Bkv Corp Aktie

Good morning, everyone, and welcome to BKV's Third Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded.

[Operator Instructions]

I would now like to turn the call over to Mr. Michael Hall, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining BKV Corporation's Third Quarter 2026 Earnings Conference Call.

With me today are Chris Kalnin, Chief Executive Officer; Eric Jacobsen, President of Upstream; and David Tameron, Chief Financial Officer.

Before we provide our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements, which are subject to certain risks, uncertainties, and assumptions.

Actual results could differ materially from those in any forward-looking statements, including those associated with the integration of our recently acquired Barnett Shale assets, our financing activities, and the timing and terms of any power purchase agreements.

In addition, we may refer to non-GAAP measures.

For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements as well as reconciliations of non-GAAP financial measures, please see the company's public filings, including the Form 8-K filed today, which is available on our website.

I would also point listeners to the updated investor presentation posted this morning on our Investor Relations website.

We encourage everyone listening to review those slides and our forthcoming quarterly report on Form 10-Q to be filed with the SEC for further information on our results for the quarter and the details of our updated 2026 guidance.

I'd now like to turn the call over to our CEO, Chris Kalnin.

Thank you, Michael, and good morning, everyone. I want to start by putting our results and outlook in the context of the tremendous opportunity we see ahead for the energy industry.

Energy has always been fundamental to driving economic growth, and I believe we are entering one of the most exciting periods in our industry.

From the rapid advancement of AI, the growth in LNG, and the continued expansion of our economy, the need for reliable around-the-clock energy has never been more important.

We have strong conviction in the durability of AI-driven power demand and believe we are at the beginning of a sustained power growth supercycle. In fact, we believe electricity demand in ERCOT could more than double over the next decade, creating significant opportunities for companies like BKV.

Of course, this opportunity comes with real challenges, including commodity price volatility, inflation, regulatory uncertainty, and significant capital needs. We've been deliberate in building BKV to navigate these dynamics.

Our strong hedge book, low decline production base, and disciplined approach to financing provide the cash flow and financial flexibility to pursue our growth opportunities with confidence.

And that brings me to our third quarter, where we continue to deliver solid operational results, advance our strategic growth initiatives, and take meaningful steps to position BKV for the next phase of growth across our closed-loop business model.

Turning to our power business. Demand for reliable electricity continues to accelerate. Texas remains an attractive market for investment, and we believe the need for additional dispatchable generation creates an excellent opportunity for BKV to deliver the power that Texas needs.

Following this week's elections, we recognize that Texas' political and regulatory environment will continue to evolve, particularly as the state considers frameworks to accommodate large load growth from data centers with input from newly elected officials and local communities.

Ultimately, we are confident that Texas remains pro-business. BKV will continue to proactively engage with community, legislative, and regulatory stakeholders.

We are committed to responsible power development that strengthens grid reliability, supports economic growth, and reflects the priorities of the communities where we operate.

Our integrated offering is why customers are engaging with us. We offer advanced time-to-power from an existing operating site with equipment secured, EPC agreements, and air permits in hand.

We bring fuel and infrastructure certainty through our own gas, midstream, water, and decarbonization options, so customers aren't depending on a chain of third parties for their most critical inputs.

As their load ramps, our existing combined cycle plants provide a path to highly reliable, efficient grid-connected supply.

These advantages have enabled us to share development capital risk with potential customers as we pursue contracts with the duration and credit quality required to support project financing and attractive risk-adjusted returns.

Today, we are announcing substantial progress in our Tempel Energy complex. We are in exclusive commercial negotiations with a leading frontier AI lab for the delivery of power and associated infrastructure.

Alongside that exclusivity, our power JV has entered into a cost reimbursement agreement, or CRA, with the intended offtaker, supporting an increase in planned modular generation in Temple to 400 megawatts from 200 megawatts.

The CRA allows us to maintain our development schedule and speed to power while advancing commercial discussions towards a long-term PPA. Details of the CRA are provided in our quarterly press release.

The CRA is separate from and in addition to the previously announced backstop agreement for $177 million with an investment-grade hyperscaler. Based on our current commercial momentum, we continue to target our original time frame for executing a PPA within 2026 to early 2027.

At the same time, we recognize that the new political and regulatory backdrop following this week's election could shift our targeted timelines. We will continue to monitor the situation and work closely with our potential customers towards the optimal outcome.

To remind you, at Temple, we have a 3-phase development plan designed to leverage and expand our existing infrastructure.

The first phase is modular behind-the-meter generation, now targeting 400 megawatts at the counterparty's request, with the potential to begin delivering power as early as late 2027 and into 2028.

Phase 2 includes contracting half of our existing 1.5 gigawatts within a private use network or PON to support data center campus expansion. This is a capital-efficient way to contract additional generation on the back of commercial and regulatory agreements.

Phase 3 is building Tempel 3, which would add a third CCGT of similar size and scale to our existing plants. These 3 phases represent a significant opportunity to expand the scale and earnings potential of the Tempel Energy complex.

Beyond Tempel, we continue to evaluate development opportunities at our prospective Jack County site. Our recently announced backstop agreement with an investment-grade hyperscaler represents tangible commercial progress toward a potential 1.2 gigawatt combined cycle project.

We believe the site offers an opportunity to leverage BKV's natural gas, midstream water, and carbon capture capabilities as commercial discussions and development planning advance.

Together, we believe Tempel and Jack County give us a controllable path to grow our power business, supported by our existing equipment supply agreements and commercial momentum.

Ultimately, these projects are about capturing higher margins across the natural gas value chain, backed by long-term power contracts with high-quality counterparties that have the potential to materially enhance BKV's EBITDA.

In Upstream, we delivered another quarter of production above the top end of guidance with operating cost and development capital at or below the low end of our guidance ranges.

Our results in the Barnett continue to demonstrate the strength of our approach in mid-tenured basins, and our recent acquisition is the latest proof point.

We recently expanded our position through the addition of approximately 65 million cubic feet per day equivalent of liquids-rich production. This transaction takes production to over 1 Bcfe per day, along with adding reserves, midstream infrastructure, and an operated carbon capture project.

We believe this model can scale attractively, and we are actively exploring additional expansion and portfolio optimization opportunities.

In carbon capture, we now have 4 operating projects, including the Buy project added through the acquisition, and a clear line of sight to ramping our current CO2 injection run rate of approximately 350,000 tons to our target of 1.5 million tons per year of injection in 2028.

As the platform scales, we believe CCUS can become a self-funding business that makes a meaningful contribution to BKV's financial performance, positioning the company as a low-carbon provider of around-the-clock dispatchable energy.

Finally, I'm extremely pleased to share that BKV has become the first company to receive certification of carbon credits for carbon sequestration associated with natural gas production. This certification came from Verra, an established and renowned carbon credit certification organization.

The certification, combined with our recent MSCI AA rating, positions BKV as a leader in low-carbon around-the-clock energy solutions and enables us to create additional margin, for example, through the sale of carbon-sequestered gas or CSG.

As we scale, we're building on a strong cash-generating foundation and investing in opportunities that expand margins, reduce earnings volatility, and extend the duration and credit quality of our cash flows.

With that, I'll turn it over to our President of Upstream, Eric Jacobsen.

Thanks, Chris. The third quarter was another incredibly strong quarter for our upstream and midstream business. We delivered production of 981 million cubic feet equivalent per day, above the top end of our baseline guidance range.

Our existing assets performed above the high end of guidance, and the acquisition contributed approximately 2 weeks of production during the quarter.

Cost performance was equally strong, with cash unit costs now 9% below the prior 2 quarters and development capital of $51 million coming in below the low end of guidance. We continue to deliver more with less capital.

Across our existing asset base, we remain on track to meet or exceed our already raised full-year production target, driven by our continued production optimization efforts, exceptional development delivery, and AI-driven analytics.

On the development capital front, our base drilling completions and facilities cost of approximately $525 per lateral foot continues to position BKV's Barnett operations as the lowest cost in major U.S. shale gas plays.

And while we're starting to see some cost pressure on D&C from macro inflation and higher diesel and steel prices, we expect to offset these increases through proactive cost management, including locking in longer-term contracts, rolling out dual fuel completions, even longer laterals, and further operational synergies.

We also continue to see sustained results from our Upper Barnett program. The Yarborough 8H continues to perform well above expectations and supports an inventory of approximately 114 Upper Barnett locations and further reinforces our confidence in the quality and scale of this opportunity.

We expect to have additional Upper Barnett results in mid-2027, which will further delineate this attractive development runway within our existing operating footprint.

Our strong production base, tremendous runway of development inventory, and the newly acquired assets provide a stable foundation for continued cash flow generation into 2027.

Before turning to the acquisition, a word on how we're thinking about 2027. Near term, the gas market looks well supplied. Record demand is being met by new supply, and the 2027 strip reflects that.

We see a larger step-up in demand from LNG and power arriving late in 2027 and into 2028.

Our business is built to perform in exactly this kind of year. With our peer-leading low base decline, we can sustain our production with a low reinvestment rate, and our 2027 hedge position protects the cash flow that funds it.

That same low decline, coupled with exceptional and cost-efficient inventory, gives us the flexibility to respond to changing market conditions with limited impact on production.

We also have levers if prices weaken further, including the timing of turn-in lines, completions timing, and refrac pacing. We'll pull these levers when they create value rather than push volume into a weak market. We'll provide our full 2027 outlook with fourth quarter results.

On the Barnett acquisition, we closed on September 15 and added more than 65 million cubic feet equivalent per day of production, more than half of which is liquids, along with approximately 350 billion cubic feet equivalent of PDP reserves, further strengthening our low decline production profile.

The assets include approximately 117,000 net acres, primarily in Montegue County, approximately 1,000 gross operated wells with a 9% annual decline, and significant operated midstream infrastructure, including a gas plant with 180 million cubic feet per day of capacity, approximately 340 miles of gas gathering lines, and an additional 225 miles of water gathering systems.

Importantly, the liquids-rich nature of these assets further diversifies our production mix and enhances our margin opportunity.

Liquids now represent 20% of our total production and contributed approximately 30% of our natural gas NGL and oil revenue in the third quarter.

We're excited about what these assets bring to BKV: more low-decline production, additional reserves, greater liquids exposure, and an expanded midstream footprint. They also create meaningful opportunities to apply BKV's operating playbook, grow margins, and unlock value from the Barnett.

We look forward to further assessing the inventory development opportunities within this acreage as well.

We have a strong acquisition track record. With the scale, capabilities, and technology we built in the Barnett, we expect to realize significant torque or incremental value above our underwriting assumptions, as we have done with our previous Barnett acquisitions.

On acquisition operating costs, we expect LOE to increase modestly in the near term as we integrate the assets with a goal of bringing LOE towards the low 50s per Mcfe range over time.

We also expect the acquisition to have a slightly favorable impact on GCPT with the addition of Owned Midstream.

We will apply the same disciplined operating approach that has driven meaningful cost improvements across our existing Barnett operations while leveraging the acquired midstream infrastructure to capture more margin per unit of production.

Turning to carbon capture. Barnett Zero, Cott on Cove, and Eagle Ford are all injecting CO2 and generating 45Q tax credits. Combined, these projects have injected approximately 122,000 tons of CO2 through the end of the third quarter.

The Barnett acquisition also adds a fourth operated carbon capture project to our growing portfolio. The [Buy] project captured more than 100,000 metric tons of CO2 over the preceding 12 months through the first quarter of 2026, and we are now integrating it into our operating model.

With these 4 operating projects, we now have a portfolio injecting approximately 350,000 tons of CO2 per year, providing a meaningful and growing foundation of CO2 sequestration and 45Q tax credit generation. And we're continuing to build on that foundation.

Our East Texas project remains on track to begin operations in mid-2027, adding a fifth injecting project to the scaling portfolio.

We're also advancing our development projects with Comstock in East Texas and High West in Louisiana, where Class VI permit applications continue through regulatory review.

Together, our operating assets and advancing development pipeline keep us firmly on track towards our target of 1.5 million tons per year of CO2 injection in 2028.

Stepping back, the common thread across our upstream, midstream, marketing, and carbon capture businesses is capturing more value from every molecule we produce, not simply producing more molecules.

The third quarter was our first full quarter marketing all our own natural gas.

That gives us direct control over where and how our production is sold and lets us retain economics we previously paid to third parties.

Our owned gathering and processing, now including the plant we just acquired, captures midstream margin on our own volumes.

Our power projects are designed to run on BKV-produced gas, creating a long-term in-house customer.

And with Verra verification, we can now deliver carbon-sequestering gas, a first-of-its-kind carbon-neutral natural gas product to customers with the carbon value-adding margin beyond our 45Q tax credits. Each of these adds margin on top of the base commodity price.

Together, they're how our closed-loop strategy shows up in realized economics, and we look forward to sharing more of that progress as we move into 2027.

With that, I will turn the call over to our CFO, David Tameron.

Thank you, Eric. Before turning to consolidated financials, let me begin with power. Pemol delivered another strong quarter of reliable operational performance.

Capacity factor reached 72%, up 2% year-over-year, with an equivalent availability factor of approximately 96%, reflecting continued disciplined execution at the complex.

Gross power-adjusted EBITDA was $34 million before corporate expense allocations. Financial results fell short of expectations as continued solar and battery storage additions weighed on peak pricing realizations despite record ERCOT demand.

Near-term pricing doesn't change our long-term view. If anything, it reinforces the value of the long-term contracts we're pursuing. Power's strategic growth program continues to advance in response to strong potential customer demand, with capital deployment accelerating.

During the quarter, we invested approximately $116 million of strategic growth capital. This was below our expected range as certain planned expenditures shifted into the fourth quarter.

We now expect fourth-quarter spending of approximately $240 million to $270 million. The increase is largely driven by our new 400-megawatt Phase 1 development at Temple and is directly tied to counterparty demand.

This spending supports 2 independent commercial processes at Temple and Jack County, and in both cases, commercial agreements with our counterparties limit our capital at risk.

Turning to consolidated financial results. We reported adjusted EBITDAX of $133 million compared with $101 million in the third quarter last year. Adjusted net income attributable to BKV was $40 million or $0.36 per diluted share.

Total capital expenditures were approximately $187 million versus the midpoint of guidance of $245 million.

Power-related capital was $116 million, while upstream, midstream, CCUS, and corporate capital totaled $71 million. Both of these were below our expected midpoint.

Adjusted free cash flow was approximately $31 million, excluding strategic power growth capital. This brings year-to-date free cash flow before strategic power capital expenditures to over $91 million.

Turning to our balance sheet. It remains strong and well positioned to support our strategic growth initiatives. We have built substantial liquidity to support our targeted 2027 power build-out and to execute against the timelines that matter to prospective customers.

At quarter-end, we had approximately $620 million of cash and cash equivalents and total liquidity of approximately $1.2 billion, which is $327 million higher than last quarter-end.

Net debt was $1.4 billion and net leverage was 2.4x. During the quarter, we further strengthened our liquidity through several actions.

First, we completed an upsized offering of 1.625% convertible notes, raising $575 million. The associated capped call transaction is designed to mitigate dilution until our stock reaches approximately $48 per share.

The proceeds funded the Bard acquisition, enhanced liquidity, and positioned us to retire the Power JV shareholder loan as planned.

Second, we entered into an equipment financing arrangement for the initial 200 megawatts of modular engines, providing up to $160 million of financing and further supporting near-term liquidity.

Third, BPP U.S. contributed approximately $65 million during the quarter. For the remainder of the year, we expect an additional $80 million to $100 million of partner contributions, with the large majority expected to help fund the phase development at Temple.

I also want to be clear about how we're approaching capital allocation through our anticipated power build. Our first priority is funding the upstream program that sustains production and cash flow, supported by our hedge book.

Second is protecting the balance sheet. We intend to keep net leverage at levels appropriate for each of our business units, with power-related project finance ring-fenced through construction.

Third is investing in growth only where commercial protection is in place, as with the cost reimbursement agreement Chris described in our previously announced hyperscaler backstop on our CCGT equipment through March 31, 2027.

We evaluate every growth dollar, including power, through a lens of returns, not just EBITDA.

We'll fund that growth with a mix of operating cash flow, partner capital, equipment financing, and project-level structures designed to limit dilution. Turning to hedging. In our upstream business, we have approximately 63% of our remaining 2026 natural gas production hedged at an average price of $3.89 per MMBtu.

For 2027, we have hedged approximately 472 million a day through swaps at $4 per MMBtu and collars with average floors of approximately $3.30 per MMBtu. We have also hedged roughly 20,000 barrels a day of 2027 NGL volumes at a blended price of approximately $28 per barrel.

In power, we have 700 megawatts hedged for the remainder of 2026 and approximately 700 megawatts for 2027. Our 2027 hedges consist entirely of spark spread hedges.

Finally, we have updated our guidance to reflect the acquisition and our latest outlook.

We now expect production to exceed 1 Bcf a day, a meaningful milestone for BKV, while maintaining our original capital guidance other than the increase in the anticipated strategic power capital investment discussed earlier.

For full details, please see the guidance table in today's earnings release and investor presentation.

With that, I will turn the call back over to Chris.

Thank you, David. Before we turn to questions, I want to put the progress of the last 24 months into perspective.

Since becoming a public company just over 2 years ago, we have grown our upstream production from approximately 760 million cubic feet equivalent per day to over 1 Bcfe per day.

In carbon capture, we have grown from a single project, Barnet Zero, injecting approximately 140,000 tons of CO2 annually to a portfolio of 4 projects injecting CO2 at an injection rate of approximately 350,000 tons annually and scaling rapidly.

And in power, we have moved from owning 750 megawatts of equity generation capacity to over 1.1 gigawatts while making tangible commercial progress that positions us for meaningful organic growth in the years ahead.

That's significant, measurable progress across each of our business lines in just 2 years and a clear demonstration of our ability to execute and scale our closed-loop strategy.

What continues to excite me is the opportunity still ahead. We've built a differentiated energy platform with multiple avenues for growth, a disciplined approach to capital allocation, backed by strong demand fundamentals.

And we're confident in our ability to execute and build on this momentum, creating long-term value for our shareholders.

Operator, we are now ready to take questions.

[Operator Instructions]

Our first question comes from Gabe Daoud with Truist.

I was hoping we could maybe just start with the events this week and a Blue Wave and the change in leadership there in Texas.

I was curious if maybe there's anything you could point to on the regulatory front, maybe ease some of the concerns out there from a timeline standpoint. It seems like everything is on track, but I'd love to maybe just discuss that or unpack that a little bit more.

Gabe, it's Chris here. Thanks. Great question. Obviously, we've been watching the situation in Texas very closely. I think, first of all, congratulations to the returning and the new folks that got elected this cycle.

I think if you look at what the dialogue has been around Texas, I think it's about balancing the need for growth and ensuring that Texas continues to be pro-business friendly while ensuring that the communities and the stakeholders involved are not disadvantaged.

And so I think with the governor-elect, Ms. Hinahulosa, I think you see this theme around ensuring that there is responsibility in how you develop these data center projects in particular.

And the good news is, I think the BKV strategy around engaging the community, dealing with water, local concerns, ensuring sound mitigation, ensuring bringing your own generation to the grid- all those things fit exactly what the governor-elect is looking for in these types of projects.

And the vast majority of the tax income stream actually goes to the school systems, which is near and dear to the heart of the governor-elect as well.

So, we think what's going to happen is there's going to be a high grading of projects; projects that addressed and have been holistic in their thinking around community impact and have balanced those considerations are going to be high graded, and those are the projects that are going to get blessed, and projects that are not considering those things are going to get slowed down.

So, I think it is a reckoning. I think Texas remains incredibly pro-business. So we're very excited about being there. But I think it's an exciting time for BKV because of our environmental credentials, our community credentials, and the projects that we're architecting exactly fit what the governor-elect is looking for.

Maybe as a follow-up, maybe you can just articulate some of the outstanding items as you continue to progress commercial discussions with, I guess, a couple of different counterparties now.

And I guess, it seems like there's a race between 2. Just any color again around what could maybe materialize first between the 2?

So there's, I would say, Gabe, it's a good question. There are 3 dimensions that we are in the final stretch on. I think the first is the technical designs.

I think people take for granted how complicated these technical solutions are for developing power for data centers.

Everything from what is the heat rates that you're guaranteeing to what are the load ramps you're serving and how much backup power that you need to do in an island to design, for example, all have to be spelled out in excruciating detail.

And so there are just 1,000 technical design decisions that go into these projects that have to get documented and outlined.

The second is, of course, the commercial terms: everything from credit to who pays what damages if things go wrong, events that are not expected, who's at fault for what.

So think of, like, a large LNG deal: there are 1,000 gotchas you have to work through, and you have to think through various scenarios.

