Q3 2024 BKV Corp Earnings Call
Speaker Change: Good morning, everyone, and welcome to BKV's third quarter 2024 earnings conference call.
Speaker Change: 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.
Speaker Change: I would now like to turn the call over to Mr. David Cameron, Vice President of Strategic Finance and Investor Relations.
for BKB. Please, go ahead.
David Cameron: Good morning, everyone, and thank you for joining BKB Corporation's Inaugural Earnings Conference Call. With me today are Chris Callen, Chief Executive Officer, Eric Jacobson, Chief Operating Officer, and John Jimenez, Chief Financial Officer.
David Cameron: 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.
David Cameron: Actual results could differ materially from those in any forward-looking statements.
Additionally, we may repurchase some non-GAP measures.
David Cameron: For more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, and for the reconciliation of any non-GAAP financial metrics.
Speaker Change: Please see the company's public filings, including the AK form filed today. I'd now like to turn the call over to our CEO, Mr. Chris Kellin.
Thank you, David.
Speaker Change: Good morning, everyone. I am Chris Kelman, CEO and founder of BKB Corporation.
I hope you all had a good Veterans Day yesterday.
Speaker Change: I do want to take a moment to thank our veterans out there. Thank you for your service and for protecting our freedoms.
Speaker Change: I also want to thank each of you on this call for taking the time to join us today. This is the first BKB Earnings Call as a publicly traded company.
Speaker Change: BKB's IPO in late September was one of only a limited number of IPOs that occurred this year, and we believe it's quite an achievement given the volatile market backdrop.
Thank you to our exceptional BKB team.
Speaker Change: The journey of becoming a public company required extraordinary effort, dedication, and resilience.
Speaker Change: Our teams went above and beyond to help us achieve this goal.
Speaker Change: I would also like to thank Banpu, our Board of Directors, and our shareholders and investors for their continued strong support of BKB.
Speaker Change: This is an exciting moment in our company's history and I'm incredibly honored to be with you today to share our progress.
Speaker Change: BKB is building a new kind of energy company that focuses on delivering energy solutions across our four business lines.
Speaker Change: We enjoy the best of both the traditional energy industry through our low-decline and cash-flowing upstream natural gas business.
Speaker Change: while also actively participating in the energy transition as we build one of the most exciting and rapidly growing carbon capture businesses in the industry.
decarbonizing our energy products.
Speaker Change: We deliver our energy solutions across the value chain to end customers through our pipeline systems and our power plants.
Speaker Change: We believe that standalone each of these businesses make attractive returns and in combination they create premium value.
Speaker Change: In the third quarter, throughout a challenging commodity price backdrop, we delivered solid performance.
Speaker Change: We outperformed our forecasted production on lower capital spending. We continue to lower our operating costs through core efficiency initiatives and technology deployments.
Speaker Change: We continue to fund the expansion of our carbon capture business while generating positive free cash flow.
Speaker Change: We strengthened our balance sheet by utilizing our IPO proceeds to further de-lever, enabling BKB to have top quartile leverage metrics among our peer set.
Speaker Change: We close the quarter with a healthy balance sheet that is poised for additional growth both organically and inorganically.
Speaker Change: I will now provide brief third quarter highlights from each of our business lines.
Speaker Change: For our upstream and midstream businesses, the macro environment for natural gas has continued to be challenging.
Speaker Change: While longer-term natural gas prices remain bullish, near-term prices have continued to be constrained by the combination of mild weather and oversupply.
Speaker Change: BKV has systematically navigated this landscape through a disciplined reinvestment approach in our upstream assets.
Speaker Change: We have prioritized free cash flow generation while seeking to optimize production declines as efficiently as possible.
Speaker Change: You can expect us to maintain this systematic approach as we look forward to 2025 and evaluate the pricing environment.
Speaker Change: Earlier this year, we sold two non-operated upstream assets in the Marcellus Shale in Northeast Pennsylvania, which helped to further de-lever our balance sheet.
