Q3 2021 Archaea Energy Inc Earnings Call
Good morning, and welcome to the Archea Energy third quarter 2021 earnings call and webcast. The event is being recorded.
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I would now like to turn the call over to Megan Knight Vice President of Investor Relations to begin. Please go ahead.
Thank you and good morning, everyone welcome to Archea Energy, Inc. Third quarter 2021 earnings conference call with me today are Nixdorf, Archaeas, Chief Executive Officer, Eric Javani Archaea, Chief Financial Officer.
Archaea released financial and operating results for the third quarter 2021 yesterday afternoon, and those results are available on the Investor Relations section of our website at Archea energy Dotcom the.
The presentation that access to the webcast for this call are also available on our website and after completion of this call a replay will be available for 12 months.
Before we begin I'd like to remind you that our remarks on this call including answers to your questions contain forward looking statements, which involve risks uncertainties and assumptions forward.
Forward looking statements are not a guarantee of performance and actual results could differ materially from what is contained in such statements.
Factors that could cause or contribute to such differences are described on slide two of our presentation.
These forward looking statements reflect our views as of the date of this call and Archaean does not undertake any obligation to update forward looking statements to reflect events or circumstances. After the date of this call.
Additionally, this call will contain discussion of certain non-GAAP measures, including but not limited to combined financial results and adjusted EBITDA.
Finishing of non-GAAP measures used and a reconciliation of these measures to the nearest GAAP measure is included in the appendix to the presentation.
We believe the non-GAAP measures presented to provide relevant and useful information and evaluating the effectiveness of our operating performance in a manner that is consistent with management's evaluation of financial and operating performance.
Non-GAAP financial measures should be considered in addition to the results prepared in accordance with GAAP and should not be considered in isolation or as a substitute for GAAP results.
The call agenda is shown on slide three nickel.
Nick will begin today's call by providing an overview of archaea, reviewing our strategic priorities and highlighting our competitive positioning.
Eric will then review our financial results for the third quarter and discuss full year guidance.
We'll then open the call for questions.
And now I will turn the call over to Nick Stuart Archaeas, Chief Executive Officer.
Good morning, and thank you for being here for Archaeas inaugural quarterly earnings call.
It's been a relatively short tenure as a public company, we thought it'd be helpful to spend some time today, providing a more detailed overview of the company progress toward our strategic goals and our competitive positioning we're excited about where we're building New York, yet and the opportunities ahead of us.
Let's look at slide five.
As you all know we closed the previously announced business combination between Rice Rice acquisition Corp, Iraq, Archie energy LLC and Oreo energy LLC on September 15th the combined company was renamed argued Energy Inc.
Again trading under the New York stock exchange under the ticker <unk>.
We appreciate the shareholder support leading into the special meeting and continuing after the transactions close.
Turkey is one of the largest and fastest growing producers of R&D in the U S. We're on track to be the largest producer in the U S. In 2022.
Our business is focused on producing orange you from landfill gas, which is one of the lowest cost most predictable and longest term feedstocks used to produce renewable energy.
We have an industry leading platform of over two dozen operating sites.
Excluding 10 landfill gas to R&D facilities, and 17 landfill gas to electric solutions we.
And we have a substantial runway for future growth with approximately 35 development projects in our portfolio today.
And this includes R&D upgrades electric LNG conversions and Greenfield LNG projects.
This backlog of projects alone gives us a multiyear runway of low risk.
You have about 250 employees, including approximately 100 world class plant operators around the country of a strong record of safety and environmental compliance.
Also have the gas processing team meet what we believe to be the best minds in the industry.
And the senior leadership team with extensive experience in biogas and across the energy industry.
We've been intently preparing to integrate the companies since the transaction was announced and to execute on our growth plans and strategic priorities and those efforts have accelerated since the close.
Archie story is an execution story, and we have positioned ourselves to hit the ground running and to deliver on our strategic priorities.
Turning to slide six I'd like to review our strategic priorities.
