BKV Corporation (BKV) Q1 2026 Earnings Report, Transcript and Summary

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. Barnett 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 2, 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.