Speaker Change: We have replaced a portion of this divested production with our own operated production from the recent fracking of our Marcellus duck wells.
Speaker Change: peaking at approximately 50 million cubic feet equivalent per day gross in late third quarter and contributing an incremental 14 million cubic feet equivalent per day of production on average over the third quarter.
Speaker Change: Our Barnett assets in and around the Dallas-Fort Worth area remain the foundation of our upstream and midstream business.
are comprised of majority PDP reserves with low decline rates.
Speaker Change: with close proximity to growing energy markets and strong access to Gulf Coast LNG markets.
Speaker Change: We also have a deep inventory of over 15 years of reef rack and new drill locations within our core acreage that gives us the flexibility to adjust production levels depending on the commodity price environment.
Speaker Change: Also, our upstream portfolio produces just over 20 percent liquids, which diversifies our energy product mix through exposure to NGL pricing.
Speaker Change: For our carbon capture business, we have now achieved a full year of successful operations at the Barnett Zero facility.
Speaker Change: Since the commissioning of the Barnett Zero facility, we have permanently sequestered approximately 140,000 tons of CO2.
Speaker Change: This is CO2 that would have otherwise been released into the atmosphere, and we have drone footage that shows the impact that our Barnett Zero project has on decarbonizing the environment in and around the Bridgeport Natural Gas Processing Plant.
Speaker Change: The Barnet Zero project has also been critical in proving BKV's operational and project development capabilities to other potential emitters and partners in the industry.
Speaker Change: Carbon capture is a crucial piece of BKB's closed-loop strategy. The carbon capture projects that we are pursuing make money stand-alone based on 45Q tax credits, which we believe have strong bipartisan support.
Speaker Change: In addition to the 45Q, we take the environmental attributes of sequestering CO2 and combine these with our natural gas products to create an innovative new natural gas product called carbon sequester gas or CSG.
Speaker Change: When it comes to competition for CO2 emission sources, we believe BKV operates in a unique white space that has limited competition from large integrated oil and gas companies.
Speaker Change: BKB focuses on bespoke, high-concentration, and point-source projects which are typically profitable but are too small for major energy companies to pursue. The momentum we have with potential projects underscores the strength of this strategy.
Speaker Change: Going forward, we will continue to evaluate potential third-party investments in our carbon capture business, which may include joint ventures, project-based equity partnerships, financing arrangements, and federal grants.
Speaker Change: any of which can provide additional capital to help us fund our carbon capture business.
Speaker Change: We look forward to additional announcements and progress on this front during future earnings calls.
Speaker Change: For our power business, our 50-50 joint venture is with Banpu Power, a publicly traded power subsidiary of Banpu.
Speaker Change: Our joint venture is anchored in 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.
Speaker Change: The power joint venture continued to provide positive operational results through the third quarter, despite depressed power prices in the months of July and August in particular.
Speaker Change: The ERCOT market remains one of the fastest-growing power markets in the U.S., and we remain bullish over the long-term outlook of the market.
Speaker Change: But we do recognize that given the market structure, we will see periods of moderated pricing.
Speaker Change: Within ERCOT, we are focused on the rapidly growing data center segment as Texas is the second fastest growing data center market in the country.
Speaker Change: We believe that BKV offers a unique value proposition to these potential data center customers through our ability to provide base load around the clock gas fire generation while decarbonizing that generation through our carbon capture business.
Speaker Change: We believe that the combination of natural gas and carbon capture provides a winning formula that will help fuel the continued growth in AI data center build-outs in a sustainable and scalable manner.
Speaker Change: Overall, I am very pleased with our team's performance and our ability to navigate a dynamic market environment. We remain focused on executing our strategy and delivering value to our shareholders.
Speaker Change: Now, I'd like to hand the call over to BKB's Chief Operating Officer, Eric Jacobson, to discuss operational specifics for the quarter.
