Q4 2024 BKV Corp Operating Results Call
Good morning, everyone and welcome to BK vs full year and fourth quarter 2024 earnings Conference call. As a reminder, today's call is being recorded and at this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation I would now like to turn the call over to Mr. David Cameron Vice President of strategic Finance and Investor Relations. Please go ahead Sir.
Morning, everyone and thank you for joining BKB Corporation's fourth quarter and full year 2024 earnings conference call.
Speaker Change: With me today are Chris Coleman, Chief Executive Officer, Eric Jacobsen, President of upstream and Jonathan.
Speaker Change: <unk> financial officer.
Speaker Change: 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.
Speaker Change: Actual results could differ materially from those in any forward looking statements.
Speaker Change: Additionally, we may refer to non-GAAP measures.
Speaker Change: For more detailed discussion of the risks and uncertainties.
Speaker Change: Could cause actual results to differ materially from any forward looking statements as well as any reconciliation of non-GAAP financial measures. Please see the companys public filings, including the form 8-K filed earlier today.
Speaker Change: We've also posted an updated investor presentation on our website.
Speaker Change: Now I'd like to turn the call over to our CEO, Chris Calvert.
Chris Calvert: Thank you David and thank you everyone for joining us to discuss our fourth quarter and full year 'twenty 'twenty four results.
Chris Calvert: I wanted to take a moment to reflect on the truly transformational year became he had in 2020 four.
Chris Calvert: Throughout the year BK be delivered solid business performance driven largely by impressive results from our upstream operations.
Chris Calvert: We also gained momentum in our power business actively engaging with prospective customers in the data center sector.
Chris Calvert: Our C C U S initiatives progressed with an additional F. I D on a new carbon capture project as.
Chris Calvert: As well as significant steps towards securing our financial joint venture partner.
Chris Calvert: At the same time, we maintained a strong balance sheet, providing us with the flexibility to advance our businesses across all our vectors.
Chris Calvert: And of course, we marked the year with a major milestone by making our debut on the New York Stock exchange at the end of September.
Chris Calvert: BK V is redefining the concept of an energy company.
Chris Calvert: By combining traditional and new energy approaches to offer integrated energy solutions that deliver value to customers with.
Chris Calvert: With four business lines, including power carbon capture upstream and midstream bkb's businesses generate value stand alone and in combination create a winning formula of decarbonize around the clock energy that is scalable sustainable and profitable.
Chris Calvert: The power markets in particular are evolving rapidly and I'd like to highlight some key trends shaping our power strategy.
Chris Calvert: Our power JV is anchored on to modern and highly efficient combined cycle natural gas power plants that have capacity of 1500 megawatts and are located in temple, Texas.
Chris Calvert: Power generation is a key growth driver for the company given the recent power demand forecast across the U S and in the Texas ERCOT market.
Chris Calvert: The power generation business in ERCOT represents a compelling growth opportunity for <unk>.
Rapid demand growth in ERCOT is driven by several key factors, including electrification, increasing consumer and industrial demand and importantly, datacenter and generative AI demand grows.
Chris Calvert: ERCOT is 'twenty 'twenty four long term load forecasts estimates overall demand could reach 150 gigawatts by 2030, nearly doubling the 2023 peak load of eight five gigawatts with data center developments accounting for approximately half of this growth.
Chris Calvert: During the fourth quarter, our power JV took proactive steps to enhance operational readiness of the temple complex, which involved maintenance on our combined cycle turbines and our steam turbine units.
Chris Calvert: Through these activities, we have positioned ourselves to maximize uptime during peak demand periods, especially during the winter and summer months.
Chris Calvert: In the near term, we have seen prices moderate due to benign weather conditions in Texas, and new renewable additions to the grid power.
Chris Calvert: However, overall, we remain bullish about our cots long term demand growth and scarcity pricing as demand growth is projected to outpace supply additions, particularly baseload supply.
Chris Calvert: Our power business has multiple vectors of growth first we have the ability to increase the utilization of our existing assets through higher capacity factors as demand for Baseload power increases in the market.
Speaker Change: Second be Katie is active in the M&A markets and expect significant opportunities for transactions in the next few years.
Speaker Change: Third <unk> has commissioned a study to explore building additional combined cycle units similar to our temple plants to address the projected mismatch between structural demand growth and base load supply.
Speaker Change: As we believe there are customers focused on securing power from new generation assets.
Speaker Change: The T V's power business model is unique in our ability to decarbonize. The natural gas that we can Boston our power plants do our carbon capture business. This unique feature is important to future customers.
Speaker Change: BK V remains bullish on the carbon capture industry, recognizing its vital role in Decarbonising global economy.
Speaker Change: In the U S carbon capture enjoys strong bipartisan support including from the current presidential administration.
Speaker Change: The economic incentives driving its development such as the 45 SKU tax credit <unk>.
Speaker Change: Enacted by Congress and codified in the internal revenue code have demonstrated resilience across multiple administrations.
<unk> is solidifying our leadership position in this business. The evidence of this is in our F. I D progress and project pipeline that we are continuing to execute.