And then the third thing is just getting the commercial arrangements to accommodate a variety of regulatory scenarios. As we've talked about, we're in a situation where the regulatory environment continues to be dynamic.

And so as you contemplate that, you have to build into your agreements a decision tree of things that allow you to meet your time-to-power deadlines in a number of scenarios that could play out on the regulatory front.

So with those 3 things, I think again, these are things that we've been working on for the last several months. They're not new. But as I said, they just take time, effort, and compromise to get to the finish line.

Certainly not going the timeline early 1Q '27, right, Chris?

As I said, we continue to target that timeline '26 to early '27. But we've also said at the same time, you've got to recognize that we've had a pretty significant political shift. We'll watch that.

But I think we're optimistic, and we're working with our customers to continue that execution timeline.

Our next question comes from Betty Jiang with Barclays.

First of all, congratulations on all the commercial progress that you've been making in a fairly short period. But following up on its question earlier about the political shift.

Chris, you mentioned islanded design earlier. Do you think this shift could move customer demand more towards behind-the-meter islanded design, as you mentioned?

And do you think that affects the progress for Temple and Jack County projects differently?

Yes. Betty, good to hear from you. It's a great question. Look, I think we've always been saying, and you'll be familiar with this, that long-term, you want to be grid-connected.

And so I think the islanded projects, the behind-the-meter setup, is a stepping stone to allow regulation and grids to catch up to where the demand and the power growth is coming from.

So think of it like a bridging solution. And our projects in both Jack and in Temple contemplate that. And particularly, what we have in our design, Betty, we start with an islanded solution, which then is completely agnostic of what's happening on the grid.

And that doesn't put any burden on ratepayers, and we've designed these projects not only to be not grid-connected initially, but to be investing immediately into the communities that we're involved in and incredibly responsible with the standards that BKV adheres to in all our businesses.

The second phase then is you get some level of grid connection, and you create an asymmetric relationship with the grid where you're able to dispatch more power into the grid than you're actually drawing. That's called a withdrawal-limiting point.

And so that structure in our minds is ultimately how you add additional dispatchable generation to the grid, protect the ratepayers from bearing the cost of the infrastructure while still enabling this additional generation that's been deployed to benefit broader society.

So that's the second stage. The third stage then is the grid ultimately upgrades to the levels we need over time, which it has to. The grid has not really been upgraded for 20 years.

So we're playing a degree of catch-up similar to our infrastructure and roads and rail and airports, et cetera. So the grid is just behind.

And so once the grid is fully upgraded- 765 kV lines, et cetera- then you fully connect everything. And you have a much more distributed and much more resilient energy system.

So we think it happens in 3 phases. BKV is leading the edge in all 3. And as you correctly pointed out, we're starting with what we think is the right answer, which is initially islanded in both projects and then rolling into withdrawal and then ultimately grid-connected.

So if I can follow that, though, given the regulatory change, is it fair to say that Phase 1 will still move forward no matter what's changing on the regulatory front, and you might just end up staying in that island Phase 1 phase for longer on both projects?

Yes. I think that's a fair assumption, Betty, because the islanded solution doesn't touch the grid. So the impact to ratepayers is not at all initially, at least.

So, to your point, having islanded solutions in our minds is a way to decouple what's going on regulatory-wise with the need for power for these leading AI frontier labs and hyperscalers. So, this is our solution that we're developing.

Again, we're working jointly with these potential customers in designing this, and this is where their headspace is at as well. So I think you're spot on that initially for the next few years, this is going to be the way that we see power built out here in the U.S. in the majority.

For my follow-up, if I can ask about just about the equity funding and how you think about as these projects progress, maybe walking through financing the equity component of this build-out.

I know there are intricacies with the interplay of when the equity capital needs to go out, when you can get financing for equipment and project financing, as well as the reimbursement from JV partners. So maybe just walk us through that process.

Yes. Betty, it's David. I'm going to answer your question a little more. So let me just cover the whole snapshot as I see it today.

And remember, you know this, but we've consistently financed growth with discipline. That we've done that not only since we've been public, but pre-public. That's going to continue going forward.

We're going to align that capital deployment with the commercial opportunities and obviously do that while keeping in mind shareholder returns and the balance sheet.

But just think about '27; let's talk about that first, and then I can answer a little more about the equity piece as far as it relates to project finance. So right now, if you look at what we've done, just take the annualized number for 2026.

If you annualize that on a leverage operating cash flow number, that's about $450 million. I mentioned liquidity in my script: $1.2 billion of liquidity within that is $630 million, $35 million, actually, of cash.

So you think about going into '27, you have $450 million of projected operating cash flow on an annualized basis, what we've done this year, another $600 million plus, you're at $1.1 billion, right, just as you move into '27.

Equipment financing, we talked about that. We had $160 million of equipment financing to finance that first 200 modular, and we have more opportunity to expand that.

We talked about partner capital. We mentioned in the release, $80 million to $100 million of partner capital expected in the fourth quarter.

Obviously, 25% of that is related to the power JV; that's 25% DP U.S., a partner there, and then we have the partner, as you know, on the CIP side.

And then finally, let me just talk about the capital stack. And this was alluded to, but where we are at today versus at least what we've announced today versus where we were at 3 months ago, you think about what's happened and strengthening that material, that commercial stack: the commercial support over $500 million of backstop, $200 million related to the CCGT that we talked about, the hyperscaler, another $374 million that we announced this morning.

So, significant commercial support there. So finally, to get to your question, with that as a backdrop, when we enter into the project financing, and again, we still expect to do that 70-30, 80-20, depending on the market, depending on what we choose to do there.

But think about that in those terms. When we announce them and get the project finance, once- for instance, let me talk about the Temple complex, and I'll just use that as an example. We have put in the equity upfront, as you know.

Once we go out to project finance, once we finalize a PPA, then we will be reimbursed for the amount of equity above that 30%. So there will be additional equity coming in from that once we announce that project financing. Does that make sense?

Our next question comes from Chris Baker with Evercore ISI.

I would love to hear a little bit more about just how the modular timeline is laid out from here.

Obviously, with the release, the step-up from 200 to 400, and then it looks like you have 600 on order. Can you just square that up with their permits and sort of what the rough timeline looks like from here?

Chris, good to hear from you. Listen, when it comes to the modular Phase 1 at Temple, remember, this is under the JV.

So, 75% us, 25% Bun Power. The way we're thinking about it, as we shared, is late '27, you get energization. You can think of the 400 megawatts in equal tranches.

So you can imagine an initial quarter of that coming online, and then you've got a series of quarters of that. So it comes on in quarters. It's like 100 megawatts per tranche. And you can imagine that rolling into '28. So within '28, you're fully ramped.

And then the extra 200, as you can imagine, these modular units are matched to the load profiles of these potential customers, the data centers. So as they build out their campuses, there's a lot of rationale to continue to add additional buildings.

And so you've got to preserve that ability to bring on additional power. And so the additional 200 gives you the ability to bring on additional power '29- '30 time frame.

So that load ramp fits very nicely with how the customers like to ramp their data centers if you think about, like, a data hall or 2 bringing on 100, 200 megawatts at a piece, that fits very nicely.

And so that's why we've gone ahead and preemptively procured that to make sure that as the customers grow, we can grow into their power needs alongside them and maintain that platform that we're building here.

And on the air permits, Chris, just on the air permits, we already have the 400-megawatt air permits approved. So that's already in hand.

And then just love to get an update as to how you're thinking about the economics with the subsequent orders.

Are these all the same resets that we've talked about in the past, and just how to frame that up for folks as we look at the next steps here?

Exactly. Everything we're doing is modular in design. So it's rinse and repeat, scalable, same exact equipment at every level, so we can build redundant spares. We can swap things out. We can create resiliency.

Remember, initially, this is an islanded mode. So you want to create as much economies of scale, economies of scope as possible.

So everything is going to be identical design, flat, all in proximity to the Temple Energy complex, leveraging the mechanics, the water, the platform we already have operating the 1.5 gigawatts already operating at Temple with incredible staff that operates there around the clock.

So all that infrastructure just is additive, and these designs are identical in how we scale so that there's a huge amount of fungibility.

Our next question comes from Jonathan Mardini with KeyBanc Capital Markets.

So you mentioned in your remarks that the batteries and renewables are moderating peak power pricing. Do you see that as a lasting structural shift in the ERCOT power pricing market?

And how may that be influencing the pricing or structure of the PPAs under your discussion?

Jonathan, good question. So the renewables and batteries are a legacy of the IRA bill. A lot of that was stuff that was planned in the 2020- '21 time frame.

It came on to ERCOT. So you're just seeing an overhang of that build coming online and hitting the market. At the same time, as you know, we've been going through this batch process in ERCOT, where the new demand has been essentially prevented from coming on the grid.

And so you have sort of hundreds of gigawatts of new demand that's been sitting on the sidelines waiting to be connected while you've had this residual IRA-backed solar and battery come on the grid.

So it's really, I would call it, an anomaly, if you will. The reality is the demand is growing, and there's no more dispatchable generation. And really, you don't see the same number of solar and renewable projects coming online anymore because of the change in the regulation.

So what we foresee happening in the next few years, and your point about strip is a good one, and I'll come back to it, is that you don't have any more supply coming online.

And with prices where they are, you certainly aren't going to stimulate any more supply coming online, especially dispatchable. Meanwhile, every year, just organically, Texas power demand has been growing. We had another peak this year. So that sets up for an incredibly exciting merchant market over the next 5 years.

And we're actually very bullish on the curve. I always tell people, if you're willing to sell me several gigawatts of power at today's strip, I'll buy it. But of course, people can't do that.

So the reality is everyone who's looking at additional or incremental large megawatts understands that they have to price that replacement or new generation economics, which is materially above where the curve is.

And so what you're seeing right now is that demand is being held back because of the batch process, and then you've got a hangover, if you will, using a little bit of a crew term of solar supply that's come online.

But that works its way through the system pretty quickly, and then you've got this growth in demand that's coming. And if you don't get dispatchable, that's going to create incredible scarcity of pricing as you get towards the end of this decade, I should say.

I appreciate that insight could be transitory as demand ramps. As part of that. So you wouldn't see that dynamic impacting the structure and economics of the PPAs that are under discussion?

Absolutely not. So the PPA discussions are purely based on the cost and the returns around new generation, and the potential customers understand that.

So you're going to price off new generation economics and then the cost of capital on top of that.

Our next question comes from Scott Gruber with Citigroup.

I want to come back to the Island power project. Chris, you mentioned that you have the air permits required to run the modular capacity.

Does the offtaker have the permits they require to construct and operate the associated data center facilities to keep the project moving forward?

Scott, good to hear from you. I will not be able to comment on where that potential offtaker is or what they have.

I can tell you that we are absolutely advancing the projects alongside them in a way that puts us in a pole position to have time to power. The permits depend on what you're talking about.

And what I can say is our location, where we've sited these projects, and our relationship with the county, with the local stakeholders, is incredibly strong.

The progress we've made on designs, everything that you can contemplate that is needed for these projects is being pursued or thought through very quickly and carefully.

And so, I can't comment for the potential customer, but the feedback we've received is that this project is one of the highlights of where they want to deploy their next potential batch of chips in 2027.

So I'm trying to answer your question indirectly, but you can imagine that their project has a lot of what they need to be able to advance with us at this pace.

And I know it's tough to speak on their behalf, but I just wanted to get the color around the timing risk here. So I appreciate your comments.

And then my follow-up is: you're progressing conversations with multiple counterparties on the power side.

Has your ability to sell offset credits impacted those discussions? Has that been a factor? Or are we really still focused on time to first power and just securing the generation capacity over the long run?

Scott. Look, when it comes to credit, obviously, we're hyper-focused on that, no pun intended.

In terms of the credit quality, I can say that the way we're structuring this- and David, you should comment here- it's going to be very financeable.

I think both sides understand that for these projects to really be executed, you have to have the project financing capability. That's the whole point of the PPA structure to some degree. And so it is a central point of our discussions. But David, maybe you can comment on that.

Scott, it's a good question. Look, there's a model out there for doing this. You've seen that from some of the projects that have been announced, and I would expect us to follow the same model as well.

So obviously, credit is important. As we see the scenario today, we have complete confidence that we can get this project financed, and I'll just leave it at that.

I may not have been clear. I was actually referring to your ability to sell the carbon offset credits and whether that's impacting the commercial discussions and attracting customers to your projects.

Sorry, Scott, we misunderstood you there. In terms of the carbon offsets, I would say it depends on the customer.

One of the potential customers is very focused on that. It is a central part of the thesis. The other customer is pretty agnostic to it; another potential customer, again.

So it really depends on the customer. But I would say for certain customers, it is absolutely critical. And the fact that we have Verra certification on these carbon offsets is a huge milestone, and it really brings substantial credibility.

So we're optimistic that for a subset of our core targeted customers, they're going to absolutely value this, and we're going to create a premium offer.

[Operator Instructions]

Our next question comes from Jacob Roberts with TPH Research.

I wanted to ask about the power side of things. I think you responded earlier to a question about kind of the pipeline of solar and battery and the impact of you guys seeing that rolling off.

But I'm just curious: is the function of your hedge book to protect against that in the near term? And then how should we think about the hedge book longer dated beyond kind of what we see through 2027 at this point?

Jake. So the hedge book typically is a rolling 1-year sort of hedge book on the power side.

Generally, what we try to do is cover our fixed costs, so when you think about just basic operating costs, G&A, financing, et cetera, the strategy is very much about just ensuring the coverage of that cost and then maintaining optionality to participate in the scarcity pricing of ERCOT.

So it's less about trying to be very acute with picking the curve and more about just getting predictability in the base cash flows that are needed to cover the fixed cost of the operating business.

As you look out in time, as I mentioned, the curve in our minds gets very bullish, not the current strip, but where the fundamentals point, and I think there are a lot of analyst reports that support that.

And so we're going to be looking to more optimistically evaluate the potential to hedge into those markets in the future.

As it is right now, I think it's very much just about protecting fixed costs and doing that on a rolling annual basis. And so that's how we've done it. Yes.

And Jake, the only thing I would add is it's David. Obviously, as we contemplate a PPA, right, that's effectively a natural hedge, right? So we'll have to adjust our hedging position appropriately.

But as we talked about, the model is moving from a commodity-based model to more stable long-duration cash flows. So as we do that, we'll reevaluate. But yes. To Chris' point, we'll protect the capital program in the meantime.

And I joined late, so I apologize if you covered this, Chris, but I think you mentioned in the prepared remarks some portfolio optimization opportunities. I was wondering if you could just expand on that a bit.

So if you look at our portfolio, and we've talked about this, there are definitely areas that we can continue to optimize.

We're looking at, certainly on the upstream side, I think there are opportunities for us to monetize, and we've seen some of the private market transactions out there that seem to have pretty attractive metrics.

And so that would be a very nice source of potential funding if we decided to go that route; we'll be inquisitive, and we'll be open to inbound as well as opportunities there. So I think that's one dimension that will remain inquisitive.

I think David hinted at the partner capital that we have; obviously, as we scale the power business and derisk these projects, the ability to bring in partner capital at a premium is going to be another area that's going to optimize our portfolio and give us the ability to capture some value along the way and continue to fund the business accretively.

So I would say those are probably the 2 primary. And then on the carbon capture business, we've got a great partnership with CIP, Copenhagen Infrastructure Partners.

They continue to be a 49% partner in all those projects and are very excited about our future there. We have reached the end of our question-and-answer session.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Chris Kalnin for closing comments.

Thank you, operator, and thank you, everyone, for your interest in BKV. I remain very excited about our future.

I think there are many exciting developments, and we appreciate your interest and your faith in our company, and we look forward to future announcements. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good morning, everyone, and welcome to BKV's Second Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded. [Operator Instructions]

I would now like to turn the call over to Mr. Michael Hall, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining BKV Corporation's Second Quarter 2026 Earnings Conference Call. With me today are Chris Kalnin, Chief Executive Officer; Eric Jacobsen, President of Upstream; and David Tameron, Chief Financial Officer.

Before we provide our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements, which are subject to certain risks, uncertainties and assumptions. Actual results could differ materially from those in any forward-looking statements.

In addition, we may refer to non-GAAP measures. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements as well as reconciliations of non-GAAP financial measures, please see the company's public filings, including the Form 8-K filed today.

I would also point listeners to the updated investor presentation posted this morning on our Investor Relations website. We encourage everyone listening to review those slides and our forthcoming quarterly report to be filed with the SEC for further information on our business, operations, results from the quarter and details on our updated 2026 guidance.

I'd now like to turn the call over to our CEO, Chris Kalnin.

Thank you, Michael, and good morning, everyone. The second quarter was BKV's strongest financial quarter since going public. Record adjusted EBITDAX, record adjusted net income, Upstream production at the high end of guidance with capital at the low end, 2 carbon capture projects commissioned as we committed and continued progress in our power growth strategy. Across every business line, the quarter came in at or above plan. That consistency reflects a deliberate, systematic approach to running the company in line with our said-did culture, and it's one of the most important things we will demonstrate to you as investors.

What makes these results particularly meaningful is the strategic platform that generates them. BKV is a differentiated company, combining high-quality Barnett upstream production, existing power generation assets in ERCOT, and revenue-generating carbon capture facilities into a single integrated platform. The closed-loop strategy of gas, power, and carbon capture creates competitive advantages that are difficult to replicate and increasingly valuable in today's energy markets. The results this quarter are evidence that the strategy is working, and as you will hear this morning, the momentum behind each of those businesses continues to build.

With that, let me walk you through where we stand. I will begin with our power business. ERCOT's power needs are accelerating, and we are seeing it clearly in the market today. AI infrastructure, data centers, and broad industrial load growth are all converging on the grid at the same time. ERCOT recently reached a record load level in July of more than 91 gigawatts. The scale of this market signal is striking. Further, ERCOT currently has over 470 gigawatts of load in its interconnection queue, and several analyst reports project ERCOT to be one of the fastest-growing power demand markets in the country.

BKV is actively engaged with ERCOT, the PUCT, legislators, and local communities as the frameworks evolve, and we believe we are well-positioned within them. We have submitted both load and generation interconnect applications across our development projects, and a number of our prospective customers are participating in the batch process as well. We believe our integrated platform, development readiness, and track record as a responsible operator and committed community partner position us well to help meet Texas' growing power needs as ERCOT establishes the path forward.

The macro backdrop has continued to strengthen, and BKV is operating at the center of it, with our existing power generation fleet demonstrating strong operational performance. Our Temple facilities posted high availability and increased capacity factors both year-over-year and quarter-over-quarter. Our structured commercial process has matured meaningfully since our last earnings call. At Temple, we have narrowed our focus to a select set of counterparties with whom our discussions have advanced significantly. This progress reinforces our confidence in our original expectation of signing a PPA within 2026 to early 2027.

As part of these customer engagements, we are implementing a 3-phase development program at our Temple Energy Complex. Phase 1 is our modular generation units of approximately 200 megawatts, which can be implemented with date-certain energization time frames as no load interconnection is required to commence commercial operations. Phase 2 involves activating our grid-connected private use network, or PUN, unlocking the full use of our existing spinning reserves and capacity at Temple 1 and 2 through supplying behind-the-meter power to potential customers.

Phase 3 involves developing an additional CCGT facility, called Temple 3, to support additional potential customer load ramps and supply incremental dispatchable generation through the ERCOT grid. We have made substantive progress in all our phases and, in particular, in Phase 1, we received our air permits for modular generation in the second quarter for up to 400 megawatts, reinforcing our confidence in our near-term energization timelines.

We are now extending our power strategy to Jack County, where we are expanding our North Central Texas footprint for the potential development of a second energy complex. This development targets replicating the same integrated platform that has made Temple compelling. In Jack, we aim to develop natural gas-fired generation backed by commercial arrangements with the option for carbon capture. We also intend to supply BKV's own natural gas to the site using BKV-owned midstream infrastructure. In Jack County, we have 6,200 acres of site control, line of sight to 345 kV grid access, and submitted generation and interconnect applications. We are pleased by the progress on commercial discussions we are having related to the project and excited to mature the project toward commercialization.

The integrated BKV platform is designed to rinse and repeat across Texas and potentially beyond. BKV's one-stop shop offering is a differentiated end-to-end solution that has the potential to add significant value to the bottom line. The combination of our Temple and Jack County developments have the potential to organically add an incremental 1.4 gigawatts of dispatchable generation, approximately doubling our total generation capacity to nearly 3 gigawatts within the next few years.

Turning to our Upstream business, the second quarter once again demonstrated the strength and consistency of our operating model. Production at the high end of our guidance range, capital expenditures at the low end, continuing a track record of execution that demonstrates our excellence in Upstream. Upstream remains a powerful financial engine for BKV. It generates the cash flow and operational excellence that helps drive everything else we do, and the contributions of the Upstream business are a key driver of our strong financial performance this quarter.