Thank you, Chris, and good morning, everybody.
for our upstream and midstream businesses.
Speaker Change: upstream production during the third quarter was 762.6 million cubic feet equivalent per day, a reduction of 9.7% from the third quarter of 2023, and if you adjust for our non-MOPS asset sale, the decline is reduced to approximately 6.6%.
Speaker Change: As Chris mentioned, the asset sale consisted of non-operated assets in northeast Pennsylvania, which impacted volumes by 28 million cubic feet equivalent per day.
Speaker Change: The remaining production decline was as a result of prudent capital spending reduction in response to a weak pricing environment. In fact, for 2024 year-to-date, we have invested just $39.2 million of total development capex.
Speaker Change: such overall low decline of our upstream assets across almost any commodity pricing and investment scenario
is enabled by the nature of our asset base.
strong base management, and robust capital efficiency.
Speaker Change: Looking at our year-to-date results, production for 2024 so far has averaged 792.5 million cubic feet a day equivalent.
Speaker Change: Some notable highlights from the third quarter included completing a handful of upper Marcellus ducts in NEPA, which we were able to bring online at 50% of expected AFE completion costs.
Speaker Change: These wells have exceeded type curve expectations and are able to generate attractive returns despite the lower commodity prices.
Speaker Change: We're quite pleased so far, and these results could further prove up and unlock our upper Marcellus inventory.
Speaker Change: As we entered fourth quarter of 2024, we began to ramp up our development capital investments.
Speaker Change: focused in the Barnett to take advantage of service costs and availability against a stronger forward strip. We currently have one drilling rig and one frack crew operating in the Barnett delivering a combination of new wells and fracking existing ducts.
Moving on to our carbon capture operations.
Speaker Change: During the third quarter of 2024, our Barnett Zero CCUS operations were strong, with injected volumes of CO2 totaling about 50,000 tons.
Speaker Change: As Chris mentioned earlier, since operational startup in November 2023, the Barnett Zero facility has sequestered approximately 140,000 tons of CO2.
Speaker Change: Our project pipeline remains strong and we continue to gather momentum in our CCUS business.
Speaker Change: Importantly, as the industry has seen some permitting delays at the federal level, I wanted to mention that BKV has pursued both class 2 and class 6 well permits for CO2 injection. This allows us flexibility in a few different ways.
Speaker Change: First, Class II wells are specific to sequestration of CO2 from natural gas processing facilities, which complements our core upstream business, and these are typically much faster to permit.
Speaker Change: Additionally, class 2 well applications are made to state regulators and are handled at the state level where we have had great success in working with the Texas Railroad Commission as evidenced by our second approval for a class 2 permit for our Cotton Cove project.
Speaker Change: With the approved class 2 permit from the Railroad Commission, our target for first injection on our Cotton Cove project in the first half of 2026 remains on track.
Speaker Change: Further, we have filed two class 6 well permit applications within the last year which have been deemed administratively complete by regulators. One with EPA jurisdiction in Texas and the other with the state of Louisiana which has primacy for class 6 well permitting in Louisiana.
Speaker Change: I'll now turn the call over to our CFO, John Jimenez, to provide more details on our power business as well as our financial results.
Thank you, Eric, and good morning, everyone.
John Jimenez: Before I move into our third quarter financials, I want to start by highlighting our power business.
John Jimenez: For the third quarter, the Temple 1 and Temple 2 power generation facilities produced 2400 gigawatt hours of power, serving customers in the southern region of Irqqat.
John Jimenez: The plant's combined capacity factors increased to 73% for the third quarter, reflecting the continued demand growth in the market and our low relative heat rates, making these plants some of the most desirable baseload plants in the Texas grid.
John Jimenez: We also commissioned our 2.5 megawatt solar farm in Ponder, Texas, and are serving load through CoServe to a residential community, helping to offset our scope to emissions.
