BKV Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 12, 2024

There are 9 speakers on the call.

Operator

Good morning, everyone, and welcome to BKB's Third Quarter 2024 Earnings Conference Call. As a reminder, today's call is being recorded. And at this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. I would now like to turn the call over to Mr.

Operator

David Cameron, Vice President of Strategic Finance and Investor Relations for BKB. Please go ahead.

Speaker 1

Good morning, everyone, and thank you for joining BKB Corporation's inaugural earnings conference call. With me today are Chris Callan, Chief Executive Officer Eric Jacobsen, Chief Operating Officer and John Jimenez, 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. Additionally, we may refer to some non GAAP measures.

Speaker 1

For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward looking statements and for the reconciliations of any non GAAP financial metrics, please see the company's public filings, including the 8 ks form filed today. I'd now like to turn the call over to our CEO, Mr. Chris Callan.

Speaker 2

Thank you, David. Good morning, everyone. I am Chris Kelman, CEO and Founder of BKB Corporation. I hope you all had a good Veterans Day yesterday. I do want to take a moment to thank our veterans out there.

Speaker 2

Thank you for your service and for protecting our freedoms. I also want to thank each of you on this call for taking the time to join us today. This is the 1st BKB earnings call as a publicly traded company. BKB's IPO in late September was one of only a limited number of IPOs that occurred this year. And we believe it's quite an achievement given the volatile market backdrop.

Speaker 2

Thank you to our exceptional BKB team. The journey of becoming a public company required extraordinary effort, dedication and resilience. Our teams went above and beyond to help us achieve this goal. I would also like to thank Banpu, our Board of Directors and our shareholders and investors for their continued strong support of BKB. This is an exciting moment in our company's history and I'm incredibly honored to be with you today to share our progress.

Speaker 2

BKB is building a new kind of energy company that focuses on delivering energy solutions across our four business lines. We enjoy the best of both the traditional energy industry through our low decline and cash flowing upstream natural gas business, while also actively participating in the energy transition as we build one of the most exciting and rapidly growing carbon capture businesses in the industry, decarbonizing our energy products. We deliver our energy solutions across the value chain to end customers through our pipeline systems and our power plants. We believe that standalone each of these businesses make attractive returns and in combination they create premium value. In the Q3, throughout a challenging commodity price backdrop, we delivered solid performance.

Speaker 2

We outperformed our forecasted production on lower capital spending. We continue to lower our operating costs through core efficiency initiatives and technology deployments. We continue to fund the expansion of our carbon capture business while generating positive free cash flow. We strengthened our balance sheet by utilizing our IPO proceeds to further delever, enabling BKB to have top quartile leverage metrics among our peer set. We closed the quarter with a healthy balance sheet that is poised for additional growth, both organically and inorganically.

Speaker 2

I will now provide brief Q3 highlights from each of our business lines. For our upstream and midstream businesses, the macro environment for natural gas has continued to be challenging. While longer term natural gas prices remain bullish, near term prices have continued to be constrained by the combination of mild weather and oversupply. BKV has systematically navigated this landscape through a disciplined reinvestment approach in our upstream assets. We have prioritized free cash flow generation while seeking to optimize production declines as efficiently as possible.

Speaker 2

You can expect us to maintain this systematic approach as we look forward to 2025 and evaluate the pricing environment. Earlier this year, we sold 2 non operated upstream assets in the Marcellus Shale in Northeast Pennsylvania, which helped to further delever our balance sheet. We have replaced a portion of this divested production with our own operated production from the recent fracking of our Marcellus DUC wells, peaking at approximately 50,000,000 cubic feet equivalent per day gross in late Q3 and contributing an incremental 14,000,000 cubic feet equivalent per day of production on average over the Q3. Our Barnett assets in and around the Dallas Fort Worth area remain the foundation of our upstream and midstream business and are comprised of majority PDP reserves with low decline rates with close proximity to growing energy markets and strong access to Gulf Coast LNG markets. We also have a deep inventory of over 15 years of refrac and new drill locations within our core acreage that gives us the flexibility to adjust production levels depending on the commodity price environment.

Speaker 2

Also, our upstream portfolio produces just over 20% liquids, which diversifies our energy product mix through exposure to NGL pricing. For our carbon capture business, we have now achieved a full year of successful operations at the Barnett Zero facility. Since the commissioning of the Barnett Zero facility, we have permanently sequestered approximately 140,000 tons of CO2. This is CO2 that would have otherwise been released into the atmosphere and we have drone footage that shows the impact that our Barnett 0 project has on decarbonizing the environment in and around the Bridgeport natural gas processing plant. The Barnett 0 project has also been critical improving BKB's operational and project development capabilities to other potential emitters and partners in the industry.