Speaker Change: Further we are in exclusive negotiations with a global energy transition investor to become a joint venture partner in our carbon capture business.
Speaker Change: As part of these negotiations we have mutually agreed to a timeline to finalize definitive agreements and complete standard due diligence within the next 90 to 120 days.
Speaker Change: We believe each a b C. C. U S business is standalone attractive and we are in a position to drive our six U S growth independently.
Speaker Change: At the same time, we believe a financial partner to help us accelerate this business growth accretively.
Speaker Change: Later, Eric will talk about the momentum we have at a project level to drive our overall six U S business.
Speaker Change: We had a strong bordered in our upstream business.
Speaker Change: Our upstream business continues to be the cash engine driving our ability to grow across all our business lines.
Speaker Change: We're extremely excited about the strong results from this last quarter not.
Speaker Change: Not only did we see solid performance, but these results also highlight how our business is strategically positioned with low decline rates, allowing us to navigate periods of lower pricing.
Speaker Change: At the same time, we are able to reinvest ROE production and capture favorable pricing.
Speaker Change: Overall, I'm very pleased with our team's performance and our continued ability to navigate dynamic market conditions and drive towards the execution of aspirational goals.
Speaker Change: We remain focused on executing our strategy and delivering value to our shareholders across all our business lines.
Speaker Change: Now I'd like to hand, the call over to <unk> President of upstream Eric Jacobson to discuss operational specifics for the quarter Eric over to you.
Eric Jacobson: Thanks, Chris.
Eric Jacobson: On the upstream team that Chris Teed up we are very pleased with our fourth quarter upstream performance and are excited about our 2025 program.
Eric Jacobson: First quarter production was 774 million cubic feet equivalent per day, outperforming and exceeding the midpoint of the guidance range by 5%.
Eric Jacobson: And it was delivered by investing approximately $43 million of development, Capex, which was lower than the amount of investment forecasted.
Eric Jacobson: Cross the fourth quarter, our new well development performance was at or better than forecasted type curve. We continued our trademark of highly effective base decline management, and we accelerated development timing through strong drilling and completion performance.
Eric Jacobson: Simply put in the fourth quarter, we delivered more upstream activity at a faster pace and at lower costs than we had forecast.
Eric Jacobson: We brought several wells.
Eric Jacobson: Online at the end of the fourth quarter to boost fourth <unk> production, which resulted in a total average annual daily production of 788 million cubic feet equivalent per day or 774 pro forma for the NIPA non ops divestiture.
Eric Jacobson: Strong overall performance continues to showcase our advantaged asset base, featuring low base decline rates, coupled with competitive and robust inventory, enabling us to continue our systematic approach to capital investment according to price environment.
Eric Jacobson: Given this systematic capex approach, we are flexing up our spend in the current environment through developing our long inventory runway at both re fracs and new drills. The continuation of this Capex program is reflected in the guidance we provide for the full year 2025.
Eric Jacobson: Our development Capex investment into refraction, new drills has expanded expected to continue through most of 2025 and on the back of that are 2025 full year production guidance reflects a range of 755 to 790 million cubic feet equivalent per day or one queued.
Eric Jacobson: 2025 guidance includes winter weather impact and following that we expect to realize a production ramp in the second half of the year coincident with strip pricing rising quite favorably in that same period as we exited fourth quarter of 'twenty 'twenty five we anticipate our production being a couple percentage points above.
Eric Jacobson: Fourth quarter 2024 exit even with our strong outperformance in this latest quarter.
Eric Jacobson: In the Barnett. We also have several differentiating factors that further set the stage for success, including an advantaged geographic position with multiple takeaway routes and ample takeaway capacity to Gulf coast markets, including both the golf industrial corridor and LNG export terminals.
Eric Jacobson: The lower nitrogen content of our Barnett gasses, specifically caught the attention of downstream markets as they become increasingly sensitive to certain gas specs.
Eric Jacobson: To wrap up upstream we are looking forward to continued success building on the strong production inventory development and capital efficiency, we delivered in 2024.
Eric Jacobson: I will now move into specific seats U S operations updates starting with our actively injecting project Barnett zero.
Eric Jacobson: As of November 2024, our Barnett Zero project had been in operation for a full year.
Eric Jacobson: And through year end 'twenty 'twenty four had injected approximately 173325 metric tons of C O two since project startup.
Eric Jacobson: Project has had an incredibly high 97% reliability rate and high fidelity injection for 2025, we expect that injection volume range of 120 to 170000 metric tons per year of C. O. Two our cotton Cove project, which previously reached F. D remains on track.
Eric Jacobson: Jack for first injection in the first half of 'twenty 'twenty six.
Eric Jacobson: The monitoring reporting and verification or MRV plan was submitted to the U S. E. P. A in November 2024.
Eric Jacobson: And the class two injection well permit has been approved by the Texas Railroad Commission with drilling expected to commence in the third quarter of 2025, the forecasted peak injection rate of cargo is 42000 metric tons per year of C O two.
Eric Jacobson: During the fourth quarter BK V. Also reached F idea in yet another six U S project with a leading midstream energy company had are currently operating natural gas processing plant located in the Eagle Ford shale.
