about gas premium related to or premium price related to these type of type of transaction? And how large do you see this partnership that could potentially expand over time?

Yes. Good questions, Betty. I'm glad you picked up on that.

In terms of the volume, the initial up to 10,000 MMBTUs a day is really structured to be equivalent to an ASB contract. I think that's the most kind of fluid contract structure I think we've done that for a market structuring perspective.

We're really excited about the partnership with Gunvor. They're committed to the deal, they believe in the product, they're really excited about being able to market this. Clearly, we're establishing a market, so as you're in a period of price discovery and you're also in a period of building the market. In terms of how much this relationship could scale, I think we've shared in the past that we've got over 100 BCF a day of gas in the US, right, that's moving around. And so, a portion of that is going to be this type of product.

When you think about marine fuel, where LNG is being used increasingly, and the need to lower CI scores around LNG usage. For marine fuels, that this type of product is ideal for that. When you think about around the around the clock, carbon neutral power that data centers want, again, this product sits there. And then when you think about industrial folks that need to export to Europe for CBA and need their CI scores to come down, this product serves as an ideal product for that.

And then finally, think about ethanol producers as you think about them producing or any sort of hydrogen where you have to lower your score. So anytime you're focused on lowering your CI score and avoiding compliance costs, this product fits perfectly and that's that mix. And that's why, clearly, Gunvor sees that and is excited about it. And we think the size of the market is pretty substantial. I'll be it will be a subset of the broader broader gas markets here in the US.

Very interesting indeed. Thank you.

Our next question is from John Nardini with Keybank Capital Markets. Please proceed.

Hi. Good morning. Thank you for taking my questions.

On the power side, in the release, you mentioned working with counterparties to improve capacity factors and realize spark spreads you mentioned this a bit in the prepared remarks. But wondering if you could just talk through what a potential deal might look like, through the PPAs behind the solutions or other commercial agreements to help drive those improvements.

Yes. Good question, John. So in terms of the power business, right, as you saw our -- we've got tremendous headroom in the Temple Energy complex. Today, we have a capacity of 1,500 megawatts. We're using our capacity factors we shared is in that 55%. So clearly, we've got some running room, typically a base load plant like that can run as high as 90% capacity factors. So we think there's pretty substantive headroom and a lot of that is through the evening hours and into the night where generally in the air cop market, you're off.

When you think about sort of partnering or working with hyper scalers or or data centers, you're going to be looking at more around the clock type usage, right? And so I think some of that, you're going to contemplate as potentially behind the meter structure where you can deliver power directly. We -- I think we cite temple is an ideal area to build additional infrastructure. It's central to the country. It's got great access to gas, water, power, and land, and so it puts it in a really ideal position.

So you can imagine that as we are in these discussions that a portion of the power is behind the meter, there's an ability to also tap into the grid because you need that reliability. And then you're setting up a contract structure which is flexible. So you typically, you will see contract structures out there, everything from more fixed price to sort of a tolling type arrangement, and we'll continue to analyze that what's in the market? What's the ideal setup? What -- what's unique about BKV and our abilities?

We produce both gas and power and so our flexibility on the contract side is incredibly dynamic. We can go all the whole spectrum from fixed price all the way to the tolling arrangements and so we think it's incredibly competitive. We're obviously going to be excited to kind of continue those discussions and look forward to future announcements in those regards.

Okay. That's great. I appreciate those comments.

Sticking to the power side, you've posted relatively strong results for this segment this quarter just considering we're mostly past the peak of about pricing period this summer. I do see those, the temple plants performing for the remainder of the year, specifically relative to the same period in prior years.

Good morning, John. It's Dave Tameron.

Yes. If you look at what the third quarter's done to date, it has been a little light off the slow start. But there's still -- remember, we still got half of the summer left as far as August and September. And this morning, right, we're -- we put out the 130 to 170 number. We're very confident in that number. We want to put out that number if we weren't confident in that.

And if we think about what that implies for 4Q, one thing I think that everybody needs to be aware of is 4Q of 24 had major maintenance that was planned. So if you're looking at Q4 '25 versus Q4 '24, keep that in mind for 4Q '25, you can see implied by our guidance at the midpoint we're about $20 million. That's just what the math is, and we're very confident in those numbers. So we're still -- near term, a little bit of weather we're fighting right now, but still time left in the summer and then longer term.

Keep in mind, right, longer term, the supply, the dynamics -- the demand dynamics that are still very bullish for us. That's one of the best we made when Chris outlined during the roadshow and over the last year of what we're looking at. If you look at '26, '27, very strong demand, so we're still very bullished on the dynamics think about the long term.

Does that answer your question?

Yes. That's perfect. That's all I had. I'll hand it back.

(Operator Instructions)

Jacob Roberts, TPH and Company.

Good morning. One of the -- on Bedrock, I was curious, Chris, if you could kind of relay how competitive these processes are at the moment? And then for Eric, you've done a good job laying out why the asset made sense for BKV in terms of offset acreage, the mainstream component, the decline rates. I'm wondering if you look at other deals, which one of those factors is going to be the most important in your guys' minds as you pursue more acreage?

Yes. Thanks, Jake. I'll start and then I'll hand it over to Eric there.