Speaker 2

Carbon capture is a crucial piece of BKB's closed loop strategy. The carbon capture projects that we are pursuing make money standalone based on 45Q tax credits, which we believe have strong bipartisan support. In addition to the 45Q, we take the environmental attributes of sequestering CO2 and combine these with our natural gas products to create an innovative new natural gas product called carbon sequestered gas or CSG. This new gas product is a carbon neutral product when combusted and we have shown through precedent transactions that BKB can charge a premium for CSG. When it comes to competition for CO2 emission sources, we believe BKB operates in a unique white space that has limited competition from large integrated oil and gas companies.

Speaker 2

BKV focuses on bespoke, high concentration and point source projects, which are typically profitable, but are too small for major energy companies to pursue. The momentum we have with potential projects underscores the strength of this strategy. Going forward, we will continue to evaluate potential third party investments in our Carbon Capture business, which may include joint ventures, project based equity partnerships, financing arrangements and federal grants, any of which can provide additional capital to help us fund our Carbon Capture business. We look forward to additional announcements and progress on this front during future earnings calls. For our power business, our fifty-fifty joint venture is with Banpu Power, a publicly traded power subsidiary of Banpu.

Speaker 2

Our joint venture is anchored in 2 modern and highly efficient combined cycle natural gas power plants that have a capacity of 1500 Megawatts and are located in Temple, Texas. The power joint venture continued to provide positive operational results through the Q3 despite depressed power prices in the months of July August in particular. The ERCOT market remains one of the fastest growing power markets in the U. S. And we remain bullish over the long term outlook of the market.

Speaker 2

But we do recognize that given the market structure, we will see periods of moderated pricing. Within ERCOT, we are focused on the rapidly growing data center segment as Texas is the 2nd fastest growing data center market in the country. We believe that BKB offers a unique value proposition to these potential data center customers through our ability to provide baseload around the clock gas fired generation while decarbonizing that generation through our carbon capture business. We believe that the combination of natural gas and carbon capture provides a winning formula that will help fuel the continued growth in AI data center build outs in a sustainable and scalable manner. Overall, I am very pleased with our team's performance and our ability to navigate a dynamic market environment.

Speaker 2

We remain focused on executing our strategy and delivering value to our shareholders. Now I'd like to hand the call over to BKB's Chief Operating Officer, Eric Jacobson to discuss operational specifics for the quarter.

Speaker 3

Thank you, Chris, and good morning, everybody. For our upstream and midstream businesses, upstream production during the Q3 was 762,600,000 cubic feet equivalent per day, a reduction of 9.7% from the Q3 of 2023. And if you adjust for our non ops asset sale, the decline is reduced to approximately 6.6%. As Chris mentioned, the asset sale consisted of non operated assets in Northeast Pennsylvania, which remaining production decline was as a result of prudent capital spending reduction in response to a weak pricing environment. In fact, for 2024 year to date, we have invested just $39,200,000 of total development CapEx.

Speaker 3

Such overall low decline of our upstream assets across almost any commodity pricing and investment scenario is enabled by the nature of our asset base, strong base management and robust capital efficiency. Looking at our year to date results, production for 2024 so far has averaged 792,500,000 cubic feet a day equivalent. Some notable highlights from the Q3 included completing a handful of Upper Marcellus DUCs in NEPA, which we were able to bring online at 50% of expected AFE completion costs. These wells have exceeded type curve expectations and are able to generate attractive returns despite the lower commodity prices. We're quite pleased so far and these results could further prove up and unlock our Upper Marcellus inventory.

Speaker 3

As we entered Q4 of 2024, we began to ramp up our development capital investments focused in the Barnett to take advantage of service costs and availability against a stronger forward strip. We currently have 1 drilling rig and 1 frac crew operating in the Barnett delivering a combination of new wells and fracking existing DUCs. Moving on to our carbon capture operations. During the Q3 of 2024, our Barnett 0 CCUS operations were strong with injected volumes of CO2 totaling about 50,000 tons. As Chris mentioned earlier, since operational startup in November 2023, the Barnett 0 facility has sequestered approximately 140,000 tons of CO2.

