BKV Corporation (BKV) Q2 2026 Earnings Report, Transcript and Summary

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.