So on the question of the process, one thing that's important to note is BKV is clearly the dominant producer of the Barnett. So when it comes to the folks kind of looking to exit or to monetize their positions, puts us in a great position when it comes to those discussions. Now with regards to Bedrock specifically, they were very interested in being a shareholder in BKV as well. And so, that was truly a bilateral discussion where we kind of engaged with them and they saw the benefits. And we're excited about being a shareholder in BKV alongside of being able to kind of benefit from the synergies that Eric mentioned. So that -- that's going to be one dimension.

You're going to have other processes in the play where they're going to be more bids and kind of more auction-type structures. But I would imagine that the deal flow is going to be a combination of bilateral and auction processes depending on who the seller is and their motivation. The nice thing, as I mentioned, is that we are the natural kind of owner of these assets and so we would be one of the first calls that I would guess anyone would make on that.

So and as you grow in the basin, it improves your economics even more, right, so there's a sort of a bit of a flywheel effect as you continue to consolidate the basin. So I think that puts us in a great position. And again, having stock as a currency, we've mentioned that on the roadshow is going to make us even more attractive as an acquirer, and I think that's that's been proven here as we've shared.

But Eric, if you want to talk about kind of opportunities set going forward.

Sure, yes. Good morning, Jake, and thanks for that question.

I think as you're aware and is included in our investor deck, there are a number of other opportunities in the Barnett. Chris alluded to this too, that are quite attractive, from multiple perspectives. The same as Bedrock, low decline basin, sweet spot with inventory, more gas, the Gulf Coast demand standards, accretion on nearer-term inventory like with Bedrock, infrastructure and contiguous acreages, et cetera.

All of those matter, but I'd say, Jake, to your question of what's most important is us structuring a deal that where we can achieve a creative economics overall with our playbook applied in all four of those different areas. So that's what's most important to us. We we're able to achieve that with Bedrock, and we see a lot of runway left with our playbook and our proven track record track record in the Barnett to do that.

Great. That -- that's really helpful. As a follow up, Eric, just making sure that on the Bedrock stuff that you picked up, are the liquids cuts relatively new drills and refracts pretty similar to what you guys lay out on slide 13 for the legacy portion?

Yes, they're fairly similar in the kind of liquid content. I think we have a -- it's actually a little higher, 63% gas and 36%, 37% liquid, so it's a little higher on the liquid percentage. And then the liquid constituents are a little richer on the bedrock acreage, so a little higher value in the liquid constituency split.

Great. Appreciate your time, guys.

Tamara, just before we take the next question, I just want to be aware we do not have any forward guidance. In our forward guidance, we do not include anything for Bedrock. So once we close that transaction, we'll come back and update guidance and we'll do that for the close. But just as of today, the guidance and the release does not include Bedrock.

Geoff Jay, Daniel Energy Partners.

Hey, guys. Good morning.

Looking at -- looking at the productivity gains you've made and how your wells are producing above type curve now, I just wonder, and I'm sorry if I missed it earlier, but what are the key drivers of that outperformance? And I guess, my follow up to that would be, given that it how competitive your new drills were with the refract program even in last year, does this sort of outperformance kind of change how you think about the mix of refracts and new sticks going forward?

Great. You bet, Jeff. Thanks for the question and good morning to you as well.

Yes. I think so there's nothing like as far as your question on our performance, there's nothing like repetition and consistent quality crews and the application of lessons, and we have a rigorous lessons learned and applied culture, and the result of all those in combination has led us to lower cost foot and the outperformance to type curve you reference. I think there's several components if you dive a next step deeper.

One is our understanding the base on the subsurface side and our ability to optimize subsurface with not only lateral lengths but spacing, well placement relative to offset production, well placement relative to uphold challenges. And then certainly, there's some completion element to it. We've optimized and right size and engineered our completions depending on where we are in the acreage, and the sum total of all that has led to that 17% outperformance versus type curve that that you referenced.

And then if you add in the fact that we are really executing to a high degree, the outperformance relative to plan is even greater than that because of the acceleration of our tills. I think we referenced 33% and 42% with new drills and refracts respectively. So it's a combination of tight curve outperformance in the areas I mentioned and accelerating due to execution, and that's what's led us to be above plan.

With respect to kind of the split of new drills and refracts, yes, but both are actually outperforming, as we mentioned, on the compared to plan. And we're excited about the advancements in both those completion advancements I mentioned and the well placement and subsurface optimization has translated into our refract program as well. So I would expect going forward they're both highly competitive, highly accretive. They both have a nice sweet spot in our operation cadence so I would expect us to continue to have sort of 80% of our CapEx invested in new drills and 20% in refract.

And just to remind you, all we have, 520 or so refracts excluding or -- sorry, new drills excluding Bedrock and 2,100 refracts excluding Bedrock. So we have a long runway to go in both and we'll keep that kind of split up, going forward.

Thanks very much.

There are no further questions at this time. I would like to turn the call back over to Chris for closing remarks.

Right, thank you. And just want to close by saying appreciate everyone's time listening to the call. We just want to underscore that BKV is on a journey with our closed loop strategy that we think is unique, commands a premium, and really is differentiated. We're excited about the future. We look forward to future announcements and underscoring our said that culture. I want to thank everyone for their time. Have a great day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.