Speaker 3

Our project pipeline remains strong and we continue to gather momentum in our CCUS business. Importantly, as the industry has seen some permitting delays at the federal level, I wanted to mention that BKV has pursued both Class 2 and Class 6 well permits for CO2 injection. This allows us flexibility in a few different ways. First, Class 2 wells are specific to sequestration of CO2 from natural gas processing facilities, which complements our core upstream business and these are typically much faster to permit. Additionally, Class II well applications are made to state regulators and are handled at the state level where we have had great success in working with the Texas Railroad Commission as evidenced by our second approval for a Class II permit for our Cotton Cove project.

Speaker 3

With the approved Class 2 permit from the Railroad Commission, our target for 1st injection on our Cotton Cove project in the first half of twenty twenty six remains on track. Further, we have filed 2 Class 6 well permit applications within the last year, which have been deemed administratively complete by regulators. 1 with EPA jurisdiction in Texas and the other with the state of Louisiana, which has primacy for Class 6 well permitting in Louisiana. I'll now turn the call over to our CFO, John Jimenez to provide more details on our Power business as well as our financial results.

Speaker 4

Thank you, Eric, and good morning, everyone. Before I move into our Q3 financials, I want to start by highlighting our Power business. For the Q3, the Temple I and Temple II power generation facilities produced 2,400 gigawatt hours of power, serving customers in the southern region of ERCOT. The plant's combined capacity factors increased to 73% for the 3rd quarter, reflecting the continued demand growth in the market and our low relative heat rates, making these plants some of the most desirable baseload plants in the Texas grid. We also commissioned our 2.5 Megawatt Solar Farm in Ponder, Texas and are serving loads through co serve to a residential community, helping to offset our scope to emissions.

Speaker 4

For the quarter, BKB's implied proportionate share of the Power joint venture's net income and adjusted EBITDA was 50,600,000 dollars 10,100,000 respectively, inclusive of our power generation or retail electricity businesses. Results in the quarter were impacted by both adverse weather and mild temperatures, resulting in a lower Power joint venture adjusted EBITDA than anticipated. As a reminder, Power is non consolidated and therefore it is not currently reflected within our non GAAP measures such as adjusted EBITDAX. Moving now to the rest of our financial performance. As Chris mentioned, we had strong financial performance in the 3rd quarter despite weak natural gas prices.

Speaker 4

Before I get into the numbers, I did want to highlight our continued deleveraging of the balance sheet. IPO proceeds were used to pay down debt and at quarter end our net debt was at $158,700,000 for a net leverage ratio of approximately 0.8 times. This comes on the heels of successfully syndicating a new RBL in June, which simplified our capital structure as the RBL balance is now the only debt outstanding for the company. Our balance sheet is poised for growth and we're confidently moving forward to the next phase of BKB's journey. With that, let's dive into the numbers.

Speaker 4

BKB generated a profit for the Q3. Net income for the Q3 was $12,900,000 or $0.18 per fully diluted share. This was down from a net income in the Q3 of 2023 of $18,600,000 or $0.30 per fully diluted share. The decrease was primarily due to a lower production following the divestment of certain non operated upstream assets in the Marcellus, unrealized losses on derivatives, as well as our decision to remain disciplined and reduce capital spending for the past 9 months. Please note that net income in the 3rd quarter included $3,000,000 of unrealized commodity derivative losses.

Speaker 4

Excluding these and other non recurring items, adjusted net loss for the Q3 2024 was $18,600,000 or $0.27 per fully diluted share. Adjusted free cash flow for Q3 of 2024 was $19,600,000 which was an increase compared to the negative adjusted free cash flow in the Q3 of 2023 of 11,200,000 dollars The increase is due to higher net cash provided by operating activities and a decrease in capital expenditures during the Q3 of 2024 when compared to the same period of 2023. Through the 1st 9 months of 2024, adjusted free cash flow is now $86,200,000 compared to the same period in the prior year of negative $22,700,000 Bottom line, the company wide adjusted free cash flow margin, including our investment in CCUS in the Q3 was 14.2% and through 9 months, our adjusted free cash flow margin stood at 19.7%. Accrued capital expenditures in the Q3 of 2024 were $24,400,000 which included $14,600,000 for development and $3,000,000 for CCUS. Year to date, our accrued capital expenditures are now at $57,300,000 including $39,200,000 for development capital and another $7,700,000 for CCUS.

