BKV Corporation EnerCom Denver – The Energy Investment Conference

But this morning, I want to present what we believe is a very exciting energy story. I guess I got the clicker. You are supposed to read this page. I am going to focus first on just what the strategy of the company is. It is a closed-loop strategy. Look at that image on the right-hand side of the slide. It brings together upstream power, upstream as natural gas power, carbon capture, as well as the midstream. This forms what we call a closed-loop energy strategy, and effectively it is a vertically integrated model. What this strategy does for us and what is continued to prove out, we did IPO in September of 2024. One of the attractions was this closed-loop strategy.

If we think about how it is played out today, what it allows us to do is optimize margins, having that synergistic, integrated model, and then two, ultimately provide a net zero power or net zero gas usage. I will talk more about that, but that is the heart of the strategy. If you look at what assets underpin it on the left-hand side of the slide, upstream, we are the largest producer in the Barnett. We have a position in the Marcellus, 120 million a day, but primarily Barnett. Right now we are pushing 1 BCF a day between both entities combined. Low PDP, so 11% decline. That means less capital and generates significant free cash flow. Second is our power operating assets. In the heart of ERCOT, 1.5 gigawatt today. Those have been operating for a number of years. Great track record. CCGTs in the heart of ERCOT.

I am going to speak more about our power plans. A lot of growth opportunity there, as you see in that third bullet point. Fourth, our carbon capture project. Three operational projects in the U.S. My lawyers will not let me say this, but I will say that. I will say we are one of, I will caveat and say, one of any company in the U.S. to have three sequestration projects. I think we are the only one with three, but significant advance there. I will talk more about that. You see that closed-loop strategy. Then finally, ultimately, what is our goal as a company? Our goal as a company is to earn more dollars for every energy molecule that comes through our doors.

One way we can do that is by taking what is a volatile business, commodity cash flows, everybody knows it is very volatile, and through contracting that, we can de-volatize that revenue stream. Ultimately, we believe that commands a higher multiple, and then we will use that multiple to generate additional opportunities for the growth platform. Let me get into, I am going to skip over the asset base. Just pictorial there. I covered all that in the prior slide. What is the strategy provide for us today? We are exposed to the biggest mega trends in energy. If you go through the different components here, natural gas demand growth, obviously a lot of tailwinds there. If you look at where we are positioned, the Gulf Coast, LNG, well-positioned for that. That is going to help pricing differentials in the years ahead. Power, ERCOT, this has been well documented.

This is ERCOT's numbers, not ours. Potential large load growth, 20x plus between now and 2032. Then again, low carbon solutions. This is no longer sexy. This has kind of disappeared in the last couple of years, but we've remained committed to the business. We think the underlying fundamentals are very strong. So we see 25% CAGR growth between now and the end of the decade. Let me get into our strategy. One nice thing about having three different business units, three distinct sectors that work together, is that it allows us differentiation, diversification, and allows us to capitalize and be opportunistic, depending on what the market's showing us and what the opportunities are presented today that is in power.

I am going to cover our power strategy briefly and then go into kind of the assets of more of a deep dive in the assets on the upstream and power side. But from a big picture perspective, this is what has generated a lot of attention in the stock, investors, analysts, so thought I'd focus on this. We have a multi-phased approach here. So it is going to take us from 1.5 gigawatts today to essentially double that to 2.9 gigawatts. Let me go through each of these phases quickly. Today, you will see T1 and T2, that moniker on the lower left, that's Temple 1, Temple 2. That's where our assets are located. 1.5 gigawatts operational today and has been for a number of years, as I mentioned. Phase 1 is modular. So we have modular, it has been ordered. You see on this slide, 200 megawatts.

We think that's, well, not we think, but that could be upsized to 400 depending on commercial demand, but we will call it 200 today. Phase 2 is taking that 1.5 gigawatts, taking 750 megawatts of that and contracting that through a PPA. So phase 1 would have a PPA for the modular. Phase 2 would have a PPA for taking the 750 off. Again, it speaks to that strategy of taking a volatile cash flow stream, particularly a merchant energy business in Texas, de-volatizing that and locking in contracted cash flows. Phase 3 and phase 4. So we do have two turbines on a reservation, two CCGTs with a large OEM, somebody everybody would recognize. We are not allowed to say for NDA reasons, but we plan to build, assuming we get a PPA done, this is all dependent, of course, on getting a PPA signed.