John Jimenez: For the quarter, BKV's implied proportionate share of the Power Joint Venture's net income and adjusted EBITDA was $50.6 million and $10.1 million, respectively, inclusive of our power generation and retail electricity businesses.
John Jimenez: Results in the quarter were impacted by both adverse weather and mild temperatures, resulting in a lower Power Joint Venture Adjusted EBITDA than anticipated.
John Jimenez: As a reminder, power is non-consolidated and therefore it is not currently reflected within our non-gap measures such as adjusted EBITDAx.
Speaker Change: Moving now to the rest of our financial performance. As Chris mentioned, we have strong financial performance in the third quarter despite weak natural gas prices.
Speaker Change: Before I get into the numbers, I did want to highlight our continued deleveraging of the balance sheet. IPO proceeds were used to pay down debt, and at quarter end, our net debt was at $158.7 million.
for a net leverage ratio of approximately 0.8 times.
Speaker Change: This comes on the heels of successfully syndicating a new RBL in June, which simplified our capital structure as the RBL balance is now the only debt outstanding for the company.
Speaker Change: Our balance sheet is poised for growth and we're confidently moving forward to the next phase of BKB's journey. With that, let's dive into the numbers.
Speaker Change: BKB generated a profit for the third quarter. Net income for the third quarter was $12.9 million or $0.18 per fully diluted share.
Speaker Change: This was down from a net income in the third quarter of 2023 of $18.6 million, or 30 cents per fully diluted share.
Speaker Change: The decrease was primarily due to a lower production following the divestment of certain non-operated upstream assets in the Marcellus, unrealized losses on derivatives, as well as our decision to remain disciplined and reduce capital spending for the past nine months.
Speaker Change: Please note that net income in the third quarter included $3 million of unrealized commodity derivative losses. Excluding these and other non-occurring items, adjusted net loss for the third quarter 2024 was $18.6 million or $0.27 per fully diluted share.
Speaker Change: Adjusted free cash flow for Q3 of 2024 was $19.6 million which was an increase compared to the negative adjusted free cash flow in the third quarter of 2023 of $11.2 million.
Speaker Change: The increase is due to higher net cash provided by operating activities and a decrease in capital expenditures during the third quarter of 2024 when compared to the same period of 2023.
Speaker Change: Through the first nine months of 2024, adjusted free cash flow is now $86.2 million compared to the same period in the prior year of negative $22.7 million.
Speaker Change: Bottom line, the company-wide adjusted free cash flow margin including our investment in CCUS in the third quarter was 14.2% and through nine months, our adjusted free cash flow margin stood at 19.7%.
Thank you.
Speaker Change: Accrued capital expenditures in the third quarter of 2024 were $24.4 million, which included $14.6 million for development and $3 million for CCUS.
Speaker Change: Year-to-date, our accrued capital expenditures are now at $57.3 million, including $39.2 million for development capital and another $7.7 million for CCUS.
Speaker Change: More broadly, as mentioned earlier, BKB continues to demonstrate the discipline of regulating capital spend within the corresponding pricing environment.
Speaker Change: Since the beginning of 2023, as the market saw overall reductions in natural gas pricing, BKV has averaged an industry-leading $0.28 of development capex per MCFE.
Speaker Change: As referenced earlier, we ended the third quarter with a healthy balance sheet and significant liquidity. At quarter end, we had cash and cash equivalents of $31.3 million.
Speaker Change: Combined with the availability on our RBL, our total liquidity as of September 30th was $426.7 million.
Speaker Change: Again, our net debt to adjusted EBITDAX ratio as of September 30, 2024 was approximately 0.8 times and our long-term net leverage target remains at 1 to 1.5 times.
Speaker Change: On hedging, to support the generation of future adjusted free cash flow, our general corporate practice is that we hedge approximately 50% of PDP production for 24 months.
Speaker Change: Based on our current position, for 2025, the average price of our gas hedge position is $3.49 and an average NGL price of $21.82 for a BKB-weighted barrel.