First we are dedicated to optimizing our existing asset base to increase EBITDA generating power of those assets.
As we've continued to assess the operating performance of our facilities, we have identified additional meaningful opportunities to increase uptime methane recovery in gas flows into our plants as a result, with a handful more upgrade and conversion opportunities in our development plan today than we previously anticipated.
We intend to upgrade almost all of our operating RMG facilities with the goal of increasing plant uptime and methane recovery and in some cases dramatically improve them like capacity, which will increase the amount of RMG produced from these facilities. We tend to capture every molecule that we can make this.
Upgrade project range in scope from optimizing equipment to building new plants on existing operating sites and we expect a meaningful amount of uplift from these projects.
We're also working with landfill and there's at several sites.
Increase the amount of landfill gas flowing into our plants, which will enable us to produce more LNG and we intend to add additional RG facilities by converting majority of our landfill gas to electric facilities over time.
RG is the highest value use for landfill gas, particularly with our capital efficient approach some of our electric facilities have substantial gas flows and we expect electric R&D conversions to be a material contributor to EBITDA growth in the coming years.
Beyond our existing asset base. We also have the rights to develop a number of Greenfield LNG projects. Our net our next projects scheduled to come online project Assai is nearing completion.
<unk> and R&D plant under construction at the Keystone Center landfill and Dunmore, Pennsylvania.
Expected to be the world's largest R&D facility when completed.
Size of marquee project for US one that highlights elements of our go forward approach to project development and construction.
There's been a key focus of our teams efforts in the third quarter and continuing into the fourth quarter.
We have installed all major equipment for the project and we are in the late stages of commissioning.
Check project decided to be completed in the first quarter of 2022.
Approximately two years after signing a development agreement.
And that development timeline is a major achievement in our industry.
Spect, a ramp up period of several months after completion at a run rate production between four and five and a half million of a btu of R&D anymore.
Which equates to very attractive build multiple of approximately three times the estimated run rate EBITDA contribution from the project.
Beyond project aside we have additional greenfield development projects of various sizes in our development portfolio.
Our development plan will require execution on a scale that has never been done in the LNG industry before.
We are confident in our ability to execute on our development plan and today, we see timing is the most meaningful driver of uncertainty in our model.
Some elements remain outside of our control like permitting zoning pipeline interconnection.
That may impact project timing.
However, we are extremely confident that the long term earnings power of our project backlog is locked in.
We have been building out teams processes and the supply chain to facility execution and Thats, our focus on removing the development risk to the extent that we can we're.
We're making significant investments in equipment and people to help facilitate rapid development over the next two to three years and beyond and we have additional work to do in this area as we trend towards internalization of our supply chain.
Yeah.
We're also committed to increasing our project development portfolio beyond the approximately 35 projects I mentioned earlier.
We recently added five projects to our portfolio, we executed an agreement that grants us the rights to develop a new R&D facility in Pennsylvania, and we acquired four operating landfill gas to electric projects that we intend to convert to R&D facilities over time.
While we intend to grow our portfolio of development projects, primarily through gas rights agreements.
They also strategically acquire assets when we are able to do so in a disciplined way and at attractive multiples.
Our recent acquisition is a great example, we've heard these facilities at an expected pro forma multiple about three five times, including both acquisition cost.
And the total capital costs, we estimate to spend to convert these projects starting to use.
Beyond the five new projects, our pipeline of development opportunities remains robust.
And our team is as busy as ever working to sign additional gas rights agreements with plants owners. The total market opportunity is significant today only 13%.
<unk> gas to R&D, while over half of the landfills have no landfill gas to electric or R&D projects. We believe there are $3 to 500 landfills that are ideal for LNG development based on flows and location and several hundred more candidates that we expect to be attractive that our future development costs, providing a significant runway for long term growth.
Another pillar to our value proposition is our differentiated commercial strategy, which relies on securing long term fixed price contracts with creditworthy counterparties. The majority of our LNG production volumes, we expect to lockup at least 70% of our R&D volumes under long term contracts.