BKV continues to innovate in unlocking the full potential of the Barnett. Our teams have developed leading approaches to manage market-leading base decline while adding significant potential inventory to our reserve base, resulting in substantive production capacity for years to come. I'm incredibly excited about the continued potential of the Barnett.

We are also realizing the benefits of bringing our natural gas marketing fully in-house. BKV now controls 100% of its natural gas marketing with a significant number of customers engaged and creating exposure to premium Gulf Coast markets. Our second quarter results reflect early evidence of the incremental margins this marketing capability has the potential to generate. BKV is now positioned to continue to capture incremental margin through the value chain and from end customers.

Turning to our carbon capture business, the first half of 2026 was defined by delivery. We commissioned Cotton Cove and Eagle Ford, as we promised to do in the first half of the year. Our portfolio now stands at three operating projects, Barnett Zero, Cotton Cove, and Eagle Ford, actively sequestering CO2 and generating 45Q tax credits. Combined, these facilities have injected approximately 400,000 tons of CO2 through the end of the second quarter. And going forward, we expect Cotton Cove and Eagle Ford to demonstrate financial characteristics consistent with what we've established at Barnett Zero.

Our development pipeline beyond those operating projects is equally active. East Texas, our projects with Comstock, [ iWest ], and additional opportunities we are evaluating all continue to advance, providing multiple pathways towards our targeted 1.5 million tons per annum injection run rate in 2028.

A significant near-term commercial milestone is the progress in our carbon sequestered gas, or CSG, initiative. We have received validation from our independent auditor on the certification for our carbon offsets, a critical step in the broader certification process that positions us to advance commercialization in the second half of the year. CSG gives customers a differentiated low-carbon natural gas solution and gives BKV an incremental monetization layer on top of our existing 45Q economics. It is a direct expression of what our closed-loop strategy is designed to produce.

With that, I will turn it over to our President of Upstream, Eric Jacobsen, to walk through our operating results in more detail.

Thanks, Chris. The second quarter was another exceptional quarter for our Upstream business, as we demonstrated once again that operational excellence translates directly into stronger financial performance. We delivered production above the high end of our guidance, while spending below the midpoint of both our capital and LOE guidance ranges. Additionally, total cash costs for the quarter were down 10% compared with the first quarter of 2026.

Our strong first half performance gives us the confidence to raise our production outlook for the year while maintaining our originally guided development CapEx. We are increasing our full year production guidance to a midpoint of 950 million cubic feet equivalent per day, a 1.6% increase. Our first half performance and updated guidance lead to an increased expectation of 3% to 4% year-over-year production growth.

The significance of these results extends well beyond higher production. We're producing more gas with greater capital efficiency, lower costs, and stronger well performance. And those operational improvements are translating directly into stronger cash flow generation and increased confidence in our outlook. This performance reflects the compounding benefits of our relentless focus on operational excellence across our business. We continue to find efficiencies that allow us to drill wells faster and more cost efficiently than ever. Achieving the lowest cost per lateral foot of any major U.S. shale gas basin at $525 per lateral foot all-in DC&F, while simultaneously delivering better well performance. In fact, among the very best in Barnett history, through our subsurface acumen and the continued refinement of our advanced completions program.

The results of our development program are rewriting the record books in the Barnett. During the quarter, our operations team brought online 2 additional wells that rank amongst the best ever drilled in the Barnett, including a pad that achieved the second-best 30-day production rate in Barnett history. In fact, BKV has now delivered the 5 best performing pads in the history of the Barnett, all of which have come online over the past 5 quarters. These production records are only part of the story. We also drilled the 2 longest laterals in the Barnett, with one approaching 3 miles in lateral length.

Beyond new development, we continued to execute the base production optimization blitzes we discussed last quarter, as well as continuing to leverage AI tools and initiatives, further flattening what was already one of the industry's lowest PDP base decline rates, while adding approximately 12 million cubic feet per day to our production run rate. These projects continue to demonstrate the value we can unlock across our existing asset base. These are not isolated successes. Across 22 wells, our advanced completions program has consistently outperformed expectations, delivering sustained production 20% above our base type curve. Combined with the benefits of our positive offset wells, or POW effects, and continued operating efficiencies, overall well performance now exceeds type curve by 25% after 180 days. These results reinforce what we continue to say. Not only is the Barnett back, but through disciplined execution, continuous innovation, and relentless operational excellence, we believe it is better than ever.

One of the most exciting developments this quarter came from our Upper Barnett appraisal program with the Yarbrough 8H. The well delivered production approximately 2x above type curve over its first 30 days while coming in at expected development costs. The stellar Upper Barnett well results from this quarter confirm our confidence in Upper Barnett performance. It lowers break even for nearly half of the inventory to $3.25 per MMBtu and unlocks the entire 114 well Upper Barnett inventory. The results further validate our technical understanding of the Upper Barnett and strengthen our confidence in its potential as a long-duration, largely untapped inventory opportunity within our existing footprint. Importantly, they also reinforce our long-term development runway.

We continue to believe the combined Upper and Lower Barnett provide more than 15 years of highly economic inventory capable of supporting a flat-to-modest growth production profile. It's the quality of that inventory, not simply the quantity, that gives us confidence in the long-term outlook for our Upstream business.

Given these encouraging results, we plan to drill another Upper Barnett well in the first half of 2027, while continuing to identify opportunities to incorporate additional Upper Barnett locations into our long-term development program. Overall, we view the performance this quarter and sustained development success as further evidence that the Barnett continues to compete favorably with any shale gas basin in the country.

Turning to carbon capture, our platform continues to scale, and more importantly, we're continuing to demonstrate our ability to execute. As Chris mentioned, we now have 3 active CCUS projects that are injecting CO2 and receiving 45Q tax credits, demonstrating our ability to consistently move projects from development into commercial operation. We are also continuing to see strong progress across the broader growing portfolio. During the quarter, we drilled 2 additional CCUS wells ahead of schedule and under budget with reservoir quality that exceeded our expectations. One well was drilled on our premier High West acreage in Louisiana and the second in East Texas with the same major midstream company as our recently commissioned Eagle Ford project.

These results continue to validate the quality of our carbon storage pore space, while reinforcing our confidence that High West and East Texas represent 2 significant long-term growth opportunities for the business. In addition, our Class 6 well permit applications in Louisiana continue to progress through regulatory review, representing another potential important milestone as we advance our broader carbon capture portfolio.

We're also making meaningful progress on our post-combustion capture initiatives. During the quarter, we advanced pre-FEED engineering work and based on the results we've seen, expect to move into FEED during the second half of the year. These projects have the potential to become an important component of our long-term strategy by capturing CO2 from future natural gas-fired power generation and permanently storing it within our own sequestration sites. As we continue to advance both our power and carbon capture businesses, we believe these capabilities have the potential to support our full-cycle closed-loop strategy and further differentiate BKV.

Taken together, these milestones reinforce something we've consistently said. BKV isn't simply developing carbon capture projects. We're building a scalable carbon capture business with secure and meaningful long-term cash flow.

With that, I will turn the call over to our Chief Financial Officer, David Tameron.

Thank you, Eric. Before I get into the financials, I'd like to begin with the results of our power business. Power remains a key driver of BKV's current financial performance and an important pillar of our long-term growth strategy. Our power business delivered strong results and consistent operational performance during the quarter. Our Temple facilities generated over 2,200 gigawatt hours, up 16% year-over-year, resulting in a 70% capacity factor. On a hedge basis, power prices averaged $42 per megawatt hour and generated an average spark spread of $22 per megawatt hour. The results drove gross power adjusted EBITDA of $36 million before corporate expense allocations, providing a meaningful contribution to BKV's overall cash flow.

Moving to our financial results, the second quarter is the first period to fully reflect the sustainable earnings power of our consolidated closed-loop business. The results demonstrate the strength of our integrated business model and our ability to execute consistently across the enterprise. That execution translated into another outstanding financial quarter, including record adjusted EBITDAX of $142 million, and record adjusted net income of $51 million, more than twice our first quarter result despite lower natural gas prices. These results were driven by outstanding performance across the platform. In Upstream, higher production, tighter differentials, and lower cash operating costs more than offset lower natural gas prices. In power, seasonally stronger generation and improved unit costs further strengthened our performance.

Turning to capital allocation, total capital expenditures were $198 million within our guided range. Upstream CapEx was at the lower end of our guidance, reflecting continued capital efficiency improvements. At the same time, power spending was modestly above expectations as we accelerated the purchase of long lead time equipment. This was a deliberate decision to preserve schedule certainty and protect our speed to power advantage.

Finally, we generated strong adjusted free cash flow of $40 million, helping fund $126 million in strategic power growth capital. That investment consisted primarily of reservation payments and deposits, supporting our increasingly derisked 1.4 gigawatt power development pipeline. Across the board, we met or beat guidance consistent with our said-did culture, and our core value of delivering on promises.

Outside of power, our capital budget is unchanged. Within our power business, subject to Board approval, we are increasing our 2026 strategic power capital full year guidance to $400 million to $475 million, an increase of $128 million at the midpoint. This increase is primarily driven by our decision to move forward on long lead time equipment orders, primarily associated with our Jack County project. Combined with progress in our Temple Energy Complex negotiations, we are increasingly confident in securing commercial agreements that support the deployment of this capital.

Our 2026 strategic power capital plans are focused on one priority: maintaining and derisking our time to power competitive advantage, which is central to unlocking the significant value creation opportunities we see in the market today.

From a funding perspective, we remain in a position of considerable strength. We expect to fund these investments through a combination of our strong liquidity, free cash flow, and anticipated financing vehicles. These include, first, near-term utilization of equipment financing arrangements for a portion of our power build-out, preserving capital while securing critical long lead time equipment, and as previously discussed, refinancing our existing power JV debt. Subject to market conditions, we believe there's potential to improve both pricing and terms, further enhancing liquidity and supporting cash flow as we continue to scale the platform.

Looking ahead, as we execute power purchase agreements, we expect project finance markets to remain highly supportive. As a reminder, our financing strategy is centered on ring-fenced and project-level financing with an approximate 70 to 30 debt-to-equity mix structure well-suited to the long-duration contracted cash flows we expect these assets to generate.

Moving on to the balance sheet. We ended the quarter with net debt of $1.1 billion, net leverage of 1.8x, and total liquidity of $840 million. Our overall approach to our capital structure remains consistent with prior messaging. At the corporate level, we will maintain a flexible and conservative capital structure appropriate to the financial capacity and maturity at each of our business units.

With respect to hedging, our program is designed to protect downside risk while preserving upside participation. On the Upstream side, we currently have 66% of our remaining 2026 natural gas production hedged at an average price of $3.88 per MMBtu, and 56% of NGLs hedged at an average of roughly $25 per barrel. For 2027, we have nearly 500 million cubic feet per day of natural gas hedged, with more than half of that swapped at approximately $4 per MMBtu and the rest protected by collars. In power, we have 700 megawatts of 2026 power generation hedged, with 600 megawatts under ERCOT contracts and the rest utilizing spark spread swaps. We have entered into approximately 400 megawatts of spark spread swaps for 2027 and will continue to opportunistically hedge additional generation.

We have updated our 2026 guidance to reflect our latest views on our business. Key changes include: First, an increase in our Upstream production guidance to a midpoint of 950 million cubic feet equivalent per day; second, slightly wider gas differentials to reflect our latest market outlook and our plans to reject ethane through the remainder of the year, offset by higher associated NGL realizations given the increased exposure to the heavier ends of our NGL barrel; and lastly, as previously discussed, an increase in our full year strategic power CapEx to $400 million to $475 million.

For additional detail, including our updated full year 2026 and third quarter outlook, please see the guidance tables in today's earnings release and investor presentation.

With that, I will turn the call back to Chris.

Thanks, David. Before we turn to questions, I'd like to leave you with a few key takeaways from the quarter. First, we had strong, repeatable execution this quarter. Our production was at the high end of guidance, development capital at the low end, 2 carbon capture projects commissioned as committed, and record EBITDAX. This quarter was a clear demonstration of the discipline and consistency that underpins our operating model.

Second, our power business has made substantive progress across our 2 development sites. Customer commercial engagement is strong. The equipment is secure, the sites are controlled, and the projects are advancing.

Third, our strategy is working. Natural gas, power, and carbon capture are connected into a platform that generates cash today while funding growth for tomorrow and offers potential customers unique solutions that very few companies can replicate. We remain confident in our ability to deliver our strategy and create long-term value for our shareholders.

Operator, we are now ready to take questions.

[Operator Instructions] We'll take our first question from Jonathan Mardini with KeyBanc.

Just as conversations with potential customers progressing at your Jack County site, how are you thinking about maybe just the ultimate configuration there? Are your discussions focused more on the behind-the-meter solutions? Or is grid connectivity an important part of the opportunity, just given access to the transmission infrastructure there?

Yes, Jonathan, it's Chris here. I think, number one, the configuration, as we mentioned on the prepared remarks, will look and feel a lot like what we have at our Temple Energy Complex. So, obviously, anchoring a private use network with behind-the-meter combined cycle generation as the core to generate the electricity that's needed for the development. And then clearly, grid connection is the preference, and the reason for that, as you know, is it creates a lot more reliability. And importantly, it allows us to sell excess power back into the grid. And I think that's really where the market wants to go, which is these private use networks that have kind of an ability to upload a lot of power back into the grid and actually be additive to the grid instead of cannibalizing the grid. So I think you could imagine the Jack County setup being very much like the Temple setup, which is exactly how we're designing it.

Okay. That makes sense. And just to go off that, I know there's been some discussion recently around the effect this review of some of these interconnection requests and just the batching process. How do you think about that potential impact, if any, on your development plans? And do you view the behind-the-meter opportunities more favorable as a result, or kind of not much of an impact that you're foreseeing from that?

That's a good question. Obviously, as I mentioned, we're closely engaged with the regulators, ERCOT, PUCT, the political stakeholders as well as the communities. And I believe we built a strategy which is exactly in line with where policymakers want to take Texas, which is high-quality projects that are added to the grid, are responsibly done, and create jobs, create investment, while ensuring that the grid is reliable and the costs don't get passed to consumers. I mean, that's exactly how we've designed the Temple project. And I think ultimately you're going to see a number of the sort of more speculative projects fall off, and the projects that are real and material and designed exactly the way the BKV projects are designed rise to the high-graded position. And so, I think this is actually quite bullish for us.

We'll take our next question from Chris Baker with Evercore.

Yes, just in terms of the release, obviously, great quarter. Maybe just to start on the Upstream. Eric, just in terms of the operational execution in the quarter, can you just help square that up with expectations for the back half? It looks like the guide is a little bit conservative, but would love to get any thoughts there.

Yes. Thanks for the question, Chris, and for your nod on the quarter results. Yes, I think we've baked in to the back half some of the many advancements we've made in our Barnett development. The longest laterals in the history of the basin. Some of the best well performance in the history, including the 5 very best pads. POW and advanced completions, which in combination have yielded 25% performance improvement over 180 days, as you've seen in our deck. Lowest costs on a DC&F all-in basis of any of the gas shale plays at $525. So a lot of that is incorporated into the second half of 2026. So hopefully we can continue to outperform what we've done virtually every quarter since we've gone public. But some of that is baked into '26, and we expect that to cascade into '27 as well, Chris, and continue to further other advancements.

That's great. And just as a follow-up, Chris, would love to get a sense of how you're thinking about the Banpu ownership here. Obviously, the power story has evolved pretty significantly, obviously, in a positive way since the IPO. Just how to think about their involvement and I guess maybe any potential to see ownership in the Temple facility sort of creep up from the 75% to 100% over time. Love to get your strategic perspective there, and their involvement.

Yes, well, first of all, Banpu's been an incredible shareholder and supporter of BKV. They're very long-term focused, as you've seen since almost 24 months of going public. They held their position in the company and continued to really believe in the strategy. So I think you can expect Banpu to be 100% behind the strategy and the plans of BKV.

With regards to kind of longer term, I think their view, as I've said, is to kind of be a long-term anchored shareholder. They're going to look for continued momentum. They're obviously excited about the progress on the power business, and that's a really key part of what they're continuing to back us for.

With regard to the joint venture or the interest there, I think they're going to kind of watch and see what's happening in the market, right? I think at the end of the day, Banpu's public in Thailand. They're economically rational and they function very rationally when it comes to economics. So we're going to look at that and see if there's a win-win opportunity, and if there is, we can progress in that direction. But right now, we're very pleased with the setup. It allows us to diversify some capital with a partner as we develop both Temple and ultimately in the future, potentially Jack County as well. And they've been supportive through a number of measures, including in the past with shareholder loans, which have helped develop the power asset. So we're excited about it, and I believe that they'll continue very solidly as they have in the past.

We'll move next to Betty Jiang with Barclays.

Congrats on the strong quarter. I want to go back to the Jack County opportunity. Clearly, the increasing CapEx is sign of a confidence in the advancement in commercial conversations that you are having on that project. Could you just shed a bit more light on what you're seeing in that progress -- the progression in that conversation? What are the uses of this CapEx for Jack County site, and how you are thinking about the timing of potential PPA for the Jack County site against the Temple timing?

Yes. Betty, good to hear from you again. I think in terms of Jack County, the first thing is it's accelerated faster than we thought. We mentioned in the first quarter that we acquired site control in North Central Texas. That was the Jack County site, 6,200 acres. And we had aligned a party that wanted to provide us with these financing vehicles to allow us to purchase that property, which was exciting for us.

And I think what you see is that, the Jack County site -- Jack County as a strategic location is ideal because it's very close to the Dallas-Fort Worth metroplex. It's got major 345 kV lines and pretty significant grid infrastructure expansion coming in the encore regions that are operating. And it's, by the way, 20, 30 miles from our gas fields in the Barnett. So we found that this was a perfect setup for a second energy complex. And as I mentioned earlier, the design will be very similar. I would say typically, construction of a combined cycle plant, you're talking about 48, 60 months type of window. And I would say what we're seeing in the market today is that, this idea of bring your own generation is becoming critical to development of data centers and other industrial load.

And so, I think the folks that have credible viable ways to add generation, like BKV, with operating history, with proven assets, with capable teams, are starting to really win in the marketplace, and I think you're seeing the hyperscalers, the data center companies gravitate to those folks where once you put a price and a time line on the table, you're able to execute on that, and that's actually becoming a real big thematic right now because what we've heard is a number of projects have kind of been delayed or the prices have gone up, and BKV has a reputation of said debt. So if we put a number on the table, for the potential customers, it's money good.

This is a follow-up for Dave probably on just how to think about the financing trajectory as power CapEx ramps up ahead of a PPA agreement here. So is the expectation just to keep using the revolver? And if you could just play it out for us, with the PPA, how should we be thinking about timing of project financing, et cetera, just financing this increasing growth investment here?

Yes. Betty, thanks for the question. I'm going to cover the near-term increase first, and then I can talk about longer-term. But first, just let me clear the decks up front. This increased amount of spending is not going to be an issue for BKV. It's not going to be a challenge for us. And if you think about, you know this because you've been with us from the beginning, but if you think about financially and philosophically, the way we run our finance organization, it's one, right, maintain a conservative balance sheet. Two, focus on disciplined capital allocation, and then three, maintain financial flexibility. So if you think about where we're at today, as we enter the second half of the year, we have today $170 million of cash and $840 million of liquidity, right? Taking that one step further, if you project out to the end of the year, we expect that even with that increase in capital spending, our liquidity will be unchanged, if not potentially higher come the end of the year. So that's as far as it relates to '26.

And if I start thinking about '27 and beyond, and fundamentally, if you look at the business, and you can see this in the numbers, for the first half of the year, we generated $60 million of free cash flow before these strategic investments, first and second quarter. And within that, if you look at the second quarter, our margins are actually accelerating, and we generated more cash in the second quarter than the first. And as you heard from Eric, cash operating costs were down 10% versus the first quarter. There's some sustainable changes in our cost structure, and we think that's going to show up in the margins going forward.

So if you remember a year ago, we talked about, I guess it was third quarter of last year, we talked about as we come into '26, you're going to start to see the cash generation piece accelerate, and that's exactly what you're seeing in the numbers right now. So as you think about going forward, just keep that in mind.

And lastly, and then I'll get to your financing question, but as you think about what we've spent to date, you know us, we're being prudent. We're being capital disciplined, and most of the procurement we've done of long lead time items today are on items that have a lot of resale marketability, if you will. In addition to that, as you can imagine, we have some commercial arrangements that also help us on a cost recovery mode if it doesn't go as planned as we proceed forward. So just want to set the framework upfront for what we're spending this year.