Speaker Change: For further detail on our hedging structure, please review footnote 5 in our 10-Q.
Speaker Change: Before closing out my section, I did want to make sure you saw the POOR-Q guidance we provided in the press release, and I wanted to comment briefly on a couple of key metrics.
Speaker Change: You'll see that we're guiding to a slight uptick in CAPEX. As Eric referenced, we increased our development activity as we entered the fourth quarter. For production, you'll see a slight decline from our 3Q levels, which largely reflects built-in downtime related to an anticipated winter storms.
Speaker Change: With that, I'd like to turn back over to Chris to wrap things up.
Thanks, John.
In closing, I want to reinforce a few messages.
Speaker Change: First, as a company, we're excited about the opportunities we see across all our business lines.
Speaker Change: As our carbon capture and power businesses in particular scale up, so do our opportunities to further integrate our business and provide low-carbon solutions across the energy value chain.
exciting prospect for both BKV and our customers.
Speaker Change: It also allows us to continue our actionable path towards achieving our ambitious net zero goals for our upstream and midstream operations.
Speaker Change: delivering on our mission of leading the industry towards the safe and profitable production of carbon sequestered natural gas.
Speaker Change: Second, we remain focused on executing our strategy and delivering value to our shareholders.
with our strong management team.
Speaker Change: deep bench of high-quality talent, willingness to innovate and think outside the box, and commitment to a sustainable energy future, we're poised to drive growth across all our business lines, positioning us as a leader in energy.
Speaker Change: And finally, I would like to thank you all one final time for participating in BKB's first earnings call as a publicly traded company, an exciting milestone in our company's history.
Speaker Change: And this is only the beginning. As you heard today, we are on quarter one in our journey as a public company. And our third quarter results reflect our ability to navigate volatile market conditions.
Speaker Change: underscores our commitment to operational excellence and reinforces our focus on driving value for our shareholders.
Speaker Change: With that, I'd like to open up the call to any questions.
Operator.
Speaker Change: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: We ask that you limit your questions to one and a follow-up so that others may have an opportunity to ask questions.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
Speaker Change: Our first question comes from Scott Grubber with Citigroup. Please proceed with your question.
Yes, good morning.
Can you hear me, Chris?
Thank you.
Yeah, he's got it.
Speaker Change: So, Chris, you have a number of growth opportunities in front of you, you know, from growing your carbon capture business to expanding your footprint in power.
to consolidating the Barnett further.
Speaker Change: How do you think about prioritizing the various growth initiatives, and how do you think about what the portfolio could look like in five years' time?
Yeah, Scott, good question. Thanks for that.
Thanks for being on the call.
Speaker Change: When you look at kind of what we're doing in terms of prioritizing capital
Speaker Change: We're going to start with the base business, as you can see, you know, through the...
past couple years we've
Speaker Change: been really disciplined on our CapEx. I think it's time, as we look at the forward curve, to be spending some money in our upstream business and really getting our production in line with where we see the curve going. That's always going to be the key focus for us. That feeds the rest of the machine in terms of
Speaker Change: just the ability to generate cash, so that's going to be where you'll see us, and Eric can talk more to this, but you can see us deploying capital in our upstream business.
Speaker Change: In terms of the power and the carbon capture, I mean clearly carbon capture is central to us because it decarbonizes the portfolio and it allows us to sell more power.
Speaker Change: So, you know, we see the carbon capture business growing, you know, we've
Speaker Change: We've targeted quite a rapid growth of that, and then on the power side, it's really just a transformation of our energy to end customers. So you could imagine, you know, we've said...
Speaker Change: you know, hypothetically in the past that we've looked at sort of, you know, up to half our business being from, you know, power and carbon capture, and the other half being from upstream. I think that's not a bad rule of thumb. Again, these things are hard to predict. And as you look forward, that's going to be something dependent on the environment.