With terms of at least 10 to 20 years doing so with significantly reduced our exposure to market pricing, which can be volatile and increase the predictability of our project returns and financial results project decide is not only a great example of our approach to project development and construction, but also to a commercial strategy with 80% of the projected volumes contract.
Under long term fixed price contracts.
We made additional progress towards our contracting goals. This week, when we signed a 21 year fixed price contract with northwest natural with environmental attributes related to up to 1 million Btu of our LNG production annually.
This is the first contract in our portfolio with the U S natural gas utility and it's a testament to the growing voluntary market for R&D demand, which is driven by decarbonization targets.
This contract begins next year and ramped up to full annual quantity of $1 million in <unk> in 2025, we look forward to a multi decade partnership with northwest natural.
Anticipate the secular shift to a more circular sustainable economy economy will drive additional growth and demand for long term contracted R&D volumes and we expect additional.
Commercial progress in the near term.
Our target customers are entities that use natural gas in their infrastructure today for power thermal alright.
Industrial or other uses and needs that once you're required to decarbonize and reduce their emissions by displacing conventional natural gas.
Turn now to slide seven.
I'll walk through why I believe arc is competitively positioned to secure additional development projects and commercial contracts.
First our team's extensive knowledge and expertise as I mentioned earlier, we have an incredible gas processing team and we believe we're the only R&D developer with in house gas processing expertise, our understanding of gas separation at the molecular level enables us to build plants with a high tolerance variance in inlet gas conditions.
Credible people throughout the organization and our leadership team has decades of experience in biogas R&D and across the energy industry.
Additionally, I have experienced is the landfill owner, which provides a unique understanding of the concerns and priorities of long term mindful partners landfill owners can trust that we have the ability and track record to be able to reliably built and operated projects converting landfill gas from a cost center to a profit center and providing them with stable long term cash flow stream.
Second we are developing a standardization and modulus Asian approach to project development and construction.
We're developing what we call argue version one designed for LNG projects, which consists of standard plant design on skids of various sizes for various cash flows with largely interchangeable sub components.
It's been hours talking about the design its technical advantages and a revolutionary impact we expect to have on the industry will do a deeper dive closer to the implementation today I'll keep it to a couple of highlights we expect the archived version one designed to have industry, leading methane recovery rates.
Increased use of serviceability and ability to process a wider range of inlet gas conditions, all of which increases expected R&D production volumes.
We estimate the design will cut will cost approximately 40% less than industry averages and will enable us to construct projects faster and with lower execution risk.
Our speed to market and lower execution risks are significant competitive advantages and also increased customer confidence in our ability to reliably produce their volumes.
Our third competitive advantage is our scale as I mentioned before youre developing projects on a scale that has not been achieved before in the industry.
We have been building teams processes and supply chain to facilitate our desired pace of project development and we are continuing to build with the goal of being able to execute on a scale that has not been achieved in the industry before for landfill owners. This means that we can work through our backlog development project faster and potentially bring their facilities online sooner for customers. This rapid development program.
Combined with their 10 operating sites today provides a great deal of commercial flexibility.
Portfolio of LNG production that we can use to track volumes, reducing site specific execution and operating risk for our customers.
We also have flexible on contracted volumes in our portfolio, which means we can tailor contracts to customers' needs and timelines.
The fourth major competitive advantages of our strong balance sheet with over $400 million.
Of liquidity as of September 30th and cash flow is expected to be generated from operations.
We expect to be able to fund a substantial portion of our approximately 35 development projects project funding has been a source of risk in our industry due to its fragmented nature a number of small developers.
And exposure to environmental attributes that are <unk>.
<unk> prices have political risk.
Our liquidity position reduces any near term risk of not being able to execute on the project because of lack of funding and our commercial strategy bolsters, our strong financial position by providing a stable predictable cash flow stream.
Reinvest to grow in our business.
These advantages put us in a great position to win additional business and to increase our cash flow generating ability.