If you think about going forward, again, the 70-30 equity financing is still our plan. We have some near-term financing vehicles, as I talked about in the script, right? We have one on equipment financing. We expect that to be done in the third quarter. We have the power refi I addressed again. Obviously, the markets are strong. That market's available for us. So those are 2 near-term items I would look toward that should happen in the next -- before the end of the year. And then as we think about '27, once we get the PPA signed, keep in mind we'll get some cost recovery on that, right? So that'll be another influx of capital on money we've already spent. And then 70% to 30% with our partner taking 25% of that, ultimately, again, 70% debt, 30% equity. Of the 30%, Banpu picks up 25% of that number. So we could sit down and run through the math, when you do the math, we think our call of our 75% of that 30% will be funded with Upstream cash flow and cash flow from the power business if we look out to the next 4 to 5 years.

Does that answer your question, Betty?

Yes.

[Operator Instructions] We'll take our next question from Gabe Daoud with Truist.

Follow-up for me.

Gabe, we're having a hard time. Can you speak up, Gabe, or maybe get to the -- we can't quite hear you.

Talk about what else you're doing on the line.

Operator, is Gabe on?

From year-over-year, particularly with all the new assets.

Gabe is on. His line is very low.

I'd say, there's a long list of things you're doing in the...

And we will then move next to Michael Furlow (sic) [ Michael Furrow ] with Pickering Energy Partners.

I'd like to follow-up on the long-term financing needs question from earlier, but maybe from a slightly different angle. Look, appreciate the commentary, David, and we recognize that the company's in a healthy position, has several options at its disposal. But it does seem, at least to us, that the Northeast P.A. position is kind of losing its relevance moving forward. So does that asset seem better off in someone else's hands that the proceeds can be utilized to fund power growth or sort of a win-win situation?

Yes. Mike, it's Chris here. I think, with regards to Northeast Pennsylvania, I'll stick with kind of the line that I've always shared, which is, if someone wants to make us an offer that's compelling, we would certainly entertain monetizing that. It's a great asset. It provides us access to a market which diversifies some of our gas sales, particularly in the wintertime, into some of the Northeast. We really love the quality of the rock there. We're in some of the best neighborhoods when it comes to shale plays up in the Northeast Marcellus. So our base plan is to manage for cash, and just keep running that. But we're opportunistic if there's opportunities to monetize.

I think one of the things I would point out is gas prices have come off since the beginning of the year where there was some frothiness there. So I think it's probably going to require some catalysts around gas prices sort of rebounding pretty substantively, and I think you probably get some market interest. But I would say we'll remain open, but the base plan is as is, and we're very happy with the cash flow being generated from that asset.

Yes, understood. Appreciate the detail there. I'd like to hit on a comment in the prepared remarks about the air permits that received this quarter for 400 megawatts. Does this mean the company is moving towards a target of 400 megawatts of capacity for the first phase? Or is this more of a situation where the regulatory process takes some time and as a result, the company just wants to keep that upside potential open?

It's more of the latter. I think when you look at what we ultimately deploy, we for sure have 200 and then there's a question of the potential customers' designs. You could imagine this, every potential customer has a different test fit and design and load ramp. And so, you're keeping optionality so that you can satisfy the broadest spectrum of what these customers need and when. And so, what's very nice as you know about the modular is it's not reliant on anything interconnection related. So you can build that and have that up and running with 3 9s of reliability as soon as you're ready to construct it. So it's something that I think gives an anchoring position in Temple that is not reliant on any sort of grid or regulatory frameworks that can move very quickly.

And then as we've said before, that allows us into scale, into the use of the pond, which ultimately monetizes the existing capacity from Temple 1 and 2. So, again, we're keeping that optionality open, but it's really going to be dependent on the final customer and what their final designs are.

We will go next to Gabe Daoud with Truist.

Sorry about that. I was hoping, guys, we could maybe get an update on the CCUS projects that commenced recently, and maybe if that's giving you and even potential counterparties in a PPA increased confidence around carbon sequestered gas.

Yes, sure. Gabe, this is Eric, and thanks for your question. I'll take that on the CCUS. Yes, we're very pleased, of course, to have started up the 2 additional projects in the second quarter. If we're not the only, we're certainly among the first to have 3 actively injecting CCUS projects receiving 45Q tax credits with some nice economics behind them. Those projects started up as promised in the second quarter. They're right on track with volumes. And so, they're performing very nicely, and I think those projects give us the up and to the right ramp, along with the other announced projects in East Texas with our major midstream provider, same as Eagle Ford, along with the Comstock projects, to continue up and to the right towards the 1.5 million tons per year run rate by the end of 2028. So pleased with where those projects came in, pleased with the up and to the right ramp of the volumes and the nice economics.

Also pleased, as mentioned in the report or the script, I might add, with the 2 wells we drilled on our East Texas project and High West project that were both ahead of schedule, under budget, and better-than-expected reservoir conditions.

And with that performance, Gabe, to the second part of your question, yes. There are a number of off-takers who are quite interested in our ability to capture carbon off power plants, for example, and/or have expressed interest in our carbon sequestered gas product that's offset by CO2 volumes in some of these other projects. So not everybody's interested in it, but there are certainly a number of off-takers who are interested in that and recognize BKV as a distinctive leader that once again, as Chris talks about on this one-stop shopping has continued to -- who has continued to show that we can demonstrate all aspects of what off-takers are looking for in a one-stop shopping sort of routine. And then, of course, we have that CSG certification we mentioned too in the script that even further adds to prospective interest, I'd say, for CSG and/or other carbon sequestration opportunities.

That's great to hear and great color. And then I guess as a follow-up, maybe sticking to the PPA and the efforts there, continuing to make progress it seems. And I guess, Chris, it seems like progress continues to be made despite some near-term maybe uncertainty with the Bat Zero process being a bit delayed. It still seems like that won't preclude you from signing a PPA pretty soon. Is that fair?

Yes, I mean, I think you've obviously seen announcements in the market where things have moved forward. I think, if you're a hyperscaler or you're a large data center developer, you're looking at what is a multiyear program. And so, you can't be kind of playing off of near-term press releases and whatever is happening in the near-term. I think all these plans are multiyear and require commitments early and often. And so, our view of what's happening in the market is actually the momentum, as we've shared on the prepared remarks, is accelerating. So I'm very optimistic. I see the level of activity in the marketplace. I see the uniqueness of the BKV asset base and the capabilities that we are a one-stop shop. And that seems to be really resonating with potential customers. So very exciting times. This is, I think, one of the most exciting times to be in energy, and I think if you're going to pick a company to be betting on, I'd bet on BKV.

We'll take our next question from Scott Gruber with Citigroup.

Yes, I wanted to ask about the Upstream business, and the Upper Barnett results. Can you just unpack the results there? They sounded really good. You guys mentioned breakeven coming down from $3.75 to $3.25. Is that mainly driven by unexpectedly strong IPs? Are you looking at any kind of advanced completions that are helping to drive the IP and the economic improvement? Maybe just unpack that a little bit more in terms of what's driving the surprise, and how repeatable do you think those results are across the Upper Barnett acreage?

Yes, super question. Thanks so much, Scott. I think there are a number of proof points that are leading us to lower the breakeven for roughly half that inventory down to $3.25. For one, we've long held the belief, and it's proven now, that the geo and reservoir properties in that particular hot spot of Upper Barnett are distinctive, and we show that distinctive hot spot on our investor deck with 114 total wells. We've also had some legacy results of verticals and zonally isolated horizontal refracs within that same hot spot area that have shown us prospectivity in Upper Barnett performance.

And of course, the most compelling of all is the recent result from our nice Upper Barnett appraisal well, where I think several things were proven out. One is, we proved that we can drill, complete, and build facilities all in Upper Barnett wells at the same cost trajectory and the same cost curve as our Lower Barnett. We've been able to apply those learnings from the Lower to the Upper successfully. So our costs are right in line, and again, the lowest of any gas shale based on the cost per foot basis all in.

And then secondly, Scott, you mentioned advanced completions, and yes, we've applied our advanced completion formula to the Upper Barnett, and that, coupled with our subsurface acumen, have resulted in the performance you saw in the well, kind of 2x expectation the first 30 days, 8 million cubic feet equivalent peak month, and the well's hanging in there very nicely. So when you put all that together, coupled with the fact that the roughly half of those Upper Barnett wells we moved from $3.75 to $3.25 breakeven are in an area with the absence of any legacy development. That's what gives us confidence to declare that Upper Barnett breakeven for roughly half that inventory to the $3.25 and gives us confidence to declare another Upper Barnett well we'll drill in the first half of 2027. And we'll look for synergistic opportunities to blend in Upper Barnett wells with our Lower Barnett pads as the years go on.

So really nice. It confirms, we believe it strongly confirms our 15-plus years of stay flat to modest growth inventory, and we couldn't be more excited about the results from the Upper.

And the $3.25 breakeven, that contemplates leveraging installed infrastructure from development of the Lower?

It does. That's correct. It kind of contemplates everything. I must admit, it's probably a bit conservative, but it contemplates the synergies we expect to realize.

At this time, there are no further questions in the queue. I will now turn the meeting back to Chris Kalnin.

Thank you, operator. And thank you, everyone, for your interest in BKV. We're excited to continue to deliver the next few quarters ahead, and we'll stay tuned on future announcements. Thank you for your time.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, everyone, and welcome to BKV's First Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded. [Operator Instructions]I would like now to turn the call over to Mr. Michael Hall, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining BKV Corporation's First Quarter 2026 Earnings Conference Call. With me today are Chris Kalnin, Chief Executive Officer; Eric Jacobsen, President of Upstream; and David Tameron, Chief Financial Officer.

Before we begin, I would like to remind participants that our comments today will include forward-looking statements, which are subject to certain risks, uncertainties and assumptions. Actual results could differ materially from those in any forward-looking statements. In addition, we may refer to non-GAAP measures. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, including those associated with the recently completed Power JV transaction or the integration of recently acquired upstream assets as well as the reconciliations of non-GAAP financial measures, please see the company's public filings, including the Form 8-K filed this morning. We have also posted an updated investor presentation on our website, and we encourage everyone to review those materials alongside today's call.

With that, I'll turn the call over to our CEO, Chris Kalnin.

Thank you, Michael, and good morning, everyone. We entered 2026 with strong momentum across the business, and the first quarter marks another meaningful step forward for BKV as we demonstrate how our strategy continues to deliver results. Macro dynamics, including recent events in the Middle East, create an overall constructive backdrop for BKV. Heightened global concern over energy security is driving structural demand for U.S. LNG, which we believe will benefit Gulf Coast directed basins such as the Barnett. Continued momentum in AI and data center growth is also poised to generate significant power demand, especially in ERCOT. At the same time, the carbon capture industry continues to expand and has become a key economic segment focused on carbon emissions reduction.

During the first quarter, we continued to strengthen our commercial platform by assuming control of a substantial portion of our gas marketing and trading activities. We expect to fully market our own volumes by mid-2026. Over time, this initiative is expected to enhance margins, increase commercial flexibility and improve our ability to offer creative solutions across gas, power, carbon capture and LNG. BKV has focused on doing what we said we would do to prove out our closed-loop strategy.

We delivered on production, maintained capital discipline, advanced our carbon capture platform, continue to expand our footprint in the Barnett, increased ownership in our power joint venture, bolstered our balance sheet and consistently moved the broader business forward. Our said-did consistency matters and provides a strong foundation as we continue to build a differentiated energy company. What is clear is how our platform across natural gas, power and carbon capture is translating into value creation opportunities. Upstream continues to perform at a high level. Carbon capture is expanding into a multi-asset platform and Power is poised for continued growth with strong momentum in commercial discussions from data center developers and hyperscalers.

In the first quarter, our upstream business again outperformed expectations, with production trending toward the upper end of our guidance range and capital spending squarely in line with plan. This business continues to do what we need it to do, operate efficiently, continuously improve development performance and generate meaningful cash flow. Across the portfolio, our teams are enhancing capital efficiency while maintaining high standards of safety, improving cost structure and driving production performance to fully exploit our asset base. At the same time, with the Bedrock assets fully integrated, we are well on our way to unlocking incremental value from the portfolio. We are utilizing advanced completions, longer laterals and AI and data-driven optimization. We are taking our execution playbook and driving torque across the basin.

We believe this execution playbook is repeatable over time, particularly in mid-tenured shale plays with characteristics similar to the Barnett, including lower decline rates, PDP-heavy assets and strong access to premium markets like the Gulf Coast. The Barnett is proving to be a critical basin in today's environment with demand for natural gas increasing. We are well positioned from a regional and infrastructure standpoint to help meet that demand. In carbon capture, we continue to scale the platform and have established BKV as a credible leader in this space. Barnet Zero has proven the economic attractiveness of point source fit-for-purpose carbon capture projects.

Importantly, in April, we commenced commercial sequestration operations at our Cotton Cove carbon capture project. Cotton Cove's operationalization is an important milestone that reinforces the economic viability of carbon capture projects at lower volume thresholds. Further, our Eagle Ford CCUS project is progressing well towards COD. Together, these CCUS projects highlight our ability to execute and scale our carbon capture business. In conjunction with our joint venture partner, Copenhagen Infrastructure Partners, we are building a portfolio of economic, repeatable and profitable projects, and our new project development pipeline continues to be high graded towards attractive potential future opportunities. Our CCUS business also enables BKV to offer differentiated products such as carbon sequestered gas or CSG. CSG is a carbon-neutral gas product that combines environmental offsets from our CCUS business with standardized natural gas contracts and enhances the economics of our 45Q underwriting case.

We expect CSG to hit the market in the second half of 2026 in partnership with Gunvor. We also believe CSG can provide decarbonization optionality for future data center or hyperscaler customers seeking to decarbonize their around-the-clock power. For some time now, we have talked about the opportunity for our power business in ERCOT, driven by data centers and AI infrastructure and broad load growth. This demand is increasingly urgent and customers are actively working to secure solutions that can be delivered on accelerated timelines and at a scale that addresses the rapid adoption of AI. In Texas, regulatory and policy frameworks continue to evolve in support of infrastructure development and grid reliability. We are actively engaged with legislators, regulators, industry leaders and local communities in helping to shape how SB 6 and related frameworks are developed. We believe strongly that Texas remains committed to supporting substantial data center investment and will work actively with industry to ensure this happens.

To address the speed to power need, we are engaged in a structured process to evaluate and develop a package of power solutions that we believe will allow us to meet customer needs and time lines while preserving flexibility as their platform scale over time. The first component of our solution is modular power, and we have entered into supply agreements to acquire the equipment to provide up to 200 megawatts of generation and have further line of sight for additional power. If developed, any modular generation would be additive to our existing power generation platform. This modular power capacity is designed to improve speed to power, flexibility and optionality. We believe modular power can be deployed to provide a near-term bridging solution for data center operators and hyperscalers.

The second component of our solution would utilize existing generation capacity at our Tempel I and II power plants through a grid-connected private use network or PUN. We believe this capability could potentially support up to 750 megawatts of available capacity to provide contracted power over time and offer customers access to reliable, dispatchable power from an operating base that is already in place. The compelling combination of our modular solutions and PUN offering is driving our conversations with data center and hyperscaler customers and has the potential to support a meaningful contracted platform with attractive build economics at structurally lower delivered cost of power and leading time to power.

A third and key component of our power solutions is the potential to build an additional brownfield combined cycle power plant called Temple III. We have reserved 600 megawatts of CCGT capacity from an OEM that can be operationalized by the end of the decade. Within the area of Tempel, we have substantial site control, existing water and electrical infrastructure and an equity-owned natural gas supply, giving the Tempel Energy complex a structural advantage in the market. Taken together, the 3 components of our potential Tempel offering have translated into what we view as substantial commercial momentum with potential data center and hyperscaler customers within the structured process.

Further, in the first quarter, we secured an incremental 6,200-acre site in North Central Texas, providing an additional potential platform for longer-dated power expansion. As disclosed during our recent equity offering, we have also secured reservation agreements for another 600-megawatt CCGT power island for 2028 that could be deployed to grow this second energy footprint in tandem with a potential customer. At this site, BKV would aim to deliver the full trifecta of gas, power and carbon capture services. Through our structured process, we have matured our commercial discussions with potential long-term power offtakers. We are approaching commercialization deliberately with discipline and with focus on securing the right counterparties and the right structures. We continue to remain confident in our original expectation of signing a PPA within 2026 to early 2027.

As we move forward, we now have line of sight of potentially up to 1.4 gigawatts of incremental power generation, which would be backed by potential long-term customer agreements. We are excited about the power business and look forward to future announcements.

Stepping back, natural gas demand is growing across LNG, industrial and power markets. ERCOT's power demand growth continues to accelerate and a subset of customers are increasingly focused on reliable, dispatchable energy that can also be paired with low-carbon solutions. Our platform combines upstream gas, operating power assets, development-ready power options and carbon capture capabilities in a way that gives customers flexibility while giving BKV multiple pathways to create value. Finally, we continue to evaluate disciplined inorganic and portfolio optimization opportunities across the business, including potential monetization of noncore assets to redeploy capital into higher return opportunities that leverage our platform, enhance our closed-loop strategy and drive long-term shareholder value.

With that, I'll turn it over to our President of Upstream, Eric Jacobsen.

Thanks, Chris. The first quarter was another strong one for our operations, and we continue to see consistent performance across upstream and carbon capture. What stands out is not just strong performance, but continued quarter-over-quarter improvement across production costs, completions and inventory quality. To highlight a few of the quarter's Upstream operating results, we delivered solid performance across the board, production of approximately 925 million cubic feet equivalent per day towards the upper end of guidance. Development capital of approximately $82 million, slightly below the guided midpoint. Lease operating and workover expense of approximately $0.54 per Mcfe at the upper end of guidance due to timing of expenses and weather in the quarter, while we firmly maintain full year guidance.

Continued D&C cost improvements with full year plan for base well costs at an average of $533 per lateral foot and our new advanced completions designs at only around $22 per lateral foot in incremental cost on a program-wide basis. Strong well performance with 2 new wells brought online in the quarter, ranking in the top 15 of Barnett wells over the past decade on an Mcfe basis as measured by peak monthly production. Within our '25 and '26 development program, we have now delivered 8 of the top 15 Barnett wells over the past decade. Additionally, we added meaningful production and economic uplift from the POW or positive offset well concept affiliated with new wells and introduced last quarter. This includes recent POW where output doubled due to POW with no incremental capital. And over time, we see POW not only sustained but getting even better as shown in our investor presentation.

Overall, we are delivering improvements across all facets of our upstream and midstream operations as we continue to deepen our expertise and make advancements that are broadly applicable across mid-tenured shale basins.

I would particularly spotlight our new approach to advanced completions in the Barnett. Since the start of 2025, we have deployed an advanced completions design on roughly 1/3 of our Barnett wells, and the results to date are highly encouraging. We are observing an approximate 20% well performance uplift over the first 180 days after completion with the cumulative production plot gap appearing to widen even further over time compared to base completions. We see significant implied incremental value per well from advanced completions and broad applicability across the portfolio. Currently, we believe these new completion designs can be applied to 30% to 40% of our robust and long-life inventory, providing a notable uplift in asset value. For the first half of 2026, we have 10 wells slated for advanced completion. And importantly, the associated CapEx investment is already embedded in our capital program for 2026. Stated another way, we are getting more value out of the same capital framework.

Our continuous improvements from advanced and base completions plus much more continue to deliver tangible results, particularly in the liquids-rich portion of the Barnett. A key driver in our recent well outperformance has been the liquids profile, which represents 20% of our production mix in the Barnett this past quarter. Our liquids exposure provides flexibility across commodity environments and enhances the overall cash flow resilience of the asset base. We also continue to leverage AI, data and analytics to optimize base production, further solidifying our competitive advantage of having the lowest base decline compared to any of our peers by a considerable margin. As a proof point of that, during the quarter, we leaned into optimization blitzes, which focus on plunger lift analytics. These blitzes resulted in an incremental base uplift of over 15 million cubic feet a day since early February, all delivered with de minimis capital spend. These results converge on something important.

The Barnett is not simply a low-decline PDP asset, rather it's a stable platform with substantial inventory and optionality for value-accretive torque and growth over many years to come. When we look at the opportunities in front of us, we believe the Barnett returns stand toe to toe with any gas shale basin in the country. When we combine our demonstrated asset performance with Gulf Coast market access and vast midstream infrastructure, I can say that the Barnett is back and it is better than ever.

Turning to carbon capture. We continue to make steady progress, highlighted by adding Cotton Cove to our operating CCS project platform. Cotton Cove, which commenced injection on time and is forecasted under CapEx budget, is expected to achieve a sequestration rate of approximately 32,000 metric tons of CO2 per year. We are also on track to commence injection at our Eagle Ford project before the end of Q2. This project is forecast to achieve an average sequestration rate of approximately 90,000 metric tons of CO2 per year. Together, these projects establish a growing portfolio of operating and economically viable carbon capture assets, and this progress demonstrates that the platform is scaling in a measured and credible way.