Eric Jacobson: BK V will own and operate the compression and injection facilities and receive all of the environmental attributes and 45 Q tax credits associated with the Ccs project.
Eric Jacobson: The Texas Railroad Commission has approved the projects class two injection well permit and in MRV plan has been submitted to the EPA for approval. The project is expected to have initial injection in the first quarter of 2026 subject to us receiving all required plans and permits and the facility is forecasted to achieve.
Eric Jacobson: And average sequestration rate of approximately 90000 metric tons per year of C O to.
Eric Jacobson: This project further paves the way for additional N G P carbon capture partnerships the.
Eric Jacobson: The announcement of the Eagle Ford area piece U S project accelerates, our progress and gives us line of sight to achieving our goal of injecting over 1 million tons of C. O. Two by the end of 2027 largely from N G P and ethanol.
Eric Jacobson: Our confidence in achieving this injection goal is underpinned by our three carbon capture project Fid's to date.
Eric Jacobson: We received and four filed class two well permits and two filed and deemed administratively complete by fixed permit applications that are under technical evaluation for.
Eric Jacobson: For additional information we've included our projections for the Ccs business from 'twenty to 'twenty five to 'twenty 'twenty seven and beyond in our updated investor presentation, showing details a very internal buildup for the Ccs business over the period, we are incredibly proud of the progress we've made in our Ccs business.
Eric Jacobson: And we're looking forward to 2020 five and beyond.
Eric Jacobson: With that I.
Speaker Change: I will hand, the call over to our CFO, John Humana's to share company financials and results from our power JV. Another key piece of BK vs winning formula.
John Humana: Thanks, Eric before I share the power results I'd be remiss to not acknowledge my recent retirement announcement, it's been an absolute honor to serve the kv as CFO for the last four years I'm incredibly proud of all that we've accomplished in my tenure, most notably the company's successful IPO process. This last year became he is.
Speaker Change: Well positioned for the future and I'm confident that the experienced leadership team soon to include David and CFO and its talented employees will take the company to even greater heights as they move forward.
Speaker Change: I look forward to continuing to support the team in an advisory capacity and I'm ready to enjoy my retirement with my family later this year.
Speaker Change: And now for an update on our power operations as expected during shoulder seasons. The fourth quarter was characterized by moderate power demand taking advantage of this shoulder season, we use the period to conduct scheduled major maintenance, which resulted in downtime for the plants.
Speaker Change: The average capacity factor for the temple plants during the quarter was 38% and total generation was 1200 gigawatt hours for the full year. The average capacity factor was 57% and the total generation was 7400 gigawatt hours.
Speaker Change: <unk> for Q power prices averaged $36 90 per megawatt hour with average natural gas costs of $2.50 per M. M. Btu, resulting in an average spark spread of $19.37 per megawatt hour for the full year. The average spark spread was $21 90.
Speaker Change: <unk> per megawatt hour.
Speaker Change: <unk> implied proportionate share of the power Jv's net loss during Q4 was about $17 million, including major maintenance expense and adjusted EBITDA was a half a million dollars for full for the full year Bkb's implied share of the Jv's net income was $10 million and 34 million for adjusted EBITDA.
Speaker Change: As a reminder, our power JV is non consolidated beginning with one Q 'twenty twenty-five results, we expect to begin reflecting our portion of the power Jv's results within BK vs reported adjusted EBITDAX as.
Speaker Change: As we look towards 2025, the power JV has hedged approximately 700 megawatts of generation.
Based on our pricing outlook and the current hedge position the power JV is targeting a gross 20 twenty-five adjusted EBITDA range of $130 million to $170 million.
Speaker Change: This guidance reflects the impact of a just additional renewable generation combined with lower forward pricing in the short term. However became he's still anticipates robust long term demand growth leading to increased periods of scarcity pricing in the ERCOT market.
Speaker Change: Now shifting to the rest of BK vs financial performance, you've heard about BK vs financial framework, which underpins our strategy, our low decline inventory, our strong free cash flow margin and our disciplined capex enabled us to continue to invest in the base, while supporting the future growth of the company.
Speaker Change: This quarter is another proof point, which showcases our ability to execute against our strategy.
Speaker Change: Accrued capital expenditures in the fourth quarter were 60 million, which included 43 million for development and 3 million for six U S. This is notably below the low end of our fourth quarter guidance range of $65 million evidence in not only our ability to respond to the market conditions, but also.
Speaker Change: Our ability to drive capital efficiency, that's Eric emphasized earlier, our commitment to capital discipline serves as a clear example of Bkb's continued focus on managing capital expenditures in alignment with market conditions.
Speaker Change: Our full year 'twenty 'twenty four accrued capital expenditures were approximately 118 million <unk>.
Speaker Change: Clothing 82 million for development capital and 35 million for CCT West another.
Speaker Change: This represents a 28% reduction in accrued capital expenditures year over year.
Speaker Change: For 'twenty twenty-five we're anticipating an increase in upstream development. We believe that total capital expenditures will land between 320 and $380 million with approximately $220 million going towards development and approximately $130 million going towards six U S. Another.