We have accomplished as a company over the past few months is remarkable and I'm proud of our team and even more excited about what we intend to accomplish going forward.
With that I'll turn the call over to Erik <unk>, our Chief financial officer to discuss our financial results.
Thank you Nick and good morning.
Turning to slide nine before I get into our third quarter results.
I'd like to give a quick overview of how our financials are presented this quarter as Nick mentioned earlier, we closed our business combination on September 15th.
After performing an acquisition accounting analysis.
Archea energy LLC or legacy archaea was deemed the acquirer of Rice acquisition Corp, and.
ARIA Energy LLC.
What this means is that our financial statements and results as filed in our 10-Q with the SEC had been stated so that the full period presented includes legacy archaea and Oreo results are included beginning on the closing date for the period of September 15th through September 30th.
Predecessor, Oreo results are also included separately for periods before the closing date through September 14th.
We have presented certain financial and operating metrics on a combined basis as we believe it will assist in your assessment of the results of the full asset base of the company today.
We have calculated combined results as the sum of the Archea results plus the ARIA predecessor results.
We believe this presentation of our results gives more meaningful information to the investment community.
Our earnings release contains additional information about combined results and the basis of presentation of our financials for the three and nine months ended September 32021.
For the third quarter, we produced $1 $43 million MN Btu of renewable natural gas and 175000 megawatt hours of electricity on a combined basis.
We had a combined net loss of.
$21 9 million and combined adjusted EBITDA of $22 3 million.
Net loss was driven primarily by nonrecurring costs related to our business combinations, which totaled $19 2 million for the third quarter as well as the loss from changes in fair value of derivatives, primarily related to warrant liabilities.
And increased G&A costs as a result of scaling head count for the future growth of our business and as a result of operating as a public company.
As Nick mentioned scaling the company for our future growth goals requires significant upfront investment that impacts our financial results today, but enables us to stay on track for achieving our longer term objectives.
Increased costs during the third quarter were partially offset by strong market pricing of environmental attributes natural gas and power.
For the nine months ended September 30th we produced $4 $109 million M. M. Btu of renewable natural gas and 703000 megawatt hours of electricity on a combined basis.
Electricity production included approximately 203000 megawatt hours from LDS ph assets, which were sold by <unk> in June.
We generated a combined net income of $52 $7 million and combined adjusted EBITDA of $59 $8 million.
Net income was driven primarily by nonrecurring gains related to the early S. P. H sales from ARIA, including a gain on extinguishment of debt of 61 $4 million and a gain on disposal of assets of $1 $3 million net.
Net income was also positively impacted by strong market pricing.
Partially offset by nonrecurring transaction costs loss from change in fair value of derivatives and increased G&A.
Nonrecurring transaction costs totaled $22 4 million for the nine months ended September 30.
Our financial and operating results for the three and nine months ended September 30 were in line with management expectations.
Based on the operating performance of our combined assets as well as continued strong market pricing today.
They were announcing full year 2021, combined RMG production guidance of approximately $5 4 million Btu and a full year 2021, combined adjusted EBITDA guidance range of $72 5 million to $77 5 million.
Turn now to slide 10.
Concurrent with the closing of the business combinations, we received $236 9 million in gross cash proceeds from Rice acquisition Corp. We issued approximately $29 2 million shares and 250000 warrants and a pipe transaction for gross proceeds of 300 million.
And we entered into a $220 million term loan which was fully drawn on the closing date and we also entered into a $250 million revolving credit facility.
The Oreo holders received $377 $1 million in cash proceeds and 23 million class B shares and op co class a units the legacy archaea holders received $33 4 million newly issued class B shares and op co class a units and all already had debt and legacy archaea that was.
We paid.
As of September 30, we had no borrowings outstanding under the revolver and had issued letters of credit totaling $14 $7 million.
The only that the combined company has outstanding which relates to legacy archaea or ARIA is the project financing debt or project assai.
As of September 30, our liquidity position with over $400 million include.