Barnett Zero performed well during the quarter, operating at greater than 99% run time and sequestering approximately 35,800 metric tons of CO2, bringing total sequestration since start-up to nearly 350,000 metric tons of CO2. It continues to serve as an important operating and economic proof point for the business. We are also advancing the overall CCS project portfolio. Our East Texas project remains on track following internal FID last year, and we executed definitive agreements with Comstock Resources to advance CCUS projects in the Western Haynesville. These advancements represent another step forward as we work towards our targeted 1.5 million tons per annum injection run rate by 2028.

We have received notice that our Louisiana Class VI permit applications associated with the High West project are advancing through technical review, each application representing 2 million tons per year of injection capacity. We have also recently commenced drilling a test well at High West. In addition, we are continuing FEED studies related to carbon capture at natural gas-fired power facilities, which are expected to further inform future development opportunities. We continue to see strong partner interest and a healthy pipeline of opportunities as we move forward. Put simply, our carbon capture business is continuing to progress as an increasingly important complement to our broader gas and power platform.

And with that, I'll turn it over to David.

Thank you, Eric. The first quarter marks a solid start to the year with strong upstream performance, continued carbon capture progress and ongoing momentum in our power platform. Turning to Power. The consolidation of the Power JV marks an important step in elevating this segment within BKV's financial story. It enhances transparency and control while providing clearer insight into its underlying performance and earnings power. Operationally, our Power business delivered a strong quarter with nearly 2,000 gigawatt hours of generation, a capacity factor of 62%, power prices averaging $51 per megawatt hour and gross power JV adjusted EBITDA of $20 million after absorbing an additional $4 million of allocated corporate G&A as a result of the consolidation. Those figures underscore that the business we own today is already substantial and cash generative.

Looking ahead, we see meaningful growth potential in power, but we intend to advance that opportunity deliberately. The Temple Energy Complex provides a strong operating foundation and our phased offering architecture offers multiple avenues to extend duration and visibility as commercial milestones are achieved. In short, power is no longer just adjacent upside. It is an operating business and a source of disciplined option value. At the corporate level, first quarter results reflect strong continued underlying performance. The quarter was driven by strong execution across the business and a disciplined approach to capital, enabling us to generate positive free cash flow before power growth capital. We delivered net income of $44 million and adjusted EBITDAX attributable to BKV of $112 million, along with $119 million of capital expenditures. Overall, the business is well positioned. And as we look to the quarters ahead, BKV has taken a systematic approach to growth.

We ended the quarter with a strong balance sheet. Net debt was $962 million and net leverage was 2.1x. As a reminder, this is the first quarter we have consolidated our Power financials, and the numbers reflect $562 million of net debt related to Power. Total liquidity was $974 million, including cash on hand and available RBL capacity. This provides a solid foundation as we advance our growth strategy. As Chris noted, we intend to advance the Power platform in phases, aligning capital commitments with commercial progress.

With that, let me discuss our financial framework for 2026. Over the past year, we delivered on strategy and execution, growing production, maintaining capital discipline, strengthening the balance sheet and advancing our core businesses. These principles remain unchanged. As our power platform matures, capital allocation will work in conjunction with commercial progress. We're applying the same discipline that defines the rest of our business, prioritizing returns, optimizing the capital structure and financial flexibility. At a high level, we're using cash flow from our commodity business to fund measured investments in power, building option value today while moving toward a lower volatility, longer duration earnings profile. On financing, we are encouraged by ongoing discussions and are evaluating a ring-fenced capital structure with an approximately 70 to 30 debt-to-equity mix. We expect to fund the equity outlay through free cash flow from our base business, supplemented by partner contributions, our recent equity offering and potential portfolio optimization.

On the debt side, we are engaging with banks and other capital providers regarding Project style financing and early feedback has been constructive. With respect to hedging, we continue to emphasize risk management. Our program is designed to protect downside risk while preserving upside participation. We currently have 67% of our 2026 natural gas production hedged at an average price of $3.86 per MMBtu and 56% of NGLs hedged at an average of $24.56 per barrel. For 2027, we have nearly 500 million a day of natural gas hedged with more than half of that swapped at $4 per MMBtu and the rest protected by collars. In power, we have 700 megawatts of power generation hedged for 2026. This hedge position helps manage volatility while preserving exposure across a meaningful portion of the platform.

For guidance, we are maintaining our full year base business outlook. Production remains at 915 to 955 MMcfe per day, capital spending of $290 million to $400 million and Power JV adjusted EBITDA of $135 million to $175 million. Additionally, we now expect Power growth capital and investments to be in the range of $280 million to $340 million for the full year. The higher investment is primarily driven by ongoing negotiations resulting in additional capital related to modular power generation equipment deposits and other fungible long lead time items. Our capital budget for the year includes turbine reservation payments, modular equipment commitments, private use network long lead items and other development readiness investments. As a reminder, we expect to partially offset our aggregate capital investments with partner capital of approximately $85 million to $105 million. All in, total net BKV funded capital investments are expected to be in the range of $485 million to $635 million.

Our new non-GAAP free cash flow disclosures highlight continued generation of free cash flow before Power growth spending. Maintenance and sustaining capital support the strength of the base business, while strategic capital investments are directed toward creating incremental shareholder value through longer duration, lower volatility earnings. At a high level, we expect strong upstream performance, solid contribution from our existing power platform and disciplined advancement of our broader growth opportunities.

With that, I'll turn it back to Chris.

Thank you, David. To close, this was a quarter defined by strong execution, clear momentum and continued progress against our strategy. We are outperforming expectations in upstream, driving efficiencies and delivering meaningful cash flow. We are building a growing high-quality carbon capture portfolio. And in Power, we are scaling our business and maturing a differentiated platform, which addresses the critical needs of the AI and data center boom. We thank you for your support and look forward to updating you as we continue to execute and build on this momentum.

Operator, we are now ready to take any questions.

[Operator Instructions] The first question comes from Betty Jiang with Barclays.

I want to start with the strategic growth capital in power. Clearly, there's -- you're seeing a lot of momentum in your commercial conversations, and that's leading to another increase in the strategic growth capital. Chris, can you speak to the uses of the incremental investments from the last update? And specifically for the modular units, can you talk about the timing of securing these units? And is it fair to say that this is the first phase of a multiphase power supply framework that you outlined in Slide 25 in that slide?

It's David. Let me start with that, and I'll turn it over to Chris to see if he has any additional comments. But if you think about the capital increase, it's primarily for the additional modular equipment, so think about 200 megawatts. This obviously is a good thing for us. We're moving -- we're in Phase 1, as Chris outlined in his prepared remarks, moving to phase -- advancing the progress. I'll leave it there at that. But so there's the modular piece in there as well, there's some redundant gas supply infrastructure that we're focused on as well. So does that answer your question on that? And just as a reminder, for the full year, if you think about that number, long lead time items, modular equipment, interconnection infrastructure, some midstream, turbines, et cetera, as we outlined last quarter. But the change 1Q to 2Q is additional modular spend on the back of the commercial discussed.

Yes, Betty, just to add to David, we're very excited about the 3-phased approach that we talked about on our prepared remarks. The first phase being the modular units, which gives us certainty and time to power. It's additive generation to the grid, which is important when you consider private use network. And then it also allows us to really build a strong technical solution that combines with our CCGTs and Pemble. So we think it's incredibly exciting. It's part of a comprehensive solution that we described. You can see the definition that we've clarified. I think that speaks to the amount of momentum we have with customers.

And it's really compelling. And I think this is the solution you're going to start really seeing in the market as grid operators contend with the amount of load requests that are happening and yet there is just an incredible insatiable time to power demand for the AI data center group. And so BKV believes that our archetype of what we're structuring here really will serve as a common template for gas-fired generation or thermal generation to supply the needs of -- a lot of the compute needs that happen from the AI build-out.

Got it. So would you be able to shed any light on the timing of when you can -- when these modular units could arrive or that's part of the?

I'll share that we expect to operationalize a number of the units in '27. So we're expecting delivery. These are Gunvor units, so well proven 30 to 40 years in the industry and well established in the data center community. So suffice to say, it's a pretty defined technical solution that our teams have developed in conjunction with potential customers. And we believe they're very near-term focused in terms of the time line that I just outlined.

That's helpful. My follow-up is on the portfolio optimization that you mentioned in the prepared remarks. And you talked about potentially monitoring -- monetizing some noncore assets. Can you just speak to how you're thinking about that rationalization? And what could be in that? Would you consider selling the Marcellus if that's a noncore asset?

Yes, it's a good question, Betty. I think when you think about our portfolio, we're always evaluating every component and where we can generate the highest return. So, we're going to be actively evaluating all 3 lines of our portfolio. When it comes to kind of different pieces of the portfolio, it's just a math equation, right? So what is the market willing to pay for certain assets versus what can we reinvest those assets or those cash flows into other parts of our business. Certainly, we've talked about the Marcellus in the past. The base case is a hold for cash and manage it, and we've done that very successfully under Eric's leadership. But we're going to evaluate -- as you see, we're growing. We're going to evaluate what the opportunity set is. And if there's an opportunity to kind of redeploy capital from certain assets that we can monetize, then we absolutely will be open to doing that.

The next question comes from Scott Gruber with Citi.

I want to come back to the modular power gen assets. Chris, how do you think about the owned versus lease option on those assets? There appears to be a case -- a use case for BKV through the start of Temple III and the second site. But what's the long-term plan for those assets? Would you expand that offering and kind of look to run microgrids for third party? Just kind of talk us through kind of your thoughts with this different type of asset and the kind of owned versus lease option.

Yes, Scott, thanks for the question. I think when you think about these modular units, we've done the economics in many different ways. I think when you look at BKV's kind of trifecta of assets and the way we want to configure the flexibility we demand, I think there's a clear case for ownership because I think it allows you to really deploy your assets in a way that gives you maximum flexibility and we believe, economic outcomes in the long-term. I also think being a one-stop shop, we have huge flexibility. Your question around how we can kind of deploy those assets. We certainly believe that as we've designed it right now in the phased approach for Tempel that these assets will be utilized as part of that private use micro grid that you're discussing. And so, we believe that, that will be additive. It allows us to develop a more comprehensive technical solution. For example, just the ability to kind of ramp in smaller increments of power and/or provide additive generation back into the grid.

Scott, if you think about these private use networks, they're typically interconnected into the grid. And so, you want to be able to both upload power as well as download power, right? And the modular units give you that additional power that you can supply back into the grid, which is an important discussion point when you're talking with regulators and ERCOT about going behind the meter with these types of deals. So, I think to your question, I think longer-term, we see this as part of a portfolio that we own, that we can maneuver in our one-stop shop approach. Obviously, any commercial arrangements would be part of a capital return on this investment that we're discussing. And obviously, we're really excited to be able to share emerging details on this technical solution we develop.

That's great. I appreciate the color. And then turning to the upstream and the new completion design, which seems to be bearing increasing fruit over time. You guys mentioned a widening gap to the previous design. Can you just provide some more color on where you see it being applicable? I think I heard 30% to 40% of the inventory. And then as you guys continue to assess the upper Barnett, what kind of learnings can you take from the enhanced design to the upper?

Yes. Scott, this is Eric. Great questions. Thank you for that on the advanced completions in the upper Barnett. As you noted in our release, we showed that our advanced completions are steadily improving at a 180-day mark of about 20% over our base completions and growing. So, we're really excited about the value contribution. And at the end of the day, for us, it's all a value proposition. So, 20% improvement in performance at 180 days, improved reserves, improved value for a fairly modest cost add on a programmatic basis of just $22 per foot as we've shown. So, we've done a number of those in '25. We'll do even more in '26, and we anticipate it will become a go-to part of our D&C playbook across about 30% to 40% of our acreage as we assess it today.

And yes, absolutely, the learnings will be applied to the upper Barnett well. We just drilled that well. We'll frac it utilizing some of these advanced completion techniques, and we hope in about a quarter or so to be able to share results. So yes, the advanced completions, it varies depending on where we are geographically in the basin and what the associated reservoir properties are. Sometimes it's higher sand, sometimes it's higher fluid intensity, sometimes both. But we'll apply them on a fit-for-purpose basis to our existing inventory and of course, the upper Barnett as well, Scott. So very excited about it on all fronts.

The next question comes from Jonathan Mardini with KeyBanc.

Just on the strategic spend, the slide deck notes a portion of the spend will maintain optionality for post-contract growth. Just curious if you could unpack what that represents and whether it ties to potentially early work and infrastructure spend on the North Central Texas position or just where you currently stand on progress there in terms of discussions or feasibility studies.

Jonathan, it's David Tameron. Yes, let me give you a couple of pieces to that answer. First, let me just talk about the spend itself. If you think about the net CapEx, we put a gross CapEx number out there. If you take away the contributions or subtract the contributions we'll get from our partners, it's a $560 million at the midpoint, net CapEx to BKV for 2026. So let me start there. I'm going to use the Street EBITDA, I'm not endorsing this number. But if you look at the Street EBITDA, let me just talk about funding that $560 million piece. So, Street EBITDA is at $530 million, call it $100 million for interest, it gets you to approximate cash flow of $430 million. If you look at our balance sheet at the end of the first quarter, we had $300 million. So, the $430 million plus $300 million gets you to $730 million of spend against that $560 million. So, plenty of flexibility, plenty of cushion there. Keep in mind, we also have an undrawn -- largely undrawn revolver. We have about $700 million on the revolver we can tap.

So big liquidity, net leverage stays at -- so the way we're approaching this spend, it does give us a lot of flexibility. You heard Chris talk about the fungibility of the modular. We talk about the one-stop shop, the ability longer-term to move this to wherever it is most optimal for us and we can earn a good return on investment. So, anything, Chris, you want to add?

No, Jonathan, it's a good question. And like David said, I think the ability for us to continue to exploit value from these assets is a critical component of these technical solutions. You can imagine not only on the back of commercial arrangements, but you're also, given our structure, able to sell into the merchant market in Texas. And so, we're going to be looking to play both sides of that equation with a grid-connected private use network. So, I think that's the point that I'd just add to that.

And just to maybe follow up on the private use network at the Tempel complex. You talked about a hybrid structure with grid connectivity. Can you just walk us through maybe at a higher level, what that regulatory path looks like to enable a PUN there off of existing capacity, if there are approval studies, other processes required would be helpful to understand.

Yes. It's a really good question, Jonathan. Obviously, all the grid operators across the U.S. are trying to figure this out. ERCOT, we believe, is in a great position given that we have an SB 6 framework that's been put out there by the legislators. SB 6 specifies a very specific category of private use network, which is around large load interconnections with co-located power. And in the SB 6 framework, there's actually a time frame of 120 days that's outlined as an approval time lag to review and evaluate these private use networks. One of the critical elements that is being discussed to actualize these private use networks is this idea of load limiting or self-limiting the amount of load you pull from the grid.

And so, you could imagine to support the time lines for grid upgrades that there is a time line where you submit your proposal, that proposal gets reviewed and studied by a combination of the transmission service providers and the regulator. within a defined time frame. And then you agree on a stairstep amount of power that you would draw from the grid. And so, you may get, for example, hypothetically, a few hundred megawatts at your initial interconnection and limit that amount to the grid. And then you'd also manage how you buffer that power if you're going to pull to or from the grid depending on grid reliability issues. So, a lot of this is outlined in SB6. I think the good news is Texas is really leaning into this.

And as I said, there's a bound time frame as well as a very specific categorization for the type of private use network that BKV and other large power operators in Texas are contemplating. And I think that allows us to believe and have confidence in the time lines to get this private use network actualized. And the modular power just gives us a date certain that's near in the future to build the anchor position and then roll into that larger private use network that we discussed.

The next question comes from Jacob Roberts with TPH.

I wanted to stick on the modular for a bit. My reading of the deck is that the strategic capital this year is largely for deposits. So, I'm wondering what the spend in 2027 potentially is on the 200 megawatts all in, maybe on a dollar per megawatt basis, if you could.

Yes, a couple of things, Jake. Thanks for the question. You are correct in the sense that if you think about the capital spend on these, right, there's some deposits upfront. If you think about going into '27, it will be largely EPC spend. And again, that's going to be contingent on the signing of a PPA, right? So, once we get that PPA if when -- I should correct myself, if when we get that PPA signed, then we'd move into the second phase, if you will, of that spend. Does that answer your question?

Yes. No, that's helpful. I just wanted to make sure I understood the time line.

Yes. And then one more piece. We've talked about -- yes, let me just come back one more piece. We've talked about once we get a PPA signed, we're going to go to a ring-fenced debt-to-equity split of 70% to 30%. So, 70% debt, 30% equity. But once we get that PPA signed, you'd see us do project financing on that piece.

Perfect. And then circling back to more of the upstream side of things. Chris, you mentioned the transition to marketing more of your own volumes as occurring, I think, in the second half of this year. Can you pin down that time frame anymore? And if you could expand on the margin enhancement you're expecting to see? I think some of your peers have had success in kind of moving into this segment.

Yes. It's a good question, Jake. I mean I think when you look at the time frame, you can imagine that we're excited about the full second half of the year being able to kind of market our own volumes. So, I think hopefully, that gives you some clarity on the time line. In terms of improvement in margins, I think it's hard for me to obviously articulate that. But what I would say is you see a number of our peers with their ability to kind of extract value from longer-term deals, whether that's LNG, whether that's maneuvering pipes, different core and very liquid markets and/or being able to sell our gas to our own power plants. So, I think these are some of the aspects that you can expect on horizon. And our view is that, that's going to narrow our differentials and continue to provide uplift to our margin profile as well as enhance our ability to have one-stop shop conversations with potential hyperscalers and data center customers.

I think one of the things that's unique about BKV is we can literally supply the molecules to electrons and then be able to decarbonize. And that's where we see the trifecta of the business model coming. And having that control over our gas marketing, our retail power marketing really brings that whole house together. And we're very excited to be able to demonstrate that over the next few quarters here.

[Operator Instructions] Our next question comes from Michael Furrow with Pickering Energy Partners.

I'd like to follow up on the gas marketing integration. The company has been operating across the hydrocarbon value chain for quite some time from upstream, midstream to downstream. And Chris, I appreciate your comments. It seems like a logical step that should have some upside to the business. But my question is why now? What are some of the changing market dynamics that caused this decision to be made today than in the past?

Yes. It's a good question, Mike. I think there's a couple of things playing into that. One is obviously, as we've grown, we've reached a critical mass in terms of size. You saw our production for the first quarter here being very substantive at 925. We're just at that critical mass where it makes sense to in-source. When you look at outsource versus in-source decisions, you really need to look at sort of what's the size because there's a cost to doing that. So, first thing is we're at that critical mass, it makes a ton of sense. Number two, I think the global dynamics around long-term structural LNG are fundamentally shifted, as I mentioned in my prepared remarks. And that's going to set up, we believe, for very constructive long-term gas prices here in the U.S. So being able to really maneuver particularly long-term agreements and/or the associated takeaway that goes with that and having full control of that is going to be critical.

The third piece, of course, is this idea of one-stop shop and the data center boom that's going on in Texas. I mean, Texas is the fastest when you look at percentage growth, fastest-growing data center market in the country. And so with us being able to now have a single conversation without any third parties involved where we can sit around the table with a hyperscaler and say, "Hey, gas, power, carbon capture all can be done in one project, one shop." I think having control of that right now in these conversations is incredibly power. So, for those 3 reasons, it makes a ton of sense for us to do that, and that sort of drives the timing.

Great answer. That makes a lot of sense. Appreciate that. I'd like to follow up on the increased strategic CapEx. I mean it seems like it's opening up a very exciting opportunity set. But in the near-term, it does put a bit more pressure on the balance sheet now. Leverage is still manageable and after consolidating the Power JV, the business can likely carry higher leverage. So maybe this is a question for you, David. How is the team thinking about long-term leverage targets at the corporate level? And what would the company be comfortable with if the right opportunity came along?

Yes, good question. Yes, a couple of things. So, if we think about our business, right, and we've talked about this before, we deliberately set it up intentionally. We have the upstream, right, which is obviously generating cash flow. We think the right leverage for that business is 1x to 1.5x. If we think about power, and right now, that leverage on the upstream is just right about 1. If we think about power, with this consolidation, we're at 4.6x on a trailing 12. You look at industry partners, you look at averages, that 4 to 5 feels like the right range to be in. Again, that's nonrecourse, right? Any PPA have this ring fence, but that's a nonrecourse to BKV. And then finally, CCUS, we don't have any leverage. So, there's an opportunity there. Also remind you that we have refinancing opportunity here come mid-year in the power side and the existing debt on that facility.