Speaker Change: Despite our elevated capital investment in four Q, we generated positive adjusted free cash flow and continue to Delever the business as of year end, our outstanding RBA balance was 165 million representing a net leverage ratio of 0.65 times. We also had cash.
Speaker Change: Cash equivalents of approximately 15 million combined with the availability on our army L. Our total liquidity as of year end was $436 million.
Speaker Change: During 'twenty 'twenty four the company generated positive adjusted free cash flow of 92 million with an overall adjusted free cash flow margin of 15%, which included our investments in six US This is a strong result, considering a return to a more robust development period during the fourth quarter in anticipation of <unk>.
Speaker Change: Stronger overall pricing going into the new year, we are already seeing that stronger pricing trend come to fruition in the early weeks of 2025.
Speaker Change: We had a net loss in the fourth quarter of 57 million or negative <unk> 68 cents per diluted share. This loss was heavily driven by net derivative losses of 58 million. After adjusting net income for unrealized derivative losses and other nonrecurring items, we had an adjusted net income of approximately one.
Speaker Change: Or a positive one cent per diluted share in the fourth quarter of 2024 for the full year of 2024. After adjusting net income for unrealized losses and other nonrecurring items, we had an adjusted net loss of $40 million.
Speaker Change: In regards to our hedging strategy I'd like to reiterate that we hedge at least 50% of PDP production for 24 months based on our year end hedge position for Cal 'twenty five we have natural gas hedged at an average price of $3 43 pence per M. M. B T U N N.
Speaker Change: She LS are hedged at an average of $21.82 per BK V weighted barrel.
Speaker Change: For 2025 guidance and going forward BK V is providing current quarter and full year guidance, which we will update as appropriate on a quarterly basis I've covered a handful of our guidance ranges already and you can refer to our complete <unk> 25, and full year 2025 guidance, including our per.
Speaker Change: Unit operating costs and average natural gas price differential in the press release that was posted this morning.
Chris: With that I'd like to turn it back over to Chris to wrap things up.
Chris: Thank you John and congratulations to you on your forthcoming retirement and we look forward to hearing about your travel adventures. During this next chapter of your life.
Speaker Change: Only 34 countries to go on your path to 100.
Speaker Change: It has been a joy and a pleasure working alongside you and I wish you. Many more successes as you pursue life to its fullest in your retirement.
Speaker Change: Before we open the call for questions I want to emphasize a few key messages.
Speaker Change: B T V offers the winning formula through a combination of natural gas production carbon capture and power, which we believe will attract a premium in the marketplace.
Speaker Change: <unk> has multiple paths for disciplined growth across all our business lines, we have the ability to grow both organically and inorganically with the balance sheet and the organizational readiness to support that growth.
Speaker Change: Finally, our strong performance in the fourth quarter and throughout 'twenty 'twenty four reinforces our ability to deliver shareholder value in line with our aspirations with that operator, we're ready to take any questions.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue.
Speaker Change: Yes, and Hana analysts limit themselves to one question and a follow up to that others 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 sparky one moment. Please while we poll for questions.
Speaker Change: Our first question comes from Scott copper with Citigroup.
Speaker Change: Please proceed with your question.
Speaker Change: Yes, good morning.
Speaker Change: So a lot of a gig.
Speaker Change: A lot of good color on the Texas Star market Chris.
Speaker Change: Yes, you have excess capacity or your temple facilities data centers are getting bigger so I'm curious.
As you think about the PPA opportunity how much of your capacity would you be comfortable dedicating to a PPA you could you could power a large data center with your two plants.
Speaker Change: But that would obviously reduce the spare capacity that you provide to the ERCOT system I'm not sure. How you know the interaction with regulators then it comes into play given that ERCOT to competitive market. So you just said shed some color on kind of.
Speaker Change: Your comfort level around how much capacity at the plants you'd be comfortable dedicating under PPA.
Speaker Change: Yeah, Scott Good question. So I appreciate it yeah. If you look at ERCOT. Its obviously, a hot topic right now as it is across the grid around how much you know our people are able to take off.
Speaker Change: Do these private use networks or what we call ponds.
Speaker Change: You know for US we have two modern combined cycle power plants. Each about 750 megawatts. So if you think about it as sort of a PPA structure or youre, probably not going to want to go more than 750 on those youre going to be able to take one down for maintenance keep the other one running.
Speaker Change: As that redundancy is really important to a lot of these data center companies. So you know when you think about it is I would say sort of that 750 is rip out the right kind of upper limit of what we'd be comfortable with as a as we think about these options around sort of private use network and sort of behind the meter deals.
Speaker Change: And what's the latest color on your progress with discussions on that front do you think.
Speaker Change: And agreement as possible here in 'twenty five and then you mentioned, you're starting to look at that building.
Speaker Change: Additional plants down the road and if so are you focused on getting that.
Speaker Change: Agreement on the existing plants or do you are you starting to look at.
Speaker Change: Agreements for our new plants or are those separate opportunities you're pursuing both.
Speaker Change: Yes.