Speaker 4

More broadly, as mentioned earlier, BKB continues to demonstrate the discipline of regulating capital spend within the corresponding pricing environment. Since the beginning of 2023, as the market saw overall reductions in natural gas pricing, BKB has averaged an industry leading $0.28 of development CapEx per Mcfe. As referenced earlier, we ended the 3rd quarter with a healthy balance sheet and significant liquidity. At quarter end, we had cash and cash equivalents of $31,300,000 Combined with the availability on our RBL, our total liquidity as of September 30 was 426,700,000 dollars Again, our net debt to adjusted EBITDAX ratio as of September 30, 2024 was approximately 0.8 times and our long term net leverage target remains at 1 to 1.5 times. On hedging, to support the generation of future adjusted free cash flow, our general corporate practice is that we hedge approximately 50% of PDP production for 24 months.

Speaker 4

Based on our current position, for 2025, the average price of our gas hedge position is $3.49 and an average NGL price of $21.82 for a BKB weighted barrel. For further detail on our hedging structure, please review footnote 5 in our 10 Q. Before closing out my section, I did want to make sure you saw the 4Q guidance we provided in the press release, and I wanted to comment briefly on a couple of key metrics. You'll see that we're guiding to a slight uptick in CapEx. As Eric referenced, we increased our development activity as we entered the Q4.

Speaker 4

For production, you'll see a slight decline from our 3Q levels, which largely reflects built in downtime related to an anticipated winter storms. With that, I'd like to turn back over to Chris to wrap things up.

Speaker 2

Thanks, John. In closing, I want to reinforce a few messages. First, as a company, we're excited about the opportunities we see across all our business lines. As our carbon capture and power businesses in particular scale up, so do our opportunities to further integrate our business and provide low carbon solutions across the energy value chain, an exciting prospect for both BKV and our customers. It also allows us to continue our actionable path towards achieving our ambitious net zero goals for our upstream and midstream operations, delivering on our mission of leading the industry towards the safe and profitable production of carbon sequestered natural gas.

Speaker 2

2nd, we remain focused on executing our strategy and delivering value to our shareholders. With our strong management team, deep bench of high quality talent, willingness to innovate and think outside the box and commitment to a sustainable energy future, we're poised to drive growth across all our business lines, positioning us as a leader in energy. And finally, I would like to thank you all one final time for participating in BKB's first earnings call as a publicly traded company, an exciting milestone in our company's history. And this is only the beginning. As you heard today, we are on quarter 1 in our journey as a public company, and our Q3 results reflect our ability to navigate volatile market conditions, underscores our commitment to operational excellence and reinforces our focus on driving value for our shareholders.

Speaker 2

With that, I'd like to open up the call to any questions. Operator?

Operator

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from Scott Gruber with Citigroup. Please proceed with your question.

Speaker 5

Yes. Good morning. Can you hear me, Chris? Yes. Hey, Scott.

Speaker 5

Hey. Just want to make sure I connected here. So Chris, you have a number of growth opportunities in front of you from growing your carbon capture business to expanding your footprint in power to consolidating the Barnett further. How do you think about prioritizing the various growth initiatives? And how do you think about what the portfolio could look like in 5 years' time?

Speaker 2

Yes, Scott, good question. Thanks for that and thanks for being on the call. When you look at kind of what we're doing in terms of prioritizing capital, we're going to start with the base business. As you can see, through the past couple of years, we've been really disciplined on our CapEx. I think it's time as we look at the forward curve to be spending some money in our upstream business and really getting kind of our production in line with where we see the curve going.

Speaker 2

And so that's always going to be the key focus for us that feeds the rest of the machine in terms of just the ability to generate cash. So that's going to be where we you'll see us and Eric can talk more to this, but you can see us deploying capital in our upstream business. In terms of the power and the carbon capture, I mean, clearly carbon capture is central to us because it decarbonizes the portfolio and it allows us to sell more power. So we see the carbon capture business growing. We've targeted quite a rapid growth of that.

Speaker 2

And then on the power side, it's really just a transformation of our energy to end customers. So you could imagine, we've said hypothetically in the past that we've looked at sort of up to half our business being from power and carbon capture and the other half being from upstream. I think that's not a bad rule of thumb. Again, these things are hard to predict. And as you look forward, that's going to be something dependent on the environment.

Speaker 2

But in the near term, prioritizing sort of upstream and making sure our cash engine is humming. And then we're going to be actively building our carbon capture and power portfolio to get to that mark that I just mentioned.