Including $153 $6 million of cash.
$17 2 million of restricted cash.
$235 3 million of.
Of Undrawn capacity under our revolving credit facility.
Combined cash used in investing activities totaled $134 $8 million on a combined basis. During the nine months ended September 30, excluding.
Excluding the acquisition of ARIA.
Year to date purchases of property plant and equipment totaled $95 million on a combined basis, primarily related to the development of project Assai and are buoyed county, renewable natural gas facility <unk>.
Additionally, we acquired <unk> power LLC for $31 5 million and contributed $12 $5 million on a combined basis to our equity method investments.
We pulled forward some project spending during the third quarter, which impacted our ending cash balance.
However, with over $400 million of liquidity as of September 30th and cash flow is projected to be generated from operations. We still expect to be able to fund a substantial portion of the approximately 35 projects in our development portfolio today.
Last week, we issued a redemption notice for our $12 1 million outstanding public warrants.
This was an important step to simplify our structure and remove any potential stock price overhang related to share dilution as a result of warrant exercises.
To minimize dilution to existing stockholders related to exercises of these warrants we entered into a share repurchase agreement to use any cash proceeds received from the exercise of warrants to buy back shares at $17 65 per share from Oreo renewable energy systems LLC.
Which received shares at the closing of the business combination related to our ownership.
While warrant holders have until early December to exercise their warrants on either a cash for cashless basis, the share repurchase agreement ensures that dilution related to the redemption of these $12 1 million warrants will be less than approximately $4 4 million shares.
And now I will turn the call over to the operator for Q&A. Thank you all for your time this morning.
Thank you we will now be conducting a question and answer session.
Like to ask a question today. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
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One moment, please while we poll for questions.
Thank you.
Our first question is from the line of Hamzah <unk> with Jefferies. Please proceed with your questions.
Hey, good morning.
My first question is just around.
You know the future project pipeline so.
I understand the 35 projects you have in the portfolio today, but maybe if you could talk about.
What the what the incremental pipeline looks like and are you seeing sort of.
Incremental competition, given the favorable favorable economics and landfill to gas from.
Neither waste company is sticking projects in house.
Or.
Other energy sector participants getting sort of more aggressive on the landfill gas side. So again, just kind of address kind of the pipeline that's incremental to the 35 and then just the competitive dynamics as well if those have changed at all.
Okay.
Yes, Great question. This is Nick.
Yes, I think on the on the 35 projects those are development opportunities there across three categories right, it's optimization opportunities within the existing R&D portfolio today, its electric conversions of the existing assets that are producing our landfill gas to electric projects and then the Greenfield development pipeline.
So when we talked about is that is a business that has an earnings power of between 300 $400 million of EBITDA. When you look at the total sort of.
<unk> production potential of that and apply kind of our commercial strategy and our expected operating expenses EBITDA Brennan Btu.
And so we're really confident about the earnings power of that business.
And it's really about we're focused on right now is realizing that earnings power as quickly as we can through execution and then we're also focused on securing that sort of next chunk of development opportunities.
Go from let's say three or $3 to $400 million of EBITDA sort of earnings power to $1 billion of earnings power and so that's a change from $30 million to $40 million of <unk> annually to about 100 and then.
And then b choose annually.
Just sort of your if you assume similar sort of production profiles on a per plant basis, and so to get there you need sort of 52 to 100 projects 52 to 100 sort of incremental opportunities and then so where are you looking to get those.
So we think there's really a total addressable market at least in our landfill business of a couple of thousand but we're really focused on right now at least the subset of $3 to 500 sort of potential development opportunities.
And that growth and we're seeing a lot of greenfield sort of opportunities within in that in that segment and that's with municipal landfill owners and that's with a lot of the waste companies.
It is competitive I would say, it's just as competitive as it was maybe a couple of years ago.
We haven't seen a really dramatic increase in competition for other developers I think the.
The conversation.
Is really.
Going back to our competitive strengths.