Speaker Change: Good for you to pick that up I mean, I think on the existing power plants. We have as you can imagine it's got an incredibly unique position in the ERCOT market, where we have you know 500 megabit megawatts that are on dedicated we're right in the heart of the state. So you know those discussions as I said are active.
Speaker Change: And we look forward at announcements you can imagine in the next 12 to 24 months there is going to be a lot of deal struck in the ERCOT and then broader U S market I think for us it's.
Speaker Change: It's.
Speaker Change: It certainly.
Speaker Change: Right. There were active we can decarbonize. It we have those assets today and so we feel very excited about the momentum we see in the market and you're hearing that not just from us, but other producers of gas and power.
Speaker Change: We see that very very much and we see that activity actually picking up pretty substantially in the last I would say you know 9100 days sort of timeframe with regards to the new power plant. The study that I mentioned, that's all about what customers want and there's some specific.
Speaker Change: Customers out there that want new generation assets as part of kind of doing deals and they don't want to be seen as taking power off the grid and show our ability to kind of offer both is actually super compelling to them and I think that that's where we see BK V being flexible having the balance sheet, having the strategy to kind of go after both types of <unk>.
Speaker Change: Customers are as being exciting and I think puts us in a really great position when we talk about kind of near term.
Speaker Change: You know agreements, Andrew or ability to kind of strike some longer term deals as well.
Very interesting thanks, Chris for the color I'll turn it back.
Speaker Change: Thanks Scott.
Speaker Change: Our next question comes from Nick Kumar with Mizuho Securities. Please proceed with your question.
Nick Kumar: Guys. Thanks for taking my question, let's start on the Ccs side, you mentioned the potential for a JV, but.
Speaker Change: You had one F I D here congratulations on that.
Nick Kumar: As I look at the capital guidance.
Speaker Change: For about $130 million of C C U S and other.
Speaker Change: Other capex is running around 15 million a quarter so.
Speaker Change: Should we expect more what I guess, what's baked into this.
Guidance for Ccs capital spending.
Eric Jacobson: Hi, Good morning, and thank you for the question. This is Eric Yeah within that six U S and other category of the $130 million about $90 million of that is expected to cease use spend.
Speaker Change: So we will look to further develop the <unk>.
Eric Jacobson: That we've announced are we.
Eric Jacobson: We hope and anticipate there'll be more fid's coming and it will be quite active and starting to develop these projects for startup in early 2026.
Got it.
Speaker Change: And you're not assuming a JV or just as clarification rate. This would be 100% capex on Ccs is as of today.
Speaker Change: Yes, correct that would be our reported capex at 100% that the $90 million range.
Speaker Change: Got it and then my if my follow up I just wanted to quickly ask on production taxes are it looks like production taxes were a lot lower than expected.
Speaker Change: Is that just a timing impact and should we see that reverse out here.
Speaker Change: In 2020 in the first quarter.
Speaker Change: Yeah, thanks for picking that up.
Speaker Change: Actually taxes other than income has two components, one of which is called a severance tax which is essentially a production tax.
Speaker Change: They are a percentage of revenue revenue and.
Speaker Change: Although.
Speaker Change: Reising and production volume Barry that percentage typically sits around 3% and that didnt create any of the variance you're seeing in the in the quarter or in the year to date.
Speaker Change: What was what was.
Speaker Change: Trading the change in the quarter had to do with AD valorem. That's the other part of taxes that come through that line. This is a real estate and personal property taxes that are SaaS based on the assessed value of.
The assets.
Speaker Change: And a couple of the counties were a little bit delayed in terms of their processes and finalizing those assessed values. Those those happened in the fourth quarter and hence we had a true up once those are finalized and in the range of $47 million. So that that's what's depressing the quarter.
Speaker Change: But.
The year to year.
Speaker Change: S values will fluctuate on AD valorem severance saves pretty pretty constant.
Speaker Change: So.
Speaker Change: Dave.
Speaker Change: Just for going forward for modeling purposes, just assume it's back to historical levels that was kind of a onetime.
Speaker Change: One time hit in the fourth quarter.
Speaker Change: Okay, and if I can sneak one more in just on the upstream side gas prices are obviously being much stronger as I look at your upstream guidance here.
Speaker Change: There should be some growth through the year, but you're not leaning in to.
Speaker Change: To the to the upstream just yet could you talk a little bit about what you're seeing there and and and and sort of why why did the current level of activity.
Speaker Change: Yeah sure. Thanks, Thanks for again for the follow up there.
Speaker Change:
Speaker Change: As we've shared before and as is included in the slide in the finance section of our Investor deck, we'll remain committed to that systematic disciplined capex investment approach and we remain focused on free cash flow within that framework.
Speaker Change: As if we see prices remaining very strong in the second half of 'twenty five and through 2026 and I would expect in the coming months, we will have a hard look at upping, our capex investment in the second half of 'twenty five we certainly have the available in quality inventory, both new drills and re fracs.
Speaker Change: And NIPA and Barnett too.
Speaker Change: First additional capex. So that's there so over the coming months will have a hard look.