We have a lot of commercial momentum. I will talk more about that. But we see phase 3 would be a new build, 600 megawatts added, and then phase 4, another new build, 2.9 would be the ultimate total. So doubling, phased approach. A lot of commercial momentum behind this. Let me talk about these two projects since they are the top of the focus today, the top of the focus of what the company's working on. One, and as you can imagine, a lot of operational, a lot of technical work going on behind the scenes on this. Temple, where our two existing plants are. About a year ago, we brought an advisor for a reverse auction process. That's allowed us to narrow down. We brought an offering to the market.

We had dozens of counterparties, but the advisor particularly has helped us to, if we will, contract that to a very small group of companies we are having discussions with. This would be, again, a phased approach. We have to secure a customer that is going to help us with that phase 1, phase 2, and phase 3, be a partner in those processes. We still expect there has been a lot of noise coming out of ERCOT on the regulatory front. Modular is exempt from that process, so it is largely unencumbered by any regulatory constraints. We recently received, in the second quarter, an air permit for 400 megawatts for a modular. We are moving forward with that. We still have a target of announcing late this year, early next year, first quarter of next year. We remain on track for that.

Ultimately, we see a lot of opportunities here, and we see this being a kind of a platform for growth for a gigawatt-plus, whether it is AI data center or the ultimate end user. The second marquee project, and we do have more in the pipeline. These are the ones we have talked about publicly. Is Jack County. Jack County, for those of you not familiar, in North Texas, located near Dallas. We recently entered an agreement to acquire 6,200 acres. We have a, what lawyers will tell me, I can say, is an interested party as part of that process. But 6,200 acres. The initial footprint here would be a CCGT plant, one of those two I mentioned on the prior page. If you can imagine, if you buy 6,200 acres, you are not looking to put up one power plant, you are looking to put up multiple power plants.

That is what we think this holds. It is a little bit longer dated, just given it is a startup. But the nice thing about this project is it brings to bear everything I talked about on that first slide. Midstream, upstream power, and potentially CCUS. Two big projects, significant momentum. The question I always get, I will figure out this slide control by the time we leave the stage, is let me see. We are in a little bit different. Keep going with the CapEx allocation. Let me talk to the CapEx allocation. Two more seconds. There you go. Got a little slide mix-up this morning. So CapEx allocation. How do we pay for all this, right? Is the question we get. When we think about allocating capital, the first dollar goes to the upstream business. That is the heart of the business.

It is the core of what BKV is. You will see in 2026, we are targeting somewhere between $290 million to $400 million as the official public guidance we have given. That will allow us 3%-4% upstream growth. That generates strong free cash flow. That, combined with the Temple plants, the Temple plants today, maybe $5 million a year in CapEx, so significant free cash flow to run that business. You will see that third bar chart, $400 million to $475 million, is what we plan on spending in 2026 for the power business. That is a lot of long lead time items. It preserves our speed advantage we have with having assets up and running. The question I always get is you look at that $690 million to $875 million and say: How are you going to pay for all this, right? What is the funding strategy?

Let me just walk through that to clear the decks on that. We enter the year with a couple of hundred million on the balance sheet of cash flow. We have significant free cash flow, call it $450 million of EBITDA after expenses, after interest. To fund that, you combine that with an equity raise we did. We have a partner contribution at the bottom you'll see, particularly CCUS and even the power, we have a 25% partner. That brings in another $130 million. I'll do the easy math for you, in sources, we're generating about $950 million this year. So significant free cash flow to pay for all this. The longer-term strategy and what this does, and we have $840 million of liquidity at the end of the second quarter. We hope to exit the year with roughly about the same amount, plus or minus.

What this allows us to do is develop these projects, and once we sign the PPA, we would move more to a project finance structure, a 70/30, call it, debt to equity. But the liquidity and the cash flows we generate from our business allows us to get this up and running, and then ultimately project finance, rethink those projects, and then continue with development in the years ahead. Where am I headed now? Let me jump to this slide. What is BKV? At the heart, as I mentioned, we were built upon the upstream business. Started as a non-op in the Marcellus. We now have operated positions in the Marcellus. But the heart of the company is the Barnett. If you look at our strategy here, it was a roll-up strategy. You go back to Devon on the lower left. We bought that. If you look at the dates, that was announced in December of 2019, just in time for COVID.