So we are having discussions around are you going to do what you said youre going to do are you going to get the plant online is it going to be tolerant of.
Inlet gas variability or are we going to have to have constant.
Discussions about.
Percent nitrogen percent auction, that's coming into my plant.
Are you really going to be able to execute at a scale, that's consistent with with my goals as a waste company of.
Trying to get as much R&D out of my assets as possible and trying to capture as much feet fugitive emissions that are coming from my side as possible. So when its conversations around credibility and speed in supply chain and gas processing expertise that allow for greater inlet variability, we do really well so I would say that.
But the competition is about the same over the last couple of years, but.
On the competitive dynamics are increasingly pointing towards.
Our strengths, which are reliability and speed in gas processing expertise.
Got it very helpful and just just on the on the R&D demand side could you maybe talk about.
The willingness to pay premium prices.
How much of your fixed price offtake agreement so sort of.
Customers with either regulatory mandates or or are you beginning to see more volunteer mandates as well so just any thoughts on on demand.
Yeah.
Yes, I think.
If you take the subset of customers that we publicly announced that we've signed contracts with.
Energy or Fortis BC <unk> northwest natural you've got customers that are both sort of voluntary.
And also responding to regulatory demand I'd say broadly there.
Essentially committed to decarbonization.
And view that as really critical to the future of their energy infrastructure or sort of their core business.
And if you add up the kind of demand just from those potential those customers that we've already contracted with their stated demand.
Exceeds the supply of renewable natural gas today.
So this is just a subset of the industry and if you think about.
But sort of the broader industry, which includes more natural more natural gas utilities, both in Canada and U S. That includes really anyone that's consuming natural gas where fossil fuels more broadly that wants to keep this existing kind of nonintervention highly reliable energy infrastructure in place, but replace it with the de carbonized fuel.
Chemically identical and so R&D really really speaks to you know really significant volumes, there and I'd say our customers are really not.
Thinking about sort of the current value of environmental attributes, but they're really thinking about the cost of decarbonization.
And it's it's a it's an opportunity cost and thats, a more holistic economic evaluation that really justifies.
The premiums that we're seeing today and I think premiums that go beyond our current contracted prices.
Great and just last question I'll turn it over and any.
Any thoughts as to impact on your business from the build back better Biden infrastructure plan I guess.
Funding for biofuel infrastructure creates a new tax credit around.
Maybe extends R&D tax credits, but just any thoughts as to do you see anything in there.
The amount of the more positive.
To your business and that's it from me. Thank you.
Yeah.
Yeah.
Quickly quick read on that internally is that its all positive.
We're positioned to.
To really benefit from what we think is going to be a good sort of ITC classification and definition.
There's additional incentives that I think point the market towards screen hydrogen, which we play really well in and then just broadly even beyond that piece of legislation there's more support for.
Sure.
Sure.
For carbon sequestration so.
Previously looked at sequestration projects using a max $50, a metric ton of Sidoti Sidoti <unk> per the.
45, <unk> guidance about a year ago, and <unk> seen that potentially expand to $85 a metric ton <unk> projects that were already economically compelling at $50 a metric ton of Cotwo.
It was really nice and excited about.
Continued support on that side of things.
Great. Thank you.
Our next question is from the line of Craig Shere with Tuohy Brothers. Please proceed with your questions.
Good morning.
The opening comments I mean, the one design of damages.
Sounded a lot more definitive than the possible upside shared an original April merger deck.
Now see your competitive technology advantages, having been proven out and if so does that suggest the original growth guidance through 'twenty five.
Likely to prove conservative.
I think that is.
It really reflects.
What's been an underlying.
Confidence in what we're doing and I wouldn't say it necessarily changes our thoughts more or theres been sort of additional proof points that.
And that elevated that confidence level, but.
I think that what has happened maybe since since we've talked about in the past has been.
More thought and work going into our supply chain and so it's one thing to have.
A theoretical plan on on how the sub components are going to come together into processing skids.