Speaker Change: About investing additional in the second half of 'twenty five and should we do so I think what we'd expect to see us in a nice ramp at the very back end of 'twenty five setting except for really strong 26.
Speaker Change: And then just.
Dave: Alright, Dave again, just come in just to make sure your you and everybody else are clear.
Speaker Change: Our current Capex guidance is consistent with what we told you.
Dave: Analysts.
Dave: We're using a three.
Dave: 350 deck.
Dave: To get that.
Dave: Capital spend so as prices stay stronger.
Dave: It would.
Dave: As appropriate if need be.
Great. Thanks, guys.
Dave: Yes.
Speaker Change: Our next question comes from Betty Jang with Barclays. Please proceed with your question.
Betty Jang: Hi, good morning, everyone and John Congrats again.
Betty Jang: But I wanted to start asking about the.
Betty Jang: As possible.
Betty Jang: As contract.
Betty Jang: It's really great to see that momentum with additional contract how does how's the margin.
Betty Jang: Economics of this contract compared to our Barnett zero and then.
Betty Jang: Why don't you start rolling and the additional Ccs.
Betty Jang: Volume.
Betty Jang: How much more low carbon power king offered to the market once you bake that in.
Speaker Change: Eric why don't you take the margin question I'll follow up with the power question.
Speaker Change: Sure Yeah, good morning, Betty and thank you for the question on the Ccs business.
Speaker Change: As we mentioned, we're very excited about to announce this third F E. Continuing on with our Forte in the natural gas processing space with it with a very large and reputable midstream operator, you can think about the margin.
Speaker Change: We're realizing from this deal this latest N G P F.
Speaker Change: Very comparable right in line with Barnett zero and with what we've shared before there.
Speaker Change: Now we're at $50 a ton sort of EBITDA margin range, yes, yes.
Speaker Change: Yeah, so betting on the power so as you know.
Speaker Change: Youre going to decarbonize around the clock with carbon capture our Barnett zero project at sort of that 150 <unk> hundred thousand.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: On a round up.
Speaker Change: Are you utilizing that kind of.
Speaker Change: Yes.
Speaker Change: So you know.
Speaker Change:
Speaker Change: The releases that we did reach a million times.
Speaker Change: Okay.
Speaker Change: Break here.
Speaker Change: He says proportionately right so that the amount of power that we can carbonite.
Speaker Change: On a scale of them.
Speaker Change: Thanks.
Speaker Change: You can see our debt.
Speaker Change: Got it.
Speaker Change: So Chris I think you were cutting off and then all bets are off for me, but we can follow up and and then my follow up is on the power EBITDA.
Speaker Change: But the guidance that for 2025 it came in light versus what were expecting before so can we just get a bit more color on what's the underlying assumption, what's your power price assumption and maybe spark spread.
Yeah, I think just to give the contact with regard to the market in 'twenty five we saw the weak summer in <unk>.
Speaker Change: That carried over into the future.
Speaker Change: Markets for <unk>.
So did layer on about 700 megawatts of hedges into 'twenty.
Speaker Change: That's gonna Margarine margarine.
Speaker Change: The overall outlook some degree.
Speaker Change: And then it get worse.
Speaker Change: We're seeing.
Speaker Change: Builds that are happening into the market, which are kind of legacy from two or three years ago those projects coming online.
Speaker Change: Zinc prices in the peak hours.
Speaker Change: In the near term.
Betty Jang: Positives there Betty is if you look out to 'twenty six 'twenty 728 in particular, there's a huge amount of contracted baseload demand coming on the market.
Speaker Change: Great.
Speaker Change: Big Big risks to scarcity pricing in ERCOT in particular, and so we're very excited about our assets as we look into the next two to three years being positioned ideally from a mark.
Speaker Change: Term theres, a little bit of headwind with as I said with regards to kind of weather.
Speaker Change: Online.
Speaker Change: Got it that's helpful.
No.
Speaker Change: Okay.
Speaker Change: Picking up and we're hearing we're breaking up.
Speaker Change: Yeah.
Speaker Change: Feedback right.
Great.
Speaker Change: Well.
Speaker Change: Yes, please hold the conference will resume shortly.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: And that's what we like.
Speaker Change: Okay. It seems like we have our speakers back and we're about to begin our Q&A again. Our next question comes from Bert.
Speaker Change: <unk> Securities.
Speaker Change: Hey, good morning, guys. Thanks for taking that I was wondering with the buy side.
Speaker Change: First of all just want to say congrats to John it might be 30 years behind you, but I'm happy for you.
Speaker Change: And then on the first question, maybe you could share your thoughts on how the rest of the Barnett operators might be looking at this improved gas strip do you think they're willing consolidators as they see higher pricing maybe they think maybe we can get a higher price now or does this widening bid ask spread I think sometimes the conventional.
Speaker Change: Banking is that some of those locations that werent previously economic and now kind of flipped into a profitable category and so it may be that bid ask spread widens.
Speaker Change: Yeah. That's a good question Bert I think what Youre, what we expect is if we stabilize in the price and I think I shared this in our last earnings we should see more transactions I think it's about bringing together expectations on the strip I think the last couple of years has had some pretty significant bid ask spreads due to kind of varying views on what that.