So, I think those are the ways we think about leverage. We're comfortable with those ranges right now. And again, when we look at our balance sheet and we prepped for this, right? You've heard us talk repeatedly over quarter-over-quarter about how we're taking care of the balance sheet. We're preparing for growth. And this is all part of that. We have close to $1 billion of liquidity just today, leverage, to your point, at 2x. So, we feel comfortable where we're at today.

I would now like to turn the floor back over to Chris Kalnin for closing remarks.

Great. Thank you, operator. I want to thank everyone for your interest in BKV. We're really excited about the future. We look forward to future announcements. And for all your mothers out there, I want to wish you a happy Mother's Day this weekend. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

Good morning, everyone, and welcome to BKV's Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] I would now like to turn the call over to Mr. Michael Hall, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining BKV Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. With me today are Chris Kalnin, Chief Executive Officer; Eric Jacobsen, President of Upstream; and David Tameron, Chief Financial Officer.

Before we provide our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements, which are subject to certain risks, uncertainties and assumptions. Actual results could differ materially from those in any forward-looking statements. In addition, we may refer to non-GAAP measures.

For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, including those associated with the recently completed power JV transaction for the integration of recently acquired upstream assets as well as the reconciliations of non-GAAP financial measures, please see the company's public filings included in the Form 8-K filed today.

I would also point listeners to the updated investor presentation posted this morning on our Investor Relations website. We encourage everyone listening to review those slides in our forthcoming annual report to be filed with the SEC for further information on our business, operations, results from the quarter and full year details on our 2026 guidance.

I'd now like to turn the call over to our CEO, Chris Kalnin.

Thank you, Michael, and thank you, everyone, for joining us to discuss our fourth quarter and full year 2025 results. As we close out 2025, I'm proud to report that BKV delivered a transformational year that exemplifies our said-did culture and positions the company for sustained long-term profitable growth.

We generated strong earnings, maintained a fortress balance sheet and delivered strong growth. 2025 marked our first full year as a public company, and we executed across each pillar of our closed loop strategy. Our business lines of upstream natural, gas natural gas midstream, carbon capture and power deliver premium low-carbon energy solutions that are increasingly sought after in today's energy markets.

In our Upstream business, we exceeded expectations throughout the year and our performance across the Barnett and Northeast Pennsylvania showcased the depth, durability and competitiveness of our upstream assets with approximately 8% exit-to-exit organic production growth on upstream development capital well within cash flow and with top-tier F&D costs.

The successful close of the Bedrock acquisition in the third quarter was executed in line with our plans. The transaction materially expanded our footprint in the Fort Worth Basin and added high-quality assets. We added more than 100 million cubic feet equivalent per day of production and nearly 1 Tcfe of proved reserves through our leading position in the basin.

Our upstream business remains foundational to our growth strategy. We believe we have built a scalable, repeatable and disciplined operating model for extracting value from mid-tenure Shale basins. Our team is at the forefront of driving efficiency by leveraging technology data and AI to optimize development and performance across our portfolio.

This is a model that we believe wins in mid-tenure gas basins over the long term. In our carbon capture business, we had meaningful progress in 2025. Earlier in the year, we secured a transformative partnership with Copenhagen Infrastructure Partners, or CIP, who committed up to $500 million for joint investment in carbon capture opportunities.

We are working hand-in-hand with their team to scale this business profitably. Our flagship Barnett Zero facility continues to operate efficiently and has achieved cumulative injection of over 311,000 metric tons since first injection in November 2023. Further, we have announced multiple new projects during the year, including projects in Texas with a large midstream operator and Comstock Resources.

We recently signed definitive agreements with Comstock Resources, the sequester CO2 from their [ Bethel and Mark ] facilities in the Western Haynesville play. We expect to commence commercial operations in 2028. I would like to thank Jay and his team for their continued strong partnership in these projects.

BKV has taken a clear leadership position in carbon capture and materially advance the projects in our pipeline towards commerciality. On the back of that momentum, we are refreshing our near-term CCUS injection target to 1.5 million tonnes per annum within 2028.

We believe this volume run rate will enable the business to contribute materially to our financials. Carbon capture remains a key growth driver in 2026 and beyond. We remain on track for the start-up of our Cotton Cove and Eagle Ford facilities in the first half of 2026 and are excited about the future opportunities in this business.

Our power business is a core growth engine within our closed loop strategy. On the back of our recent Power JV transaction, which closed on January 30, we now hold a 75% majority ownership in the 1.5 gigawatts of low heat rate generation capacity at the temple plants which are located at the center of ERCOT's accelerating AI and data center boom.

BKV's power assets performed well during winter storm firm. Within ERCOT, natural gas supplied nearly 60% of power generation through periods of peak load. This represents nearly 4x the next closest source and reinforces the central role of natural gas in ensuring grid reliability.

We are well positioned to deliver capital-efficient growth from these assets as we seek to secure long-term fixed offtake agreements in the form of power purchase agreements, or PPAs. In the second half of 2025, we continue to advance our structured and competitive process to secure a long-term off-taker for our Temple energy complex.

We are currently evaluating proposals from multiple counterparties, which have shown strong interest in our offering. The broad participation in this process has reinforced our conviction that our Temple energy complex is uniquely positioned to provide near-term power solutions to some of the largest technology companies and infrastructure developers in the country.

We remain confident in the time lines we previously outlined and continue to target a potential PPA in 2026 to early 2027. BKV's position in the state of Texas is ideally situated to benefit from the confluence of some of the biggest megatrends in energy. The Barnett Shale in the Fort Worth Basin sits underneath one of the fastest-growing markets for power and industrial growth in the country.

We believe Texas is set to attract significant investment dollars in data center and other infrastructure over the coming years. BKV is working closely with state regulators, policymakers and stakeholders to ensure investments in power and other forms of energy generate win-win outcomes for the state.

Our strategy is backed by a systematic investment approach which combines the winning formula of gas, power and carbon capture to generate premium margins from our energy portfolio. Our carbon sequester gas product which we expect to hit the market this year is a prime example of the unique energy products that BKV's closed-loop strategy can bring to the market.

BKV is excited about the future as we believe our differentiated strategy will create leading risk-adjusted returns for our shareholders. With that, I'd like to hand the call over to BKV's President of Upstream, Eric Jacobsen, to discuss our upstream and CCUS operational performance for the quarter and full year.

Thanks, Chris. 2025 was an outstanding year for our operations, capped by a strong fourth quarter that highlighted the depth and quality of our asset base the strength of our team and the disciplined, efficient approach we apply across the business.

For the full year 2025, our upstream business delivered and, in many cases, exceeded the targets we previously set, including the following highlights. We delivered robust and organic production growth of 8% exit to exit while spending well within upstream cash flow and driving continued cost efficiencies.

We've beat and raised our full year legacy production guidance twice in the year by 4% at midyear and then by another 1% and all within our initial development CapEx and while maintaining LOE at the midpoint of guidance. We achieved a step change in completions efficiency setting multiple internal records above 22-horsepower hours per day.

We drilled several company record laterals, including the longest well in the history of the Barnett Shale. We delivered top-tier performing new Barnett wells with 3 ranking among the highest in the entire history of the basin based on first month production.

We lowered D&C cost per lateral foot to a gas peer-leading $545 per foot. We achieved consistent and sustained positive offset well or [ powell ] production a unique advantage in the Barnett, which we discussed further in our investor presentation. We delivered lowest base decline amongst our peers, supported by our extensive data set and application of AI technology.

We seamlessly integrated our recently acquired bedrock assets, adding scale and inventory to our leading Barnett position. And we ended the year with approximately 6 trillion cubic feet equivalent of 1P reserves valued at NYMEX [ NPV10 ] of $3.1 billion. The fourth quarter was a continuation of the results we had seen all year.

We again outperformed guidance across key metrics punctuated by 0 reportable safety incidents, production that outperformed the upper end of our guidance range at 940 million cubic feet equivalent per day, we delivered our first Nipa well to production for the year and drilled 3 additional wells with completions expected in mid- to late 1Q of '26.

And we had over $6 million invested in rapidly progressing bedrock development, landing full year 2025 development capital spend at $245 million. To note, we invested $319 million all-in corporate CapEx, which was below the initial low end of full year guidance.

And we executed our first post-acquisition completions on the Bedrock assets including 2 DUCs and 2 refracs with strong results. One more example of Barnett competitiveness and an important proof point in the continued optimization of the Barnett development is what we refer to as positive offset wells or power.

In addition to new wells outperforming type curve expectations, we are consistently observing a material and sustained uplift in parent well performance across our DSUs following new completions. Based on early analysis across approximately 30 new wells in their offsets, we have seen an approximate 22% uplift above type curve on average through the first 150 days of production, roughly half of this outperformance is due to [ Powell, ] whether [ Powell ] peer-leading D&C costs structurally lowered operating costs, we're applying big data and AI.

These and more combined to validate our comprehensive operating approach of delivering durable value over the long term. and there are more innings yet to go. It is a model that we believe wins in every mid-tenure gas basin. We are applying that model to our Bedrock acquisition which has proven to be everything we anticipated and more with integration progressing ahead of pace.

The assets fit seamlessly with our existing acreage position, creating further opportunities for lateral extensions, inventory additions and multiple optimization levers. As an example of further accreting value or what we call torque, we are actively evaluating over 60 equivalent, 10,000-foot Tier 1 locations compared to 50 underwritten and over 100 refrac candidates compared to 80 underwritten.

Importantly, value creation from the acquisition is exceeding our underwriting assumptions and development counts, early time performance day 1 LOE reductions and other areas reflecting our ability to apply torque to the asset and unlock incremental synergies and value.

These assets complement our low base decline, attractive economics and highly competitive and accretive inventory opportunities, which are all trademarks of our dominant Barnett position. Our performance throughout 2025 confirms that the Barnett is not only alive and well, but highly attractive and ideally positioned relative to other shale plays with advantaged access to the heart of the Gulf Coast gas market.

Looking ahead to 2026, we expect continued strong performance from our upstream operations, enhanced by the full integration of our bedrock assets. While the impacts of winter storm burn resulted in significant and unanticipated downtime, we still expect strong production in the range of $900 to $930 million cubic feet equivalent per day during Q1.

Development CapEx spend in the first quarter, we anticipate to be in a range of $70 million to $100 million. For the full year 2026 we are guiding to 935 million cubic feet equivalent per day of production on $240 million of development capital spend right in line with our 2025 development program.

Our upstream business continues to serve as the backbone of our closed loop operations model, generating the cash flow that enables growth across all our business lines while maintaining operational excellence and capital efficiency.

Turning to carbon capture. 2025 was a year of strong and accelerating momentum for the business against the backdrop of growing market demand and supportive policy tailwinds, we advanced multiple projects across our portfolio, progressing them through critical stages of evaluation, development and execution.

Key highlights from the continued expansion and maturation of our development pipeline include our Eagle Ford and Cotton Cove projects continue to progress as planned with commencement of operations at both locations on track. At our East Texas project, where we are working with the same large midstream company as we are in the Eagle Ford, we have reached internal FID and are currently scheduled to begin drilling the injection well in the first half of this year.

And we also plan to drill our High West stratigraphic test well in the first half of the year. In addition, as Chris mentioned, we have recently executed definitive agreements with Comstock to add CCUS to their vessel and Marquee facilities in the Western Haynesville play in East Texas.

We continue to advance discussions on additional CCUS opportunities with new partners and emitters with a focus on larger projects that offer greater economies of scale. Several of these opportunities are referenced in our updated investor presentation, and we look forward to providing updates as appropriate.

Our flagship Barnett Zero facility continues to maintain exceptional reliability providing the operating model that we will apply to our soon-to-be commissioned projects. Given our continued execution and expanding project base, our path to achieving 1.5 million tonnes per year run rate CO2 injection during 2028 is well within reach.

In addition to the projects currently underway, we have commissioned several studies to evaluate the feasibility and cost profile of deploying post-combustion carbon capture technologies. Demand signals continue to strengthen across power and industrial markets as customers seek reliable, low-carbon energy solutions, and we are positioning the business to remain a leader in this space.

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

Thank you, Eric. 2025 was a year of meaningful progress for BKV as we continue to execute and deliver on our promises. We had significant transactions in upstream, Power and CCUS. We strengthened our balance sheet and improved our capital structure issuing our first-ever bond while also increasing float and improving liquidity in our stock.

We entered 2026 with significant momentum and are well positioned to capitalize on our strategic initiative. In our power business, we delivered consistent performance throughout 2025, with the Temple Energy complex maintaining high availability factors, minimal unplanned downtime and strong operational execution.

The Temple plant achieved a combined average capacity factor of 57% during the fourth quarter of 2025 and 59% for full year 2025, generating over 7,600 gigawatt hours. During the fourth quarter, power prices averaged $49.69 per megawatt hour with natural gas costs averaging $3.55 per MMBtu.

This resulted in an average quarterly spark spread of $24.54 per megawatt hour. For the full year, power prices averaged $48.86 per megawatt hour with natural gas cost averaging $3.31 per MMBtu. This resulted in an average full year spark spread of $25.36 underscoring the growing power demand in ERCOT average spark spreads for the full year are up over 15% versus the prior year.

Power JV adjusted EBITDA was $31 million for the fourth quarter and $127 million for the full year of which BKV had a 50% interest, reflecting our new controlling ownership stake, beginning with our first quarter 2026 results, we will consolidate the power JV.

For the first quarter, we expect gross power JV EBITDA of $25 million to $35 million, reflecting typical seasonal patterns, capture of storm-related power pricing and strong operational performance thus far in the quarter. Importantly, we weathered winter storm firm without any related downtime.

This is an important proof point for the reliability of our [indiscernible] assets as we engage in PPA offtaker discussions. For full year 2026, we are guiding to a power JV EBITDA range of $135 million to $175 million. This outlook reflects the strength of the platform we've built continued operational execution and confidence in the earning power of our Temple assets.

Turning to our 2025 corporate financial performance. These results clearly demonstrate our team's relentless focus on execution and ability to consistently deliver. Combined adjusted EBITDAX attributable to BKV was $109 million in the fourth quarter and $390 million for the full year. This represented a 19% increase quarter-over-quarter and a 47% increase year-on-year.

For the fourth quarter, adjusted net income was $27 million or $0.29 per diluted share. For full year '25, adjusted net income totaled $122 million or $1.40 per diluted share. Capital expenditures totaled $102 million for the fourth quarter and $319 million for the full year. This full year result is below the loan of our original guidance reflecting highly competitive capital efficiency and our ongoing attention to capital discipline and cost optimization.

Importantly, after fully funding all capital investments across our business lines, and excluding any cash contribution from our Power JV, we generated positive free cash flow for the entire year. And we did this while further strengthening our balance sheet and improving our liquidity. At year-end, total debt was $500 million, with the only debt outstanding reflected in our recently issued senior notes.

Net leverage ratio was 0.9x. Cash and cash equivalents totaled $199 million, and total liquidity stood at $984 million, more than double the prior year. Looking ahead, our 2026 capital investment program is structured to lay the foundation for a multiyear phase of disciplined growth. There are 3 key components of this program.

First, total gross capital expenditures of $410 million to $560 million, including an anticipated $135 million of gross strategic power capital. This power investment reflects the constructive conversations we are having with multiple potential PPA offtakers.

Second, on a net basis and excluding our power growth capital, we are targeting a net capital investment at midpoint of $324 million, effectively flat year-on-year. Third, and importantly, based on current strip pricing and just as we did in 2025, we expect our total full year net capital expenditures to be fully funded within cash flow.

This approach reinforces our commitment to disciplined capital allocation while positioning the company for sustainable, long-term value creation. Regarding hedging, our program continues to provide downside protection while allowing participation in favorable market conditions.

In our Upstream business, our total 2026 hedge position protects just over 60% of forecasted production with gas hedged at $3.85 per MMBtu and NGLs hedged at $22 per barrel. In our power business, for 2026, we have hedged 40% of our ERCOT generation capacity through heat rate call options or HRCOs.

These HRCOs include substantial premium revenues that help mitigate annual earnings volatility. We've also locked in fixed spark spreads on roughly 100 megawatts while retaining meaningful merchant exposure across the balance of the platform. For the remainder of our 2026 guidance, please refer to our complete schedule, which can be found both in the press release and our latest investor deck.

With that, I'll turn the call back to Chris for his closing remarks.

Thanks, David. As we conclude our discussion of 2025 and look ahead to 2026, I want to highlight what truly differentiates BKV. We have built a distinctive winning strategy, connecting natural gas production, power generation and carbon capture into a virtual closed loop platform uniquely positioned to serve the evolving needs of the energy market.

This strategy is operating today, delivering results and positions us to shape solutions for the evolving needs of hyperscalers, data center developers and industrial customers. Looking ahead to 2026, we see clear growth vector. Increased control of our power JV is expected to enhance earnings and cash flow while enabling tangible strides towards executing a PPA.

Our CCUS business is accelerating momentum with additional projects coming online soon and with an increasingly high-graded portfolio of attractive projects in development. Our upstream business remains a reliable, repeatable cash engine with leading corporate decline rates and F&D metrics.

Finally, I want to thank our exceptional BKV team for their commitment to our values, our safety culture and their focus on the execution of our strategy. We entered 2026 with strong momentum. Clear line of sight to growth and confidence in our ability to create long-term risk-adjusted shareholder value.

Operator, we are now ready to take questions.

[Operator Instructions] Our first question comes from Betty Jiang with Barclays.

Congrats on the strong execution across all segments in your first year. I want to start off with a question on the strategic power growth CapEx. Can you just -- Chris, can you speak to what specifically is that spending on? Clearly, it's not maintenance. And it's align with the progress in the conversation that you are seeing.

So can you just give us a bit more color on is the spending ahead of contract that you're expected to sign later this year, early next year.

Yes. Betty, thanks for the question. So you're correct. The power investments are strategic. As you can imagine, right now, as you discuss long-term offtake agreements with potential customers those designs are going to be in a private use network type setup. That's the assumption here.

And so as part of a private use network, you need to invest in transformers, switches, power lines, generation equipment, earthworks, pipelines, water, and that infrastructure then gets recovered over the life of a contract, right?

And so what we're guiding here is that we've got line of sight to designs and/or investments that need to be made to enable this. And that's really where you see that capital. When you think about the existing Temple 1, Temple 2 CapEx, you could imagine, historically, that's been in that sort of million-ish per year level, and we expect that to continue.

So the vast majority of what we're guiding here to is really for establishment of a private use network type setup, and that's again, we think, incredibly important to accreting value in a very capital-efficient manner for BKV.

Yes, Betty, just if I could tack on one thing. Just keep in mind that all this is going to be funded within cash flow. Our entire '26 program, including this power strategic power capital is going to be within cash flow for 2026.

Got it. And then also it sounds like you will recover this CapEx in that PPA contract down the line as well.

Exactly. It works just like a lease Betty, if you invest in landlord puts in infrastructure, then they recovered in the rent. It's the same concept, right in a PPA, you basically amortize the cost of your capital over the life of a contract as part of the investments you make.

Got it. That makes sense. My follow-up is on the CCUS business. It's really good to see that 1 million tonne per annum target getting raised to 1.5. Clearly, momentum on that asset. Can you speak to the financial implication of that business going forward? Maybe help us with maybe dollar per ton margin on that business? And what are you seeing in the market to drive that confidence to raise that long-term target?

This is Eric. Yes, thanks for the question on CCUS. It's a good one. And we've signaled before on the back of the passage of the one big beautiful Bill Act some expanded commercial interest. We continue to see that in that commercial interest and the subsequent projects like Comstock that we were excited to announce definitive agreements reached upon.

In total has given us the confidence to raise that target to 1.5 million tonnes run rate within 2028. So we're stair stepping into that already this year with 2 more projects coming on in the first half. We'll be drilling another injection well, a high West stratigraphic well and then advancing these commercial agreements like Comstock towards FID. You can think about the economics of these projects in the kind of $48 per ton EBITDA range. And those are the kind of solid economics we use as we march forward towards that 1.5 million tonnes.

Our next question comes from Scott Gruber with Citigroup.

-- Congrats on the strong performance last year, given multiple vectors of growth here. Chris, I wanted to come back to power. You're investing in a private use network. It sounds like that's separate from the grid. So I just wanted to confirm that. And then there's discussions happening at ERCOT around alterations to their grid connect approval process. How is that impacting your discussions with potential customers for a longer-term PPA.

Scott, thanks. Good questions. On the private use network, the setup would be ultimately to connect it back into the grid. So you can imagine it's a behind-the-meter setup. You would hypothetically connect into a data center directly from your generation assets, but then you would have a switching yard that would feed a substation, which is grid connected.

And so think of it in simple terms, the analogy would be something like a private use network that connects them into a broader grid. And those time lines may not match up on one, but that's the end goal. And so as we've mentioned, this is probably where you're going to see the market move with co-located power generation over the next few years.