Speaker Change: But in the near term, prioritizing sort of upstream and making sure our cash engine is humming, and then we're going to be actively building our carbon capture and power portfolio to get to that mark that I just mentioned.
Speaker Change: Got it and then you know on the subject of redeploying capital back into the base gas production business
How do you think about, you know, the cadence of...
Speaker Change: recapturing you know some of the lost volumes in in 25 and 26 it's obviously going to be related to the gas pricing environment but maybe a little bit of
Speaker Change: flavor for how you think about the kind of cadence of investment Relative to the gas price environment and I'll leave it there. Thank you
Speaker Change: Yeah, I'll have Eric take a shot at that one. Okay, great. Hi, and good morning as well, Scott. Thanks for joining.
Eric Jacobson: So as as you recall from the past, you know two plus years since our Exxon acquisition the Barnett
Eric Jacobson: We have shown the ability to grow production nicely on the back of our fantastic inventory, both long laterals.
Eric Jacobson: new drills as well as refracts. And then when prices are down, we've really throttled that capex back and shown the ability to manage our already industry leading low decline, you know, flatten the base and manage costs. As we look forward into 2025 and 2026, I think you'll continue to see that systematic
Eric Jacobson: CapEx investment approach with the agility and the ability to toggle and flex.
As Chris said, when we look into the forward curve...
Speaker Change: and anticipating a higher price environment, the extent to which we deploy capital and grow depends on what the pricing is. You can think about the fulcrum being in that 3 to 3.25 price range, and the fulcrum meaning a maintenance capex level of 160-ish or so dev capex.
Speaker Change: Above the $3.25 range, especially as we get into $3.50 and $4.00, we've said previously, and we'll stick to it, that that's when we really start to grow. Long laterals in the Barnett, refract program, really grow production like we did in the back half of $25.00.
Speaker Change: And if pricing falls below that $3 mark, I think you'll start to see us invest.
Speaker Change: little less than maintenance capex level, how much less depends on how far the price is below $3.
Speaker Change: Our next question comes from Betty Jang with Barclays. Please proceed with your question.
Good morning, congrats on the successful IPO.
Speaker Change: I look forward to following the companies in the year ahead.
in the years ahead.
Speaker Change: So, I want to start with the power business. Chris, you mentioned earlier that the CCS helps you to sell more power.
Speaker Change: counterparty who are interested in that power at companies or not, is there a general understanding and acceptance of carbon capture as an enabler of low carbon power?
Speaker Change: Yeah, Betty, hey, thanks and good to hear from you again. Absolutely, so with regards to the discussions of the data centers,
Speaker Change: The carbon capture business is particularly important for the power business because we can offer what they call hour-by-hour offsetting. So when you think about a data center, it runs through the night, it has substantive load that fluxes up and down.
Speaker Change: and is in some ways divorced of whatever is happening in the weather.
Speaker Change: where these folks that we're talking to are particularly interested in BKBs that we can staple
Speaker Change: the carbon offsets in an hour-by-hour basis to our power plants, or the gas that we combust in our power plants, and then offer them baseload power through the night. That's what's really compelling for them. I think depending on the party you're talking about,
Each group has different internal kind of carbon offset evaluators.
Speaker Change: And I think in general, the receptivity of carbon capture has been very strong.
Speaker Change: I think people see it increasingly as a winning solution when they can combine it with natural gas and combined cycle and then on the balance by renewables in the market, so renewables and battery power.
Speaker Change: I think we are seeing very strong traction, I would say. It's gonna take a little bit of time to work out all the details, especially as you think about the complexity of offering that product, certifying it.
Speaker Change: and then ensuring that it has all the transparency that you need. But I would say I remain very optimistic and I think we're at the forefront of shaping some of these discussions with some of the largest companies in this space.
Yep, no, that makes sense.
And then, so...
in order for...