Speaker Change: Strip looks like.
Speaker Change: If we can kind of really keep the strip in and around where it is even today for the next call. It three to six months I think that triggers a lot of transactions. Because I think then you can all agree on sort of what that reserve base looks like.
Of course, if we start to see expectations that prices go even higher I think that plays to your point, where then that bid ask spread widen again, but if we're kind of hanging around where we are today and stabilize I would expect that the second half of the year, we will see quite a bit of transactions, particularly on the gas side.
Speaker Change: And I imagine you mean in the Barnett right not outside.
Speaker Change: Yes, I mean, I think in Barnett and then of course, you know that we're always looking to expand our portfolio to low decline kind of Gulf coast access basins as well.
Speaker Change: Perfect and then the second question same same thing on the upstream business.
Speaker Change: It outperformed our expectations, but I believe you pointed towards.
Speaker Change: Newer well performance as well as our base decline could you maybe talk about which one maybe push that lever harder than maybe if you're making any changes as a result of the success.
Speaker Change: Yeah, Hey, good morning, Burton. Thanks for the question on the upstream side, Yes, we were very pleased as well with a fourth quarter performance on an outperformance on production. It was driven by a few factors as we shared one is add or mostly above type curve performance on our new wells, it's driven by our exit.
Speaker Change: Houston Excellence and an ability to drive our turn in lines earlier in the quarter than we expected and then we did continue that trademark of ours, which is arresting already industry, leading low base decline, even further and I would say our performance in the fourth quarter was driven.
Speaker Change: Largely by the new drills, and new wells, which we're very pleased with that performance on type curves and accelerated sales I think you know we expect to continue that performance into 2025 and beyond Bert.
Speaker Change: We've applied a lot of lessons and learnings and we continue to get better and more efficient with our new drills and re fracs alike. And then we'll carry that into that decision I mentioned, a further question earlier about whether to deploy additional capex in the second half of 'twenty five as we you know.
Speaker Change: It potentially grow even further coincident with strip pricing, depending on how that lands in our decision, making the next few months, but it's certainly on the back of how we performed and executed our new drills. It lends itself to high confidence going forward.
Speaker Change: Understood. Thanks, Dave.
Speaker Change: And operator before you take the next question.
Speaker Change: If anybody had any and we understand there is some issue and we'll break it up if anybody has any questions feel free to get back in the queue and clarify anything he missed we're happy to do a to cover that again.
Speaker Change: Operator back to you.
Speaker Change: Okay, Great. Our next question comes from Ken <unk> with Keybanc capital markets. Please proceed with your question.
Ken: Good morning folks and thank you for taking my question. Some of mine have been answered. So I just had one for you Chris I appreciate it.
Speaker Change: Specificity you provided on the on the potential JV on carbon capture as well.
Ken: The timing so.
Ken: I know it's been a.
Ken: Frenetic.
Speaker Change: New presidential administration, but this 90 to 120 day kind of window, you provided us with consistent with comments now about the middle of the year can you talk about your confidence on getting something over the finish line and maybe what the risks are along that path. Thank you.
Speaker Change: Yeah I appreciate it Tim look with regards to getting a deal of the line I feel optimistic as I mentioned in our.
Speaker Change: As you know earlier discussion with regards to the the partner you know, they're very committed to it as you know.
Speaker Change: The big question that a lot of folks have them.
Speaker Change: Needed to navigate as sort of the scenarios with regards to how this looks in terms of policy and that's that's really what we are hammering out in the next sort of 90 to 120 days I think you know when you look at at where folks are out on the carbon capture side I think it's incredibly optimistic this is a bipartisan supported agenda.
Speaker Change: It's incredibly embedded into the tax code. It's it's in Red States, it's supported by Big oil Big egg and so theres a lot of momentum around that and BK. These really taking a leadership position. So I would say all of those factors gives me a lot of confidence.
Speaker Change: And with with sharing that number with you all at the same time, you you know that.
Speaker Change: Nothing's a done deal until it's a done deal. So we are able and excited about delivering our business Standalone and that's the way we've guided you guys in the market.
Speaker Change: But we're you know we're confident enough to come out and give you a date timeline and when we think that's going to happen. So I think that speaks to our our overall.
Speaker Change: <unk> on the matter.
Speaker Change: Okay I appreciate that and just a quick follow up.
Speaker Change: The general terms you've provided about.
Speaker Change: No.
Speaker Change: Kind of a 49% participation with potentially some sort of capex carry those general parameters are still you know I guess safe to think about.
Speaker Change: Yeah, I think it's consistent with what we've talked about before.
Speaker Change: Alright, thank you.
Speaker Change: Thanks, Tim.
Speaker Change: Our next question comes from Jacob Roberts.
Speaker Change: <unk> co. Please proceed with your question.
Speaker Change: Good morning.
Speaker Change: Hey, good morning, gentlemen.
Speaker Change: Good morning, I wanted to.
Speaker Change: Take a look at slide 21, excuse me and.