And how that's going to translate into lower cost, but then to go out and do significant procurement towards towards those ends and really lock in both delivery schedules and material pricing, where we can has really been a focus over the last nine months. So if theres any sort of elevation of confidence around that but not necessarily a change in confidence around the technology I think we've been really.
Confident about that and that really comes from.
An approach that is not doing anything super different.
Been done before.
It's proven technologies and processes, it's just more intelligence in terms of procurement and putting things together ourselves that being said.
I think we will have three years to five patents that come out of Archie version one.
Maybe more so there is some some criteria stuff in there that were really excited about but I'd say that most of the sort of cost reduction is just about.
Being more intelligent about how to put things together.
And in a way that really allows for modulus Asian and scale.
Great.
I wanted to clarify your answer to the prior question about the $3 million to $400 million EBITDA.
I believe your original April duck.
Targeted at about 390 525.
So are we to construe that the five new landfill site development opportunities alluded to in the third quarter earnings.
Release.
Or merely helping to true that up.
Not really I wouldn't read into it that much I think generally when I talk about earnings power, it's a rough range thats.
Maybe different than.
Our modeled range that includes some environmental attributes when I think about earnings power I think about total potential one btu production from flowing sites.
Multiplied by methane recovery uptime.
<unk>.
And then and really sort of a 100% applied to our commercial strategy. So that's sort of how I think about earning earnings power Simplistically and then into the actual model outputs I think will be updated here in early 2022 and that will be reflective of.
More of a skilled approach towards that.
Commercial strategy as well as some contribution from environmental attributes.
Project timing and all of those things.
Great segue to my last one.
Thoughts about trends and institutional offtake pricing are we getting closer to $20 an M versus the original $2014.
Outlook and are you starting to weigh the fixed price long term offtake heavier in your portfolio I think the original expectation was 65% and now youre talking 70%.
Yes.
I think we are.
We're really happy with.
The continued depreciation that we have been.
Being in our contracted prices and also just reflective of the current state of discussions with other opportunities there that are in the pipeline that's reflective of.
I think our really strong position in terms of being as.
Our scale producer into the R&D market.
And also the demand profile.
Our counterparties are realizing what that production profile looks like or what it could look like in the next five to 10 years.
So I think we're right, where we thought we'd be in terms of seeing price depreciation, but also just improvement in terms.
In contract flexibility, which is also.
Really important and.
Yes, I mean, I think internally, we expect to see continued price appreciation.
Without getting into sort of specific contracted price targets, but we expect to see kind of continued annual price appreciation thats consistent with our current contracts in our pipeline.
Thank you.
As a reminder, if <unk> like to ask a question today you May press star one from your telephone keypad.
The next question is from the line of Tim <unk> with Citi. Please proceed with your questions.
Hey, good morning.
And actually my first question is kind of a follow up to the last one that was asked and I'm, probably not going to get an answer here, but just curious if you could talk a little bit about the pricing mechanism.
The deal you just signed with northwest.
We're not going to neither us or northwest natural is going to disclose the pricing terms of that agreement, but I think it's consistent with where we thought we'd be if you look at kind of the evolution of our contracts.
Where we thought we'd be signing.
Contracts and pricing and terms at this time, yes, we're really happy with that contract.
Got it so just from a modeling perspective, it shouldnt really vary too much from what you guys kind of previously previously outlined.
In the conversations that Nick and I have been having throughout the past several months. It is consistent with the ranges we have been discussing on an online basis.
Okay. Thank you that's helpful. The.
The other question I had and.
It kind of goes to your project backlog beyond what you had.
Had I guess kind of get to the other questions.
First person asked.
In the proxy I think you had outlined 600 million or so of potential additional capex. Some of that was what's going to hydrogen.
<unk> and I think Theres, two in California, and I think there was three or four potential dairy digesters in there as well can you just kind of give us an update on what is going on.
Those projects specifically.
Yes.
We already had.
Existing.
