Executive Summary / Key Takeaways

• BKV Corporation is positioning itself as a differentiated energy company through a vertically integrated model spanning natural gas production, midstream, power generation, and carbon capture (CCUS).
• The upstream segment, primarily in the Barnett Shale, serves as the core cash engine, characterized by low decline rates and a robust inventory, with planned CapEx increases in 2025 tied to favorable pricing expectations.
• Significant growth vectors include the Power JV's strategic position in the high-demand ERCOT market, particularly targeting data centers, and the rapidly expanding CCUS business with multiple FIDs and a recently announced strategic JV aimed at accelerating project development.
• While Q1 2025 results showed a net loss driven by derivative impacts, underlying operational performance in upstream was strong, and the company maintains a solid liquidity position supported by its RBL Credit Agreement.
• Key factors for investors to monitor include the successful execution of the increased 2025 capital program, progress on the CCUS JV finalization, the Power JV's ability to secure favorable contracts in ERCOT, and the impact of commodity price volatility on financial results.

Redefining Energy: BKV's Integrated Approach

BKV Corporation, established in 2020, has rapidly evolved from a growth-driven natural gas producer into an aspiring integrated energy company. Its foundational strategy centered on acquiring and developing high-quality upstream assets, notably through the significant Devon and Exxon Barnett acquisitions, which built a substantial position in the prolific Barnett Shale. This history of strategic M&A laid the groundwork for BKV's current model, which seeks to capture value across the energy value chain by combining traditional hydrocarbon production with new energy initiatives.

At its core, BKV operates through four interconnected business lines: natural gas production, natural gas midstream, power generation, and carbon capture, utilization, and sequestration (CCUS). This integrated structure is designed to create a "closed-loop approach," aiming for vertical integration to reduce costs, optimize commercial outcomes, and ultimately deliver decarbonized, around-the-clock energy solutions. This model differentiates BKV from many traditional E&P peers and positions it to address the evolving demands of an energy market increasingly focused on sustainability and reliable power supply.

In the competitive landscape, BKV operates alongside larger, more established players like EQT (EQT) in upstream production, Kinder Morgan (KMI) in midstream infrastructure, and Antero Midstream (AM) in gathering and processing. While BKV's scale is currently smaller than these industry giants, leading to potentially higher operating costs per unit compared to EQT's efficiency or KMI's infrastructure scale, its integrated model offers a distinct value proposition. By controlling assets from the wellhead to power generation and carbon management, BKV aims for greater operational synergy and the ability to offer bundled, lower-carbon energy products that larger, less integrated competitors may struggle to match. The company's focus on specific regional advantages, such as the low nitrogen content of its Barnett gas, also provides a competitive edge in certain downstream markets.

Upstream: The Foundation and Growth Driver

The upstream segment remains the bedrock of BKV's financial performance, serving as the primary "cash engine." The company's asset base, concentrated in the Barnett Shale and Northeast Pennsylvania, is characterized by relatively low base decline rates, which provides operational stability and flexibility in capital allocation. BKV has built a competitive inventory of drilling and refrac opportunities, allowing it to systematically adjust investment levels based on commodity price environments.

Operational performance in the fourth quarter of 2024 was strong, with production of 774 MMcfed exceeding the midpoint of guidance by 5%. This was attributed to new well performance meeting or exceeding type curves, accelerated turn-in lines due to execution efficiency, and effective base decline management.

For the first quarter of 2025, production averaged 761.1 MMcfed (68,503 MMcfe total), a decrease from 821.1 MMcfed in Q1 2024, partly due to divestitures and winter weather impacts. Despite lower volumes, natural gas, NGL, and oil sales revenue increased significantly to $216.1 million in Q1 2025 from $141.7 million in Q1 2024, primarily driven by higher commodity prices.

Looking ahead, BKV plans to increase its upstream development capital expenditures in 2025 to approximately $220 million (as part of a total CapEx budget of $320M-$380M), a substantial increase from $82 million in 2024. This decision reflects management's strategy to "flex up" spending in the current price environment and develop its inventory. The company anticipates a production ramp in the second half of 2025, coinciding with expectations for rising strip pricing, and projects Q4 2025 exit production to be slightly above the Q4 2024 exit rate. The Barnett's strategic location with ample takeaway capacity to Gulf Coast markets, including LNG export terminals, is highlighted as a key advantage for realizing favorable pricing.