Speaker Change: Just you know given the F. A D down in South, Texas, I'm wondering if there's any regulatory or geologic aspects, we need to think about when looking at this map and perhaps where you guys are focusing in expanding this business and then maybe if I could.
Speaker Change: Add on a quick follow up to Tim's question should we be thinking about the JV potential partnership on a project by project basis or kind of a blanket agreement on multiple Ford projects.
Speaker Change: Sure you bet a J good morning, I'll I'll take the first half of that question, then and and to Chris on the second half on the JV. So yes, referencing slide 21 in the natural gas processing plants are that we've highlighted across across the United States. There are the nice thing is most.
Speaker Change: Most of those are in very favorable regulatory states from our oil and gas and Ccs perspective, if you look at many of the states where there are concentrated plants. Those are states, which have already received permitting primacy from the EPA, even though class two dozen and engie piece doesn't require privacy I think is indicative of the radio.
Speaker Change: Tori environment States like Louisiana, Wyoming, North Dakota, all of which have received primacy West Virginia. We're pleased just recently dead and then a large concentration in Texas, where we've had already very nice success with the Texas Railroad Commission. We've received three approved class II permits a fourth has been filed and Thats there.
Speaker Change: Heart and soul of our N G. P business. So we look at the regulatory framework in those states, where the plants are concentrated as very favorable overall with some already nice success. We've had in some of those states and then as far as geology to the point of your question, Yes, geology matters, you'll remember our point source high concentration philosophy, which we think is unique to <unk>.
Speaker Change: And part of that is we don't build a lot of infrastructure new infrastructure, but when we do build as new and robust, meaning we like to have the poor space very close or ideally right underneath the the source of emissions and that is the case on many many of these plants in Texas, Oklahoma, Wyoming, North Dakota, Theres a lot of.
Speaker Change: Favorable geology and many of those states so not for all but largely there is so we think again this map lends itself to our natural gas processing Forte and one of the foundations of our Cts business as we grow to that million tons of injection on the back of natural gas processing and some ethanol in the next few years, Chris over to you on the JV.
Chris: Yeah, Jake on the JV the deal would be a platform deal. So there would be a certain amount of capital that they would commit and that would then give us kind of the platform to deploy that capital alongside of them. The JV partner and so you know once were through that then you're obviously either re upping or youre kind of going on your own. So that's how you should think about it so.
Speaker Change: It does cover all our kind of deals in the future as you think about that.
Speaker Change: That amount of capital that's being committed.
Speaker Change: Thanks, That's helpful. And then my second one on the power side of things just thinking about an inorganic opportunity or the potential to build out a new facility and I apologize. If I missed this are you willing to look outside ERCOT for those types of things.
Speaker Change: Yeah, I guess I guess that's about it.
Speaker Change: Yeah. It's a good question Jake we absolutely are.
Speaker Change: Willing and currently are looking outside of ERCOT as well right. As you think about our model, which is gas carbon capture and power that scales and that scales across the U S. So a lot of the discussions that we're active in you know are involving customers that have positions, obviously in Texas, but also outside of Texas and we believe that you know there.
Speaker Change: Their interest in <unk> is around our ability to offer that around the clock Decarbonize power.
Speaker Change: So clearly getting assets. In addition to kind of the ERCOT market would make a lot of sense to match their portfolios.
Speaker Change: And that's exactly how we're thinking about it because we think you know, Texas is a great starting point, but when you think about the issue of data center growth you have multiple places.
Speaker Change: You know certainly in PJM and other markets that are going to be perspective, and became he's very active in looking at that as well.
Speaker Change: Thanks for your answer actually reminding me of the second part of that question or would these investments be predicated on the ability to offset the carbon.
Speaker Change: It depends there are certain customers you can imagine the <unk>.
Speaker Change: Certain customers that have made strong commitments on their net zero goals by sort of ended the decade those customers are going to be highly sensitive to your ability to decarbonize and actually that is critical for them as part of this because they can't just take sort of brown, what they called Brown power, an and and not decarbonize. It.
Speaker Change: There are other customers in the market that are very just focused on time to power. How quickly can you get me the megawatts those customers are less sensitive to it. So it really is sort of a tale of who is the customer you're talking about and what theyre looking for and we price Accordingly, if youre looking for non Decarbonize power and you just want time to market you know theres a price.
Speaker Change: Point for that if youre looking for Decarbonize, but round the clock power, there's a different price point for that.
Speaker Change: Premiums so it really depends on who you're talking about and as you can imagine these customers all have different agendas that they are pushing for and became he can offer either customer what they want.
Speaker Change: Great John enjoy their retirement and I appreciate the time as always.
Speaker Change: Alright, Thanks I appreciate it.
Speaker Change: There are no further questions at this time I would now like to turn the floor back over to Chris for closing comments.
Speaker Change: Great well listen everyone. We're excited about the quarter, we've had in the year. We've had a really appreciate everyones interest John Congratulations on your retirement, David I know youre going to do a great job and we look forward to continuing the discussion and to deliver on our goals and our promises as became he does have the winning formula today and is excited about the future of the energy.
Speaker Change: <unk> market. Thank you for your time.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Yes.
Speaker Change: [music].