Portfolio of projects that were in development in California, dairy digester projects that we're excited about and there's good progress being made there.
It's kind of a hub and spoke model cluster projects.
We're executing on and.
And I would say.
<unk>.
It's an exciting project, but it's not it's not a huge contributor of our overall earnings power and thats going to be heavily weighted towards core landfill gas projects that are <unk>.
10 to 20 times in size in terms of flows.
And then on the hydrogen side now.
I'm not going to give a specific update on the projects that were in that we've previously talked about but now I'd say, we're really encouraged by.
So the seriousness of the conversations that are going on in the hydrogen market I think.
Aye.
It seems like with every quarter.
Theres more real money being put to work and I think we're sort of getting beyond this chicken and the egg scenario.
And in getting into real kind of potential demand were similar kind of investment grade counterparties to the ones that we've been contracting regular renewable natural gas with would also be interested in and signing a long term fixed price fixed price plus contract on the hydrogen side. So.
That is that is emerging and the volumes there.
Potentially very large.
<unk>.
Right now, it's a little premature to get into project civics and.
And.
And those those discussions.
Okay sure that makes sense last question from me is.
As you kind of look at your existing portfolio. What are you guys thinking about potentially what is going to happen over the next couple of couple of quarters to yours whatnot to get your carbon intensity score even lower what are what are some of the things you can do there.
Yes, I'm not sure that youre going to see.
The results of that in the next couple of quarters per Se. These are longer term investments. So like are we.
We have projects that we've been working on on the carbon sequestration side that.
Our classics wells that are almost 18.
Months of geological data in.
It had been invested into those projects, so far and pre permitting work.
So we're really excited about the status of a lot of those projects.
Certainly going from $50, a metric ton to $85 a metric ton just under 45 Q right potential.
That doesn't include any benefit from lowering carbon intensity in our projects is really compelling, but I'd say that timing on those projects is still very.
Permitting dependent and there are some that we'd love to do tomorrow.
That we're just going to work really closely with EPA or with state levels. If we can answer to capture their encouragement for seeing these types of projects into.
We hope will be a shorter and shorter permanent timeline.
As the as the World gets more comfortable with geological CFT sequestration and solar similar we've identified.
We have a lot of sort of pre engineered and pre permitting work done on an onsite solar and sort of behind the meter renewable energy for a lot of our projects and those are those are going to take.
Longer to longer to come to fruition, so generally get an R&D project online.
And you might see the benefits of carbon intensity reduction target, 18% to 36 months after.
Okay. Thanks, Matt actually if I lied I have one more you made me think of it can you just remind us what the permitting timelines look like in these sections six wells.
That is a great question.
It.
It could be as short as a year, but it's been as long as five or six years and there are very few actual classics wells in existence today.
It's.
Generally our thought is that.
It should take less time to permit a geological CEA to sequestration wells it does to permit a gastro oilwell so.
Society wants to see I think permitting timelines go from five years to three months, which is sort of the inverse relationship of those two things and.
We're going to get there.
And what we're doing with right now is doing more work than necessary and the geological side to really.
Really show that we're doing is posing do is going to be very safe and very environmentally beneficial and that's going to have sort of long term benefits but.
A quick answer to your question is it's been as long as five we're optimistic that it could be could be down sort of sub sub three year sub two year permanent timelines with the right pre permit diligence and work.
Okay really appreciate it I'll, let someone else get it and then Megan I'll follow up with you offline on some other stuff. Thank you.
Thanks, Tim.
Thank you we've reached the end of our question and answer session I will turn the floor back to management for closing remarks.
Yes.
We really appreciate everyone's time today and excited about what we've accomplished so far.
In a short period here as a public company, we've got a tremendous base of assets.
To execute from and we're really excited about the growth opportunities and how this company.
It's really well positioned to make material.
Reduction in greenhouse gas emissions.
Particularly on <unk>.
On methane emissions, which is going to be increasingly critical.
For us to globally meet decarbonization targets.
Thanks, everyone.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.