And the reason for that is manyfold but a lot of it has to do with transmission congestion. One of the biggest constraints in the market, this will get to your second question, is the ability to kind of move electrons in sizable form in and out localized areas.

And having co-located power in a private use network set up really does solve a lot of the issues associated with that. It optimizes the amount of CapEx that needs to be incorporated in the grid. And so that's really where we see the market going. In terms of the regulation specific for Texas and ERCOT, I think it's overall bullish.

Look, Texas is going big on infrastructure, particularly data center infrastructure -- it's open for business. There's a very strong feeling here in the state to promote investments in the power grid. And so we think Texas is one of the states that's really going to figure this out quickly and BKV is taking a leadership position in Power in Texas. With regards to the regulations themselves, the major concerns of the grid operators are, one, we want to ensure grid reliability. So how are you considering that?

Two, we want to make sure rates are fair and equitable to existing customers across the state. And three, we need to make sure that new investments are built into the system are encouraged -- and so the regulations are really orienting towards large load. That's the SV6 regulation that everyone is talking about here.

And we think it's incredibly constructive because what they're doing is creating a framework to high-grade projects that address all those 3 things, right, grid reliability, ability to ensure equitable rates to existing customers in the state and then adding grid generation assets.

And our designs that we've been describing, including the CapEx I mentioned, address those 3 key points. So we think this is going to high-grade the projects that are real that have real customers that have real funding behind them and weed out those projects, which are speculative and sort of not as real. So overall, I think we're active with the regulators and the stakeholders here in the state, and we think that Texas figures is out very quickly. And I think a lot of customers have that same view.

I appreciate all the color. And I also want to turn to the Comstock deal get to see that across the finish line. Can you just walk through the injection ramp at those facilities as well as the timing of the associated CapEx? Is there CapEx associated with those projects in the second half of this year, for instance, just some color there would be great.

Yes. So thanks, Scott. It's a good question. Just appreciate Jay and his team really working with us on this project. I think -- if you think about what we've guided to, we're expecting to be injecting in '28. So that's when we're going to commercialize these projects. We didn't guide to a volume ramp. Obviously, that's something that we're working with Comstock and we'll kind of figure out.

I think you can think about the volume as multiples of our current injection amounts. So it's a significant amount of injection volume. If you think about the spend curve, most of these projects follow a typical construction S curve. So within the last 12 months before injection, that's when you see a majority of the CapEx gets spent.

We've kind of historically guided to sort of a couple of hundred bucks a ton of capital that has to go into investment. And so that's probably not a good -- sorry, that's probably not a bad way to think about it.

But yes, I think you should expect that spend to be more sort of back-end loaded and then the volumes themselves to be multiples of what we're currently injecting.

Our next question comes from Jonathan Margine with KeyBanc Capital Markets.

On Power on Slide 7, you referenced a potential PPA execution on 4.5 terawatt hours of unutilized capacity. Can you just clarify whether this implies that a PPA covering just a portion of the temple plant capacity with the remainder being sold into merchant markets or just how you're seeing the structure of a PPA shaping up based on your latest discussions?

Jonathan, it's Chris here. It's a good question. So when you look at Temple today, we've got 2 identical power plants in Temp 1 and 2, each 750 megawatts. Today, we hedge roughly half of the complex. So one power plant equivalent worth of power. And there are several reasons you do that, right?

Oftentimes, you can sequence your maintenance to be down on one plant and be fulfilling your power obligations of the other. And so we see a PPA in a similar type structure. PPA effectively is a long-term hedge on power prices. And so you could imagine that you're going to always be kind of looking at about half your capacity being kind of contracted and the other half being floated so that you can manage, as I said, around your maintenance schedules and just have resiliency as well.

And so the balance -- when you have the balance of the volumes that are not contracted, you're absolutely right, you would -- from a behind-the-meter set up, you actually able to feed that into the grid and sell that. and you're able to load balance, right? So if you've got additional power that the customer is not using, you would again theoretically sell that additional power into the grid as well.

So when you think about these agreements, they're structured like long-term offtake agreements that you would see potentially even for an LNG contract. So they're substantive, you can imagine something like 750 megawatts over 10 to 20 years. With sort of a structured price, which is somewhat capacity payment, blended with an energy payment and at a price that's typically above strip, right?

So these are the structures that we see in the market today and I think, are good reference points and you're seeing -- starting to see the announcements on the gas side for these. But yes, that's how you can envision something like this coming together.

Okay. That's great. I appreciate that. Just moving on to CCUS. On the sequestration outlook for a 1.5 million ton annual run rate by 2028, an increase from the prior 1 million tons you saw by 2027. Just on that gradual ramp, can you just help us understand how you see those volumes scaling throughout 2030.

Sure. Eric here. So yes, the ramp through 2030. So I'll start with the ramp into 2028, the 1.5 million tons. As you referenced, we've updated and upgraded that on the back of a lot of commercial interest, as I mentioned earlier, following the One Big Beautiful Bill. We've taken that commercial interest and translated it into projects like the Comstock project like others in the making that we're progressing towards FID.

As I mentioned, we have the 2 this year. We're drilling some more wells. We're really excited about this kind of steady cadence of CapEx to get us to that 1.5 million tons by 2028. And then as we ramp from there into the volumes start to ramp significantly on the back of some of this commercial interest in bigger projects that we're navigating now on the back of the 7 Class V permits that we filed, 6 of which are in Louisiana, all of which are progressing nicely.

You'll remember in our High West project is surrounded by 30 million tons of CO2 emissions within a 30-mile radius. So you can see the size and the magnitude of projects that help us start to scale this business dramatically past 2020. And on the back of these existing Class 6 permits, roughly 50,000 acres we have under post-pace lease and a really nice platform to grow post 2028 as we deliver on the 1.5 million ton run rate within that year.

Understood. Appreciate the context. I'll leave it there.

Our next question comes from Michael Ferro with Pickering Energy Partners.

It seems like the company's willingness to develop a Temple 3 plants, if it's underpinned by an offtake agreement, it's a positive indicator for your outlook on the PPA market as a whole. So would you say that your confidence level has improved in signing a quality PPA, and therefore, the potential for TMP plant has improved?

Yes, Michael, good question. Absolutely, right? If you look at what I've just described in terms of the way the regulators are thinking about the large load applications and the overall has [indiscernible] process having additional generation assets co-located with additional data center infrastructure is, in our minds, very critical.

And so you need to be able to show that you're going to not only kind of take power from the grid, but you're also going to contribute power to the grid and add to grid resiliency. So that enters the concept of we believe that Temple 3 does contribute to that.

It adds additional resiliency to the temple energy complex when you got you could imagine Temple 1, 2. And originally, Temp was designed for 3 power plants. There's a sufficient amount of space, water, gas, infrastructure et cetera. And so it makes a lot of sense that as you start to design a private use network, you would include the construction and development of additional generation assets in the form of a hypothetically Temple 3, right?

So we're excited about that. Again, it would be backed by commercial arrangements in the same vein of the capital we're spending on the power side. You're looking for a return on that capital as part of an agreement and so we would not move forward without those agreements in place.

But as you've highlighted, the optimism around what's happening in Texas and the overall amount of data center infrastructure that we expect to be built is, I would say, really accelerating and BKV is at the forefront of that. I appreciate that detail.

As a follow-up, I'd like to go on the Upper Barnett appraisal program that's targeted for this year. Now the preakkeeping costs appear higher than the core lower Barnett position. So the company's ultimate goals here with this program? And maybe you can provide us with maybe a well count that the company plans to test this year?

Yes, sure. Michael, this is Eric. Thanks for the good question on the upper Barnett. We're excited about the future of the Upper Barnett as included in our inventory counts. We'll be testing one well at least this year, possibly to. Yes, at the moment, our breakevens are slightly higher than our average for the lower Barnett.

But on the back of the success we've had in Lower Barnett, dramatically lowering dollar per foot cost by 30% over the last 3 years. Enhancing and advancing completions, negotiated gathering, compression, processing, transport for the upper Barnett and our ability to proven to execute in the high $0.40 per Mcfe F&D costs.

We'll translate all those learnings in the upper Barnett this year. We'll drill the 1 well. We'll evaluate it. We may drill a second by the end of the year, and then we'll have a steady dose of upper Barnett wells as part of our program going forward.

But we absolutely expect to delineate and confirm those 100 wells this year. We're excited about those on the back of the older vertical wells, some refracs we've had in the area. So we really think the upper Barnett is prospective, and we look forward to sharing kind of some more results by midyear, second half of the year.

Our next question comes from Jacob Roberts with TPH & Company.

I wanted to start circling back to the power capital. And I guess my question is maybe in context of Slide 25. When we think about that guidance, is that a function of the number of potential PPAs? Is it a function of the scale of the agreement or even maybe the geographical distance from Temple?

Yes. So thanks, Jay. Good question. I think the slide is meant to show the activity around temple, right? If you think about where people are building massive amounts of data center infrastructure, they're looking for a few things. One is the ability to add generation assets and grid interconnect.

That's critical. Number two, they're looking for proximity to existing fiber lines and/or data center clusters that are already in existence. And number three, they're looking for a buildable friendly environment where just in terms of licensing, contracting, regulations, et cetera, are streamlined.

Temple sits right between Dallas-Fort Worth area and the San Antonio, Austin cluster. And this slide is meant to show the amount of activity in Temple. The city of Temple it South has been astronomical in the last especially 24 months around that. And it's for the reasons that I just mentioned, right? It's proximity, it's flat land, it's billable. It's Texas. It's grid connected. There's 30, 45 KV lunch. So that's the intention.

In terms of how you'd actually design, the closer to the generation assets, the better, right, as you build, you're going to see more and more of this colocated power design that I'm just describing here. That's critical because of what I mentioned around grid congestion.

If you're pulling huge amounts of megawatts the more localized you can match that demand and supply, the less taxi amount of infrastructure you rely on the grid. And so that's where you're seeing loads in the past were sort of in that 200, 300-megawatt level for data centers, now folks are talking about gigawatt plus.

And so when you're talking about a gigawatt interconnection, you really do need localized generation support. So you can imagine the closer you are to generation assets, you optimize your CapEx more and you get better bang for buck in terms of just the overall design. So that's kind of where this goes, and you're seeing that in this slide here on 25.

But like I said, Temple is an incredibly active area for data center development, and we're excited to be at the heart of that with 1.5 gigawatts of generation capacity.

That's helpful. And then maybe taking a longer-term view on the gas marketing side of things, could you remind us on how your Barnett takeaway contracts are currently structured? And maybe in terms of the ability to eventually shift more of those volumes toward what could become more valuable hubs, specifically Kt and Ship Channel.

Yes. Sure. Jake, this is Eric. Thanks for the question on the contractual nature of our marketing. As we show in our slide deck, right now from the Barnett, anyway, roughly 40% of our gas goes to NGPL Texo.

30% to Houston Katy ship and 30% to Transco. We received a very nice uplift from the Transco Station on a typical run rate basis. I think over time, a lot of contracts, firm contracts are expiring over the next 2 or 3 years. enabling us opportunities to sell the gas into multiple markets, and this is exactly why we're so very excited to be positioned in the Gulf Coast.

We can sell to our own power plants or other power plants. We can sell locally to the DFW area. We can expand some of our contracts to these existing hubs directly to industrials in the Gulf Course corridor. And then, of course, the big boom of all the LNG expansion that's going -- this hitting to the tune of in our estimation, 17 Bcf over the next 4 or 5 years.

So being positioned in the Gulf Coast having multiple access to multiple points in hubs as well as infrastructure that was built to handle far more than the Barnett is producing today as a basin. And the contractual nature of our expiries that allow us the flexibility.

We're very excited for margin enhancement, what we call alpha margin as a result of our marketing coming out of the Barnett and really increasing the commercial generation of cash flow and margin from our company.

Yes, Jake, it's David. It's something we're actively managing. We spent a lot of time on that internally. And you've heard Chris talk about right? End of the day, we want to be the highest dollar per molecule provider out there, and this is part of that. So you'll see us over the 6 to 9 months relate to more color around our marketing efforts, and I think will be well received by yourself on the street.

[Operator Instructions] Our next question comes from [indiscernible] with ROTH Capital Partners.

So I just have a question about the East fixes project in the last quarter, you said that the target FID was going to be in first half '26. But this quarter, you said it's going to be urate internal FID in December. Is that project are still waiting for FID? Or is it ready -- that's 1 question.

Yes. Thank you. This is Eric. Thank you for the question, about our East Texas project, where we reached internal FID. Yes, we're very excited about that. That's kind of Stage 1 in our trajectory towards our final investment decision which we haven't put out a time line on just yet.

But what I can say is we're progressing that project with the same major midstream operator for which we're doing the Eagle Ford project about to start. All of the documents and agreements are in place we'll be drilling the injection well this year with an anticipated start-up sometime in 2027 is what we've signaled.

So FID is forthcoming on that. We'll be drilling the well. We're very excited for that here in the first half of the year. And we look at that as a continuation of our kind of sweet spot so far in these Class II natural gas processing projects. generating that $48 per ton in EBITDA margin and stair stepping into additional projects in our ramp to 1.5 million tonnes.

And just my second question about the M&A after backlog positions. So what are the consents on the M&A right now?

Yes, Fu, it's Chris here. I think we've shown this is a company that knows how to do M&A. The Bedrock acquisition is going incredibly well in terms of just being able to integrate those assets and really absorb them into the Barnett. The Barnett remains our core M&A target. There's a natural roll up on the upstream side.

There are a number of players that we've shown in the past, there's over a Bcf of M&A opportunities in the basin, and we'll continue to prioritize those. More broadly speaking, we're always looking in the M&A markets, right? We think this business model for mid-year gas basins is ideally positioned, and we really are mastering it.

We manage some of the oldest Shale wells -- Shale wells in the entire country, and we understand how to manage them really, really well, and we've demonstrated that. So as we look in the Gulf Coast at basins and evaluate sort of the horizon will be active evaluating and analyzing opportunities and looking for accretive risk-adjusted transactions that BKV can continue to scale our business model in line with the winning formula of gas, power and carbon capture.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Chris Kalnin for closing comments.

Thank you. And thank you, everyone. I appreciate your time. BKV is positioned for growth along all our 3 vectors. We're very excited about 2026, and we look forward to future announcements around that. Thank you, everyone.

Good morning, everyone, and welcome to BKV's Third Quarter 2025 Earnings Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] I would now like to turn the call over to your host, Mr. Michael Hall, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining BKV Corporation's third quarter 2025 earnings conference call. With me today are Chris Kalnin, Chief Executive Officer; Eric Jacobsen, President of Upstream; and David Tameron, Chief Financial Officer.

Before we provide our prepared remarks, I'd like to remind all participants that our comments today will include forward-looking statements, which are subject to certain risks, uncertainties and assumptions. Actual results could differ materially from those in any forward-looking statements. In addition, we may refer to non-GAAP measures. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, including those associated with the closing of our acquisition of a majority control position in the Power JV, which remains subject to customary closing conditions, including approval by at least 75% of the disinterested shareholders of Banpu Power and the integration of the upstream assets we recently acquired in our Bedrock acquisition into our existing portfolio as well as the reconciliations of non-GAAP financial measures, please see the company's public filings, including the Form 8-K filed today.

I would also point listeners to the updated investor presentation posted this morning on our Investor Relations website. We encourage everyone listening to review those slides for further information on our business, operations and results from the quarter.

I'd now like to turn the call over to our CEO, Chris Kalnin.

Thank you, Michael, and thank you, everyone, for joining us to discuss our third quarter results. BKV delivered another strong quarter, reinforcing our said-did culture and disciplined execution of our strategy. The third quarter was marked by several notable achievements that reinforce the strength of our business model and accelerated momentum of our closed-loop strategy.

I want to begin this quarter by highlighting significant progress in our Power business. At the end of October, we announced that we have entered into a definitive agreement to acquire 1/2 of Banpu Power's interest in our Power joint venture for an equivalent value of approximately $1,000 per kilowatt of generation capacity. At the close of the transaction, which is expected to occur in Q1 2026, BKV will increase our overall ownership in the JV to 75%, giving us over 1.1 gigawatts of low heat rate equity power generation in the ERCOT market. We are thrilled to have reached this agreement to acquire the majority and controlling stake in the Power JV as it's a critical step to advancing our closed-loop strategy and enhances our growth flexibility.

I would like to thank the Banpu Power team for their strong partnership in our successful joint venture. We are excited about our ability to drive growth in our Power business. And we are confident that our differentiated business model has ideally positioned us to benefit from the macro energy tailwinds that are driving the U.S. markets. Controlling the Power JV transforms it into a strategic growth engine, allowing us to consolidate results, align strategy and accelerate our ability to create long-term value.

Looking ahead to 2026 and beyond, ERCOT's long-term fundamentals remain exceptionally strong. Texas continues to experience unprecedented load growth from AI data centers, industrial expansion and steady residential demand. The state of Texas remains open for business and is proactively facilitating and in some cases, fast tracking interconnections to meet this surge in electricity demand. The passage of Senate Bill 6 is aimed at improving interconnection planning and grid reliability to support this growth. For BKV, this combination creates a durable expanding market for our existing Temple assets and a clearer pathway to secure premium PPAs.

Our confidence in the Power business is grounded in the tangible progress we've made in discussions with hyperscalers, data centers and other potential customers. We are encouraged by the unique tailored energy solutions that BKV is able to offer these potential counterparties. In particular, our capability to provide a one-stop offering that combines power, natural gas and carbon capture is a true winning formula and is resonating deeply with long-term AI and data center customers as evidenced by recent announcements from major hyperscalers. We also continue to actively negotiate with OEMs to secure additional power generation capacity to serve future load growth from potential customers backed by secure commercial agreements.

In our carbon capture business, we are experiencing strong momentum. Importantly, we are seeing a significant uptick in interest from potential PPA customers that are interested in the combination of gas-fired generation and carbon capture. Further, we are making meaningful progress towards our goal of an injection rate of 1 million tons per annum by year-end 2027. Existing projects are advancing on schedule and we expect to have 2 more operational projects within the first half of 2026. Overall, there is optimism following the One Big Beautiful Bill Act by emitters across the sector.

BKV's carbon capture business has demonstrated strong leadership. In particular, our strong partnerships with Copenhagen Infrastructure Partners, Comstock Resources, Gunvor, and a large midstream company and others all underscore both the credibility and the momentum of our carbon capture business.

Our upstream business remains a core cash engine for the company. Our Barnett and NEPA assets outperformed expectations again, delivering strong overall results, including outperforming on production, cost and capital efficiency.

In the third quarter, we successfully closed our Bedrock acquisition, materially expanding our operational footprint in the Fort Worth Basin. This transaction reinforces our position as the leading operator in the play and underscores our role as the natural consolidator of the Barnett. We believe the Barnett sits at the sweet spot of all the shale plays, positioned at the epicenter of U.S. demand growth in and around the premium markets of the Gulf Coast.

We continue making strong progress integrating the Bedrock assets into our portfolio and are excited to realize the benefits from the combined operations. The Bedrock acquisition brings high-quality assets for both existing production and new developments, including new wells and refrac candidates. We are excited to demonstrate the accretive nature of this transaction over the quarters to come.

BKV's closed-loop strategy, combining gas, power and carbon capture is a winning formula that is in line with the biggest trends in energy. The ability to offer carbon-neutral power solutions in Texas, in particular, positions us uniquely in discussions with many customers who are willing to pay premiums for these energy solutions. We remain confident in our business and our ability to capitalize on the megatrends in the market, which are driving the future of energy. With that, I'd like to hand the call over to BKV's President of Upstream, Eric Jacobsen, to discuss our operational performance for the quarter.

Thanks, Chris. The third quarter was another outstanding one for our operations as we further capitalized on momentum in both our upstream and CCUS business lines. Our upstream business delivered another excellent quarter, beating our production guidance at the midpoint with volumes up 9% year-over-year and 2% sequentially at 7% below our guided CapEx midpoint. As a reminder, we raised full year 2025 production guidance by approximately 4% at the end of last quarter and have continued to maintain the same base business capital range.

We remain a leader in managing low base decline through the leveraging of data analytics and artificial intelligence, outdelivering new well performance expectations and setting the standard for sustained capital-efficient production in the Barnett.

Moving to the close of the Bedrock acquisition. BKV has already captured value from these newly acquired Bedrock assets. Integration has been seamless. And our teams are already applying our proven operating playbook to enhance value through improved performance, reduced costs and accelerated efficiency gains, all of which we call torque or delivering value even better than underwriting assumptions. The Bedrock acquisition also adds meaningful development runway, including at least 50 equivalent new drilling locations and 80 refrac opportunities, creating substantial near-term value potential. You'll see us continue to drive these development and torque initiatives in the quarters ahead, further proving BKV's leadership strength in the Barnett.