Midstream: Enabling Efficiency

BKV's midstream operations primarily support its upstream activities, providing essential gathering, processing, and transportation services. While generating some third-party revenue, its core function is to enhance the efficiency and commercial optimization of BKV's own production.

Midstream revenues in Q1 2025 were $2.8 million, a decrease from $4.1 million in Q1 2024. This decline was mainly attributed to the divestiture of certain assets (like Chaffee) and changes in deal structures. Despite the revenue decrease, the midstream segment remains integral to BKV's integrated strategy, ensuring reliable flow assurance and cost control for its upstream production.

Power Generation: Tapping High-Growth Demand

A key component of BKV's integrated vision is its power generation business, operated through a 50% owned joint venture, BKV-BPP Power. This JV owns and operates the Temple Plants in Texas, two modern combined cycle facilities with a combined capacity of 1,500 MW, strategically located within the high-demand ERCOT market.

The ERCOT market presents a compelling growth opportunity, driven by electrification, increasing industrial demand, and particularly, the explosive growth of data centers and AI infrastructure. ERCOT's long-term load forecast estimates demand could nearly double by 2030, with data centers accounting for roughly half of this increase. BKV is actively engaging with prospective customers in this sector, leveraging the Temple Plants' capacity and location.

Financially, BKV's share of losses from the equity affiliate (BKV-BPP Power) was $9.6 million in Q1 2025, compared to $7.7 million in Q1 2024. These results can be influenced by factors within the JV, including derivative impacts. The Power JV's Q4 2024 performance saw an average capacity factor of 38% and total generation of 1,200 GWh, impacted by scheduled maintenance. The average spark spread was $19.37 per MWh.

For 2025, the Power JV targets a gross adjusted EBITDA range of $130 million to $170 million. While near-term pricing has moderated due to new renewables and weather, management remains bullish on long-term ERCOT demand growth and the potential for scarcity pricing. BKV sees multiple growth avenues for its power business, including increasing the utilization of existing assets, pursuing M&A opportunities, and exploring the possibility of building new combined cycle units to meet customer demand, especially from those preferring new generation assets. The ability to offer decarbonized power by integrating with its CCUS business is a significant differentiator for certain customers with net-zero commitments. BKV is also open to exploring power opportunities outside of ERCOT to match customer portfolios.

CCUS: The Decarbonization Engine

BKV's CCUS business is central to its net-zero ambitions and its ability to offer lower-carbon energy products. The company is bullish on the CCUS industry, citing strong bipartisan support and the resilience of the Section 45Q tax credit. BKV is rapidly solidifying a leadership position through project development and execution.

The Barnett Zero project, BKV's first operational CCUS initiative, commenced sequestration in November 2023. By year-end 2024, it had injected approximately 173,325 metric tons of CO2 with a high reliability rate of 97%. For 2025, Barnett Zero is expected to inject between 120,000 and 170,000 metric tons of CO2. Section 45Q tax credits generated from sequestration activities contributed $3.3 million in revenue in Q1 2025, a 42% increase year-over-year due to higher sequestered volumes.

Progress continues on other projects. The Cotton Cove project, which reached FID earlier, remains on track for first injection in the first half of 2026, with a forecasted peak injection rate of 42,000 metric tons per year. The Class 2 injection well permit has been approved, and drilling is expected in Q3 2025. In Q4 2024, BKV reached FID on a third CCUS project in the Eagle Ford Shale with a midstream partner, targeting initial injection in Q1 2026 and an average sequestration rate of approximately 90,000 metric tons per year. This project is significant as it focuses on carbon capture from a natural gas processing plant (NGP), a key area for future expansion. BKV expects NGP projects to offer attractive economics, comparable to Barnett Zero with an estimated EBITDA margin around $50 per ton.

These three FIDs provide BKV with line of sight to achieving its goal of injecting over 1 million tons of CO2 by the end of 2027, largely from NGP and ethanol sources. The company's confidence is supported by its progress in securing permits, including multiple received and filed Class II permits and filed Class VI applications.

Further accelerating its CCUS ambitions, BKV dCarbon Ventures formed a strategic joint venture with Copenhagen Infrastructure Partners (CIP) on May 8, 2025. BKV contributed its Barnett Zero and Eagle Ford projects to this JV, retaining a 51% interest, and intends to develop future CCUS projects exclusively through this platform. Exclusive negotiations are underway to finalize definitive agreements within 90 to 120 days. While BKV believes its CCUS business is attractive standalone, a financial partner is expected to help accelerate growth accretively. The 2025 CapEx budget includes approximately $90 million specifically for CCUS development.