Speaker Change: more power tied to CCS, we also need more carbon to be captured. So, with the Barnett Zero up and running for better parts of a year now, are you seeing any increased interest from other midstream operators around carbon capture of their gas processing plants? Are you seeing that backlog interest ramp up for more carbon capture projects?
Yeah, Eric, why don't you take this one?
Sure. All right.
Eric Jacobson: Thanks for joining. Yes, a good question on the carbon capture interest specifically around midstream providers. We are seeing that ramp up. I think on the back of us delivering a successful and safe
Eric Jacobson: Now, one year in operation, Barnett Zero Project. Other midstream operators have taken note. We're in conversation with a large number of public and private midstream operators. To date, we have three emitter agreements in total and five more under exclusivity across our entire portfolio.
Eric Jacobson: So, I think, you know, and many of those are natural gas processing or midstream operator.
agreement, so yes.
Eric Jacobson: The interest is ramping up. I think people are seeing that we can deliver the full chain of these carbon capture projects, starting again on the back of our Barnett Zero project.
Eric Jacobson: And where I might add, we're on track with Cotton Cove, as you heard in the release as well, another natural gas processing project for first half of 26 startup.
Got it. Appreciate that color. Thank you.
Bye.
Speaker Change: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: Our next question comes from Burt Dunn for True Securities. Please proceed with your question.
Speaker Change: Hey, good morning team and congrats on your first public earnings call just wanted to
Speaker Change: start off. I think you've got the reputation of the natural consolidator in the Barnett. Are the other operators willing sellers and is there room for synergies and scaling up these positions or is it more just about growing your cash flows and gas volumes to maybe flow through to the power and CCUS side?
Speaker Change: Yeah, hey Bert, it's Chris. Thanks for the question. So there is absolutely a market to sell and consolidate Barnett assets.
Speaker Change: think the issue we've had in the last I would say you know 18 months is the volatility around crisis and I think what both buyers and sellers are looking for is more stability in the strip so that we can agree on what that strip is to transact and I think once you see sort of some normalizing of the strip is it $3 is it 350 you know what are we seeing
Speaker Change: in terms of the more steady state outlook for that strip, I think that's when you're gonna see the transactions.
Speaker Change: To your question about what are the opportunities, certainly aggregating cash flows is nice and attractive, but I think there's a lot of synergies to bringing in smaller players.
Speaker Change: to our portfolio. We are able to develop full year-round. That's a big advantage over someone who's smaller. We're able to assess refract. We have more information on the Barnett than any player previous to us.
because we have the biggest footprint.
Speaker Change: We have better marketing take away, we can drop costs because we have economies of scale. And when you think about just opportunities to kind of merge the assets and kind of plan that over your capital program.
Speaker Change: You're able to do that. So, you know, I think there's there's tremendous synergy on top of just aggregating cash flow And I think most of the players in the Barnett are looking to exit, you know They're they're subscale and it's really hard when you're not the big player in the basin to kind of take advantage of
Speaker Change: these benefits. So I think it's a matter of just kind of getting some stability in the curve and then I think we'll be poised to kind of transact at the right time.
Speaker Change: Well said, and then maybe the second one is just your, what's the appetite for adding additional power plants in the JV, you know, is now the right time or do you wait for some of the data center demand to kind of actualize? I imagine other, you know, players in the space are well aware of the demand, so maybe are you able to create more value because of your closed loop system, or just your thoughts there?
Speaker Change: Yeah, listen, we're bullish on power, right? I think when you look at the demand for data centers that are coming in the U.S., it's unprecedented. We have not seen this kind of load come onto the grid for years and years. And I think as you look at the data, and if you really kind of
Speaker Change: do the forecasting both in ERCOT and broader across the U.S.
Speaker Change: you see a huge wave of demand that I don't know we're prepared to handle. And AI is real and it's growing. And so with that said, I think BKB's posture is leading forward in a 45 degree angle on power.
Speaker Change: I think there is an opportunity right now where people are kind of...