During the third quarter, we drilled 8 new wells, completed 8 wells and performed 11 refracs, bringing our total to date refrac count to over 400, distinguishing ourselves as the refrac leader in North America. Our year-to-date Barnett D&C cost average is $545 per lateral foot, representing a further 3% reduction from our second quarter performance and a 14% reduction from our 2023 to 2024 program average. This cost improvement was achieved while drilling longer laterals and implementing enhanced completion designs that have resulted in excellent well performance and accelerated turn-in lines.

Further, during 2025, we turned in 3 of the 25 best 1-month peak wells in the entire recorded history of the Barnett, including 2 of the top 3 this decade, a clear proof point of our subsurface completions and operational excellence, reflecting the technical acumen of our teams. Our teams have delivered all of this with an expected capital investment as we continuously find new ways to increase efficiencies and outperform expectations. In fact, our total full year corporate capital guidance remains unchanged at $290 million to $350 million. Within that corporate CapEx range, we continue to see legacy development capital at the high end of our previously guided range, and we have added approximately $10 million of development capital to kickstart our Bedrock torque initiatives.

We've delivered substantially more activity and strong results while exercising highly disciplined and capital-efficient investments. For the fourth quarter, we expect production to average 910 million cubic feet equivalent per day with a range of 885 million to 935 million cubic feet equivalent per day, representing the full integration of our bedrock assets and continued strong performance from our base business. The production guidance component of our base business, excluding Bedrock assets, is 810 million cubic feet equivalent per day, which would bring full year base production slightly above even our previous raised guidance midpoint.

Our continued effective and efficient upstream performance, coupled with the Barnett positioning to supply gas to high-margin Gulf Coast demand centers, enables continued strong financial performance for the long term. We're not only driving the success of our core upstream operations, we're fueling the growth of our other business lines.

Turning to our CCUS business. We are well positioned in this rapidly expanding segment. Since the passage of the One Big Beautiful Bill Act, we have received a significant increase in inquiries from potential emitter partners. These discussions are ongoing and we're encouraged by the quality of opportunities entering our pipeline. Combined with the projects already advancing through various stages of development, we believe the growth potential for this business remains strong while adhering to our capital framework. The Barnett Zero facility has now been operational for nearly 2 full years and once again achieved strong quarterly performance, maintaining over 99% uptime and injecting approximately 44,000 metric tons of CO2. Since project inception, approximately 286,000 tons of CO2 have been injected. Barnett Zero continues to serve as a vital proof point of concept for our broader CCUS strategy, showcasing BKV's technical expertise and providing tangible validation to current and prospective partners.

The project we announced on our last earnings call, the East Texas project with a leading midstream company, is moving forward, and we expect FID for that project in 2026. As a reminder, we anticipate that approximately 70,000 metric tons per year of CO2 could be captured on that project. This is the second project we are developing with that same midstream company. The previously FID-ed Eagle Ford and Cotton Cove projects both remain on schedule. These projects are expected to achieve average sequestration rates of approximately 90,000 and 32,000 metric tons per year of CO2 equivalent, respectively. The Cotton Cove injection well was successfully drilled in September, and both projects have received EPA approval of their measurement reporting and verification or MRV plans.

I also want to address recent developments in Louisiana, a strategic focal point for our CCUS business, where the governor signed a temporary moratorium on the consideration of new CCUS project permits. We view this as a constructive step that brings focus and clarity to the permitting process and advantages those like BKV that have already submitted quality permit applications. The state's decision to prioritize existing applications is helping to distinguish credible developers with technically sound near-term projects that can deliver real benefits to Louisiana. All 6 of BKV's permit applications, 5 from our large-scale High West Project adjacent to New Orleans and 1 from Donaldsonville near Baton Rouge have been classified as administratively complete and are among those advancing towards approval under Louisiana's primacy. We're encouraged by the state's active engagement and recent movement on permit issuances, which signal growing regulatory momentum and confidence in responsible carbon capture development.

We remain on track to reach 1 million metric tons per year of CO2 injection by the end of 2027 and see the related capital requirements as very manageable within cash flow under our existing capital plan. Together with our CIP partnership and a robust project pipeline, this positions us for meaningful free cash flow generation from CCUS later this decade.

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

Thank you, Eric. Turning to our Power business. As Chris mentioned, we are thrilled to announce our pending acquisition of a majority control position in our Power JV. Increasing our ownership to a 75% equity stake means we will have over 1.1 gigawatts of power generation capacity in the growing ERCOT market. As previously disclosed, the total purchase price will be $376 million, which includes the assumption of $145 million of debt. The remaining $231 million will be funded 50% in cash and 50% in BKV stock, which equates to 5.3 million shares based on a predetermined VWAP price.

This transaction sets a clear marker on the value of this business line within BKV's portfolio and positions Power as a core growth engine for our company. The increased ownership will also come with an updated and aligned governance structure and will unlock additional potential for commercial opportunities. Following the close, which is expected to occur in the first quarter of 2026, we expect to include the Power JV results within BKV's consolidated financials, providing greater transparency into the business' strong cash flow generation and enabling investors to better recognize the value it brings to our overall portfolio.

While third quarter Power JV adjusted EBITDA was below our guidance, operational performance remains very strong. We are incredibly proud of our Temple team, which has set a high bar for performance and has established a solid foundation for our growing Power business. Pricing did disappoint during the quarter, largely reflecting milder weather in Texas as third quarter cooling degree days were 15% lower than the 5-year average. While this resulted in lower-than-expected prices, market strength remains evident and robust load growth continues to support long-term ERCOT fundamentals.

Power prices averaged $46.29 per megawatt hour during the quarter, with natural gas costs averaging $2.87 per MMBtu, resulting in an average spark spread of $25.82 as compared to $20.82 a year ago. For the quarter, BKV's share of power JV adjusted EBITDA was $20.4 million with gross power JV EBITDA coming in at $40.9 million. For the fourth quarter, we expect gross power JV EBITDA of $10 million to $30 million, reflecting typical seasonal patterns and continued operational execution.

Shifting to BKV's corporate financial performance. We delivered another outstanding quarter, highlighted by our upstream outperformance, disciplined capital spending and a strengthened balance sheet. Net income for the third quarter was $76.9 million or $0.90 per diluted share with adjusted earnings of $0.50 per diluted share. Combined adjusted EBITDAX attributable to BKV, including our proportionate share of the Power JV adjusted EBITDA was $91.8 million, representing a 50% increase from third quarter of 2024. These results were driven by higher production volumes, improved realized pricing and continued cost reductions across our upstream operations.

Accrued capital expenditures totaled $79.6 million for the quarter, 6% below the midpoint of guidance. The spending included $56 million for upstream development and another $24 million for CCUS and other. Our teams continued to deliver strong results and higher activity levels while maintaining capital discipline. During the quarter, we achieved 9% year-on-year production growth, advanced investments in our CCUS partnership and project pipeline and reduced debt levels in our power JV.

With regard to the balance sheet, we closed the third quarter in a strong financial position. Several positive developments further strengthened our capital structure, leaving us well positioned to fund and advance our growth initiatives. A key highlight was the successful execution of our inaugural bond offering. We issued $500 million of 7.5% senior notes, marking an important milestone in our capital market strategy. Proceeds from the bond were used to fund the cash portion of the purchase price for our Bedrock Shale acquisition, as well as pay off the outstanding RBL balance.

During the quarter, we also strengthened our liquidity position by expanding our elected commitments under the RBL, increasing it from $665 million to $800 million. The increase primarily reflects the additional borrowing base capacity associated with the Bedrock acquisition and underscores the continued support and confidence of our lending partners. Our balance sheet remains straightforward and conservatively positioned with $500 million of senior notes outstanding and no borrowings under our $800 million RBL. Our net leverage ratio as of September 30th stood at 1.3x within our stated leverage target of 1x to 1.5x.

Cash and cash equivalents totaled $83 million at quarter end. And combined with remaining RBL availability, total liquidity stood at $868 million. In addition to this strong liquidity position, we continue to manage commodity price risk through our prudent hedging program. For our updated hedge positions as well as fourth quarter 2025 guidance ranges, you can refer to our press release and our updated investor presentation, which are both posted on our website this morning.

We will release 2026 guidance in February. But in early looks at our budget, prior to considering any successful PPA negotiations, we see our newly combined business generating meaningful free cash flow. This is driven by both our upstream and power businesses, which more than fund the capital needs of our CCUS business. With that, I'd like to turn it back over to Chris for his concluding remarks.

Thanks, David. The third quarter of 2025 exemplifies BKV's said-did culture and positions the company for sustained long-term profitable growth. Our achievements this quarter span all aspects of our business. In Power, we announced the purchase of a controlling interest in the Power JV, increasing our ownership to 75%, which we expect to close in the first quarter of 2026. In upstream, we successfully closed the Bedrock acquisition while continuing to drive highly competitive capital efficiency and production growth.

In CCUS, we have additional momentum with high-quality projects, supported by our CIP partnership. Financially, we successfully priced our first corporate bond and maintained a strong balance sheet. The ongoing integration of our gas, power and carbon capture capabilities creates unique energy solutions that are increasingly valued in today's market. Looking ahead, we remain excited about the multiple growth vectors of our business.

I want to thank our exceptional team for their continued dedication and excellence in execution and our shareholders and partners for their ongoing support of BKV's vision and long-term strategy. We look forward to updating you on our continued progress in the quarters ahead.

Operator, we are now ready to take questions from the audience.

[Operator Instructions] Our first question comes from Betty Jiang with Barclays Bank.

Congratulations with the acquisition of a controlling stake in the Power business. So can we just start from there and talk to how gaining control of the power unit going forward would change your conversation or how you have that conversation with hyperscalers and growing the Power business over time?

Yes, Betty, thank you. So first of all, we're really pleased with the acquisition. It's clear to us that the power markets in Texas are poised for very strong growth and our move into buying 50% of Banpu Power's position is a signal of our optimism in the market. I think the ability to kind of control the JV and consolidate does a number of things for our discussions. Number one, it allows us to bring together in a very seamless way the energy solutions that we uniquely provide between power, gas and carbon capture so that we can structure commercial agreements in a singular holistic energy solution package that a lot of these hyperscalers and data center companies are very interested in. So that's the first thing.

The second thing is it positions us to really provide the transparency around our financials that investors are looking for. And I think also that allows us to be able to disclose a lot more information financially around what we're doing with the JV. And then the third angle is the way we've set it up from a growth or strategic flexibility engine for investments or additional opportunities, acquisitions, et cetera, in this 75:25 structure really is the right mix in our minds for long-term growth, and that allows us to deploy capital. When you think about expansions under the back of additional commercial agreements or additional acquisitions, it really does position us ideally. And that's a key part of these discussions with hyperscalers as well and potential data center companies.

My follow-up, staying with power, and I want to ask about SB6. I understand that law might have some changes in how the power discussion and a potential PPA could be struck. Can you just speak to how that might be impacting your conversation with the hyperscalers and then the optionality and other solutions that you can bring to the market despite that policy change?

Yes. So first of all, I think SB6 is really something that's constructive by the state of Texas. It's an effort to high-grade the types of projects that are in the queue. A lot of folks have been applying for interconnections but not all interconnection requests are created equal. And so SB6 has a framework that's being evolved to really streamline and high-grade the types of interconnections that are being requested in the state of Texas to get to the real demand that's coming in and allow that demand to materialize because in general, the posture of Texas is open for business. And we see this desire to streamline and enhance grid reliability while encouraging AI and data center investment, in particular, in the state of Texas.

So we think SB6 goes a good step of the way to get there. Clearly, the rules are being laid down as we speak, and BKV is very actively involved in evaluating and participating in that process.

With regards to the hyperscalers and the data center companies, I think the -- what we're seeing is the bet is that Texas figures this out pretty quickly relative to other grid regulators across the nation. And we feel like it's something that everyone wants to understand and understand how to deal with the rules. But I think what we're seeing is that there's a general feeling that this actually helps to streamline the process. And when it comes to companies like BKV with existing power-generating assets at 1.1 gigawatt of equity power today, I think it puts us in a great position to high-grade potential projects that we're looking at relative to kind of the broad universe of the interconnection request. So I think in general, I would say it's positive. Again, the rules are still being finalized. But we see this as a positive move by Texas to encourage investment in the power sector, encourage investment from the data centers and the hyperscalers. And in general, the belief is that Texas is open for business and we'll figure this out quicker than potentially other regulators across the country.

Our next question comes from Michael Furrow with Pickering Energy Partners.

Look, BKV has been able to put together quite the position in the Barnett relatively quickly as well as work down well costs and improve margins on the assets. So bringing back to the consolidation of the Power JV, the company is now trading at an expanded multiple and looking at it simplistically, this should ease further consolidation of the basin. So would you agree with that comment? Or are there certain dynamics of the Barnett M&A market that just may not be as clear to those of us on the outside looking in?

Yes, Michael, it's a good question. So if you look at what's happening in the Barnett, I think, one is when you ever look at a deal, for me and for the team here, it's about fundamental economics, right? Multiples are helpful but it's about what is the hold to maturity return as the last owner. And so we're looking at deals that will be accretive from both the purchase price perspective, the strip, but also what can you do with those assets from a optimization, a synergy, a dropping costs, enhancing the development.

You saw what we were able to do in the Bedrock transaction that we closed recently. And I think there's nearly a Bcf plus of opportunities in and around the Barnett. We believe that at our current multiple and with our position in the Barnett that we can continue to acquire accretive transactions in the market and we're very optimistic about continuing to be able to do that.

Just a follow-up on the power JV. I mean, look, the Temple assets really appear to be running on all cylinders. The availability factors look great. I think you disclosed only 3.5 days of downtime. So beyond adding incremental sort of around-the-clock baseload capacity, what else can the company do operationally to improve margins at the power plants outside of changing spark spread?

Yes. I mean, Michael, clearly, the number one thing is to get additional long-term contracted demand, right, and that in the form of commercial arrangements or PPAs. That's going to be front and center for the company. That's what we see the most near-term capital-efficient accretive transactions that we could pursue. So that's definitely the priority. Beyond that, if you look at Temple originally, Temple was designed for 3 power plants. Today, there's 2 power plants there. We've got ample land space, water, gas. It's flat and we're on the fiber optic super highway between San Antonio, Austin and Dallas-Fort Worth. So we think it's ideally positioned. You can imagine there's room for another power plant on the back of commercial arrangements that could be added, similar size and scale. So there's just a lot of areas of growth and reflected in our optimism about the Power business and the fact that BKV is going big in power.

Our next question comes from Neal Dingmann with William Blair.

Nice quarter. Chris, my first question -- just really interested on capital allocation, specifically. Could you maybe, David, speak to how you all are thinking about managing all your opportunities throughout the closed-loop strategy? What I'm getting at is you all seem to have more opportunities when you look at the upstream opportunities. I mean, how do you think about managing this or the power opportunities along with potential shareholder return and maintaining a solid balance sheet?

Yes. First off, let's talk about near term, right? 2026 is going to be a strong year as far as free cash flow generation. Obviously, Eric and his team right on the upstream side, we have that cash flow engine that's been there. I think once we consolidate the power results and people start to see those show up in the numbers, that's another source of funding that more than covers CCUS and any spend needed there. So we do have significant free cash flow that we have options with, right? To your point, do you delever, do you use that for strategic investments on the power side. But we do have options with that cash. And if you think about additional flexibility in '26. One, we do have the power debt that's going to be available to refinance midyear. We have additional flexibility now with the -- as Chris mentioned in his prepared remarks and I did as well, the bond and the upside to the RBL. So a number of avenues, triggers, and levers to pull as we think about financing.

then finally, as it relates to power, obviously, if you start thinking about some type of commercial opportunities, that gives you financial flexibility depending on the level of counterparty you engage with, and we expect that to be a very solid counterparty if and when we get to that point. So a lot of flexibility, significant free cash flow generation and still levers to pull if you think about '26, '27. And we look at our current structure of how we have our debt and capital structure of each entity, if you will, lined up. And they're all taken with the life cycle and the maturity of each of the respective business units. So we feel very good actually about where we're at today as we head into '26. Does that answer your question, Neal?

It does. A lot of opportunities. Perfect answer. then just secondly on looking at Slide 32, just on the forecasted sequestration. I'm just wondering, besides those projects, I think there's 4 or 5 announced. Are there others that are currently in the works? Or when I'm looking at that slide and you're talking about the forecasted sequestration volumes, is that just what's known? Or maybe just anything you could comment on that about potential upside?

Yes, sure. Eric Jacobsen here. Thanks for your question. On Page 32, I think you're referencing the target of 1 million tons of CO2 injection run rate by the end of 2027. And yes, we listed 5 or so projects that have even been -- that have either been FID-ed or announced and on track towards FID. So all of those would contribute nicely to that 1 million ton per year run rate. There are a large number of other projects in our portfolio, some of which have been brought through the CIP partnership, which has been exciting for us, some of which we've been working for quite a while. And they continue to follow our trajectory of natural gas processing, large industrial and then sort of ethanol and renewables. And all told, you can see where we have high confidence in that portfolio of projects of growing above and beyond the 1 million tons towards an ultimate kind of 16 million tons a year or so of annual run rate by the early 2030s as we've announced.

You can see on Page 34, where one of the projects we're very excited about as we look to really ramp our injection volumes is our High West project in Louisiana, where we're excited about the focus the state has brought to permitting there, as well as being located in what we believe is a world-class reservoir in what I call one of the best emitter neighborhoods in the world, 30 million tons of CO2 within a 30-mile radius. So you can see where that can really step change those sorts of projects, namely High West and some other Class Vis that we've submitted already can really step change in a nice combination with the other portfolio of projects we have around natural gas processing, other industrials and ethanol. So all told, Neal, we have a very high confidence in that 1 million tons and then growing from there with a great portfolio of projects and a great investment partner in CIP to kind of split the 49% share of that check and keep our capital allocation right in line with where we want to be on CCUS.

Our next question comes from Jacob Roberts with TPH & Company.

Chris, I was wondering if you could spend some time talking about the incremental autonomy that the increase in the stake in the Power JV will give you, maybe less so about pursuing the closed-loop strategy with customers, but really specifically on capital allocation to the power segment as a whole.

Yes, Jake, it's a good question. So as you know and we shared in our press release, the governance has changed, right, on the JV. And so pro forma for close, that would give us a majority control. That allows us to there -- very efficiently decide how much capital goes into the Power business how quickly we want to grow that business while also diversifying 25% of that capital to our partner, Banpu Power. So I think what it does for us is it gives us very strong control of the ability to flex. Clearly, we're going to work with our partner in the joint venture in terms of how much capital we deploy or how much debt we pay down. Right now, the power plant is delevering debt. It's generating cash. And so we're excited about that. And then as we look to grow into commercial agreements, increase the capacity factor and potentially add additional generation capacity through -- on the back of commercial arrangements, we're going to have a lot of ability to kind of time, optimize and size that capital in a way that fits with our overall portfolio capital allocation strategy.

Great. I'm wondering if there's a possibility of future power investments or spin-ups or inorganic opportunities that might come to the business outside of this JV?

Yes. So we're really happy with the JV structure today. I think the way we've restructured it in that 75:25 setup really does give us the vehicle for growth. Jake, if you look at how we've set up our business, we've got the upstream and midstream business, 100% owned by BKV Corporation. We're 51% of the carbon capture business in our joint venture there with CIP. And then in the Power business, we're 75% owners pro forma for the close and 25% Banpu Power. That gives us an ability to grow both the power and the carbon capture alongside of the upstream, which is our cash engine but to do it accretively. And so as we think about additional acquisitions, which we believe are there on the market and we'll be evaluating very closely and about some potential additional organic new generation assets on the back of commercial arrangements, we believe that the joint venture is the right structure for us to utilize because it does give us that capital allocation optimization and it gives us a platform that's already working and winning in the marketplace. So we see that as the right vehicle for growth, and then we'll obviously evaluate that from time to time going forward.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Chris Kalnin, BKV's CEO, for closing comments.

Thank you, and thank you, everyone, for joining our call. We really appreciate the fact that you've spent time to evaluate BKV. We're excited about the future. BKV stands at the precipice of some of the most exciting megatrends in energy. We are at the epicenter of the macro trends that are driving energy demand, particularly in the state of Texas. We see our combination of natural gas, power and carbon capture as a winning formula that is going to transform and reshape the energy industry going forward. We're excited. We're pleased about our results this quarter. And we look forward to future results as we continue to deliver on our closed-loop strategy. Before I close, I would like to take a moment to recognize our veterans, all those who have served. We thank you for your service. At BKV, we hold dear the sacrifice that many families and individuals have made in protection of our country and freedoms. And we want to thank you as we go into Veterans Day tomorrow, and we want to recognize you.

So thank you, everyone, for joining the call. Thank you, veterans, and thank you, and we'll look forward to future announcements.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.