Financial Health and Outlook

BKV's financial performance in Q1 2025 reflected the volatility inherent in the energy markets, particularly the impact of derivative instruments. The company reported a net loss of $78.7 million, compared to a net loss of $38.6 million in Q1 2024. This was heavily influenced by net derivative losses of $152.2 million in Q1 2025, a significant increase from $3.7 million in Q1 2024, driven by unrealized losses on open positions and realized losses due to higher natural gas prices compared to the prior year.

Despite the net loss, cash flows provided by operating activities were $22.6 million in Q1 2025, up from $19.3 million in Q1 2024, benefiting from higher natural gas prices and improved working capital. Capital expenditures totaled $57.4 million cash ($58.0 million accrued) in Q1 2025, a substantial increase from $19.9 million in Q1 2024, reflecting the planned ramp-up in development activity.

As of March 31, 2025, BKV had a working capital deficit of $148.5 million, wider than the $71.6 million deficit at year-end 2024, primarily due to the timing of receivables and payables. However, the company's liquidity position is supported by its RBL Credit Agreement. As of March 31, 2025, the RBL had a $750 million borrowing base, a $600 million elected commitment, and $200 million outstanding, leaving significant availability. An amendment on May 6, 2025, further increased the borrowing base by $100 million and the elected commitment by $65 million, resulting in $420.9 million of available capacity as of May 9, 2025. The RBL includes financial covenants (Current Ratio, Net Leverage Ratio) and a hedging requirement (at least 50% of PDP production for 24 months), with BKV reporting compliance as of March 31, 2025.

The 2025 capital program of $320 million to $380 million reflects increased investment in both upstream development (~$220M) and CCUS (~$90M). BKV expects to fund this through cash flow from operations, existing liquidity, and potentially external financing for the CCUS business (up to 50% from external sources like the new JV). The company's hedging program provides a degree of stability to cash flows, with CAL25 natural gas hedged at an average price of $3.43 per MMBtu and NGLs at $21.82 per BKV weighted barrel based on year-end 2024 positions.

Risks and Considerations

Investing in BKV involves exposure to several key risks. Commodity price volatility remains a primary concern, as fluctuations in natural gas, NGL, and oil prices directly impact revenues and cash flows, despite hedging efforts. Operational risks, including potential delays in drilling, completion, or midstream infrastructure, as well as weather impacts (as seen in Q1 2025), can affect production volumes and costs.

Regulatory risks are also pertinent, particularly for the CCUS business, which relies on permitting processes (Class II and Class VI wells) and the continuation of tax incentives like Section 45Q. While management is optimistic about bipartisan support for CCUS, policy changes could impact project economics. The Power JV is exposed to market dynamics in ERCOT, including basis risk and the impact of increasing renewable generation on pricing, although long-term scarcity is anticipated.

Financial risks include managing the working capital deficit, servicing debt obligations under the RBL Credit Agreement (which has floating interest rates), and the potential need for additional capital to fund growth initiatives, especially if external funding for CCUS does not materialize as planned. Counterparty credit risk, particularly with the third-party marketer for gas sales, is also a consideration.

Finally, the successful execution of BKV's integrated strategy and the realization of synergies across its business lines are critical to its long-term value creation. Delays or underperformance in any segment could impact the overall thesis.

Conclusion

BKV Corporation is pursuing a compelling strategy to differentiate itself in the energy sector by integrating traditional hydrocarbon production with midstream, power generation, and carbon capture capabilities. This "winning formula" aims to provide decarbonized, reliable energy solutions, positioning the company to capitalize on the growing demand for power, particularly from sectors like data centers, while addressing environmental considerations through CCUS.

The upstream business provides a stable cash flow base and growth potential tied to commodity prices and disciplined investment. The Power JV offers exposure to the high-growth ERCOT market, and the rapidly advancing CCUS segment, bolstered by recent FIDs and a strategic joint venture, represents a significant avenue for future revenue and differentiation. While Q1 2025 results highlighted the impact of derivative volatility, underlying operational performance and strategic execution remain key focus areas. With a clear capital plan for 2025 and a strengthened liquidity position, BKV is poised to execute its growth initiatives. The successful finalization of the CCUS JV and the Power JV's ability to secure favorable long-term contracts in ERCOT will be critical indicators for investors evaluating BKV's potential to deliver on its integrated energy vision and create long-term value in a dynamic market.