Speaker Change: Looking at what this means on the private side, particularly, and I think that creates a space for BKB to still transact at reasonable prices.
Speaker Change: And so we're going to be leaning forward on the acquisition side on the power, I think now is the moment.
Speaker Change: If you look forward in the next few years, I think...
Speaker Change: The opportunity to acquire existing power plants at reasonable prices will be hard.
Speaker Change: And I think we're going to go into new-build sort of territory, and I think that's a whole other can of worms. So, we're going to be leaning forward, obviously, M&A markets are unpredictable, we've got to kind of see the right opportunities. We've bought smart in all our deals so far, but we're in a lean-forward posture on that.
Great update. Thanks, Dean.
Speaker Change: Our next question comes from Jack Roberts with TP Holt. Please proceed with your question.
Good morning.
Speaker Change: Maybe for Eric, I just wanted to, I know it might be a bit early for 2025, but I believe re-stimulations are imagined to play a bigger part of the program next year.
Speaker Change: I just wanted to maybe try to understand how capital allocation between those and the more traditional horizontal wells changes as strip moves.
Speaker Change: Yeah, great question, Jake, and good morning to you. Yeah, the refracts, as you mentioned, have been a pivotal part of our success in the Barnett, and I think you're aware that we feel like the Barnett is uniquely positioned because of the vintage and the early development of the Barnett, where our predecessors left
Speaker Change: two, three, four, five hundred feet between birth clusters as opposed to modern day.
Speaker Change: fraction, the 40 to 50 feet between per cluster range. So that's why we're differentiated.
Speaker Change: And the backbone of why, over the last three years, we've been a leading refract operator in the United States shale. We've done 360 refracts in the last three years.
Speaker Change: So, you're right, the 2100 refracts that we have remaining in our inventory will continue to play a big part.
Speaker Change: of our development program going forward. We're really pleased with the economics.
Speaker Change: the low-cost investment, and then the results and the return of those refracts that we've done to date.
and anticipate that will absolutely continue going forward.
As we get into 25 and 26.
Speaker Change: You're right, it does depend on the pricing environments and what level of CapEx we have.
Speaker Change: You can typically think of our refraction that kind of 20 to 25 percent of our total Dev CapEx spend range.
Speaker Change: and the rest, neutrals, largely Barnett and some NIPA. So that's the way I think about it under most pricing scenarios, Jake.
Speaker Change: Great. Appreciate that. Maybe staying on the same topic, is there a meaningful shift to either declines or LOE as you see more refraction to the program?
Speaker Change: I think what we've seen is in 2021 we were able to keep production flat on the Devon asset on the back of Refrax alone.
Speaker Change: So, it shows the strength of our refract program being able to keep production flat. On the refracts themselves...
They're sort of...
a little higher decline than the new wells.
Speaker Change: but not much. So on new wells, I think we say we're at like 45 percent first-year decline. Refracts are in that kind of mid-50 range.
That's because...
Speaker Change: you know, they're not fully virgin, but there's a lot of meat left on that bone. So they do contribute to sort of our low decline asset base.
Speaker Change: low-decline new drills, low-decline refracts, and certainly industry-leading, low-decline base production.
Speaker Change: And then on the LOE side, the more we work on that flat denominator, the more it helps LOE. You've seen us lower LOE just through structural moves and flattening our organization, owning versus renting.
Speaker Change: Prioritizing by profitability and big data, everything we do, and then refracts have certainly helped on the denominator side, along with our ability to maintain base production and flatten it with technology and moving towards machine learning and artificial lift.
Thanks a lot. I appreciate the time.
Speaker Change: There are no further questions at this time. I would now like to turn the floor back over to Chris Kalm for closing comments.
Chris Kalm: Thank you, operator, and thank you, everyone, for joining our inaugural earnings call. We're really pleased about our results this quarter. We look forward to continuing to grow BKB as a new kind of energy company, and we're really pleased that you spent the time with us today. So thank you. Have a great day.
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