Speaker 5

Got it. And then on the subject of redeploying capital back into the base gas production business, how do you think about the cadence of recapturing some of the lost volumes in 2025 and 2026? It's obviously going to be related to the gas pricing environment, but maybe a little bit of labor for how you think about the kind of cadence of investment relative to the gas price environment? And I'll leave it there. Thank you.

Speaker 2

Yes. I'll have Eric take a shot at that one.

Speaker 3

Okay, great. Hi, good morning as well, Scott. Thanks for joining. So as you recall from the past 2 plus years since our Exxon acquisition, the Barnett, we have shown the ability to grow production nicely on the back of our fantastic inventory, both long laterals, new drills as well as refracs. And then when prices are down, we've really throttled that CapEx back and shown the ability to manage our already industry leading low decline, flatten the base and manage costs.

Speaker 3

As we look forward into 2025 and 2026, I think you'll continue to see that systematic CapEx investment approach with the agility and the ability to toggle and flex. As Chris said, when we look into the forward curve and anticipating higher price environment, the extent to which we deploy capital and grow depends on what the pricing is. You can think about the fulcrum being in that 3 to 3.25 price range and the fulcrum meaning kind of a maintenance CapEx level of 1.60 ish or so dev CapEx. Above the 3.25 range, especially as we get into 3.50 $4 we've said previously and we'll stick to it that that's when we really start to grow. Long laterals in the Barnett, refrac program really grow production like we did in the back half of twenty twenty five.

Speaker 3

And if pricing falls below that $3 mark, I think you'll start to see us invest a little less than maintenance CapEx level. How much less depends on how far the price is below $3 So systematic approach, agility, flexibility, great capital efficient projects to grow when pricing is favorable, maintain when it's in that kind of fulcrum point and then manage the base effectively below that.

Operator

Our next question comes from Betty Jiang with Barclays. Please proceed with your question.

Speaker 6

Good morning. Congrats on the successful IPO. I look forward to following the companies in the year ahead in the years ahead.

Operator

So I

Speaker 6

want to start with the power business. Chris, you mentioned earlier that the CCS helps you to sell more power. In your conversations with counterparty who are interested in that power, like companies or not, is there a general understanding acceptance of carbon capture as an enabler of low carbon power?

Speaker 2

Yes, Betty. Hey, thanks and good to hear from you again. Absolutely. So with regards to the discussions of the data centers, the carbon capture business is particularly important for the power business because we can offer what they call hour by hour off setting. So when you think about a data center, it runs through the night, it has substantive load that fluxes up and down, and is in some ways divorced of whatever is happening in the weather.

Speaker 2

So where these folks that we're talking to are particularly interested in BKB is that we can staple the carbon offsets on an hour by hour basis to our power plants or the gas that we combust in our power plants and then offer them baseload power through the night. And that's what's really compelling for them. And I think depending on the party you're talking about, each group has different internal kind of carbon offset evaluators. And I think in general, the receptivity of carbon capture has been very strong. I think people see it as a increasingly as a winning solution when they can kind of combine it with natural gas and combined cycle and then on the balance by renewables in the market, so renewables and battery power.

Speaker 2

So I think we are seeing very strong traction, I would say. It's going to take a little bit of time to work out all the details, especially as you think about the complexity of offering that product, certifying it, and then ensuring that it has all the transparency that you need. But I would say, I remain very optimistic and I think we are at the forefront of shaping some of these discussions with some of the largest companies in this space.

Speaker 6

Yes. No, that makes sense. And then so in order for more power tied to CCS, we also need more carbon to be captured. So with the Barnett 0 up and running for better parts of the year now, are you seeing any increased interest from other midstream operator around carbon capture of their gas processing plant? Are you seeing that backlog interest ramp up for more carbon capture projects?

Speaker 2

Yes. Eric, why don't you take this one?

Speaker 3

Sure. Good morning, Betty. Thanks for joining. Yes, good question on the carbon capture interest specifically around midstream providers. We are seeing that ramp up.

Speaker 3

I think on the back of us delivering a successful and safe and now 1 year in operation Barnett 0 project, other midstream operators have taken note. We're in conversation with a large number of public and private midstream operators. To date, we have 3 emitter agreements in total and 5 more under exclusivity across our entire portfolio. So I think and many of those are natural gas processing or midstream operator agreements. So yes, the interest is ramping up.

Speaker 3

I think people are seeing that we can deliver the full chain of these carbon capture projects and starting again on the back of our Barnett 0 project. And where I might add, we're on track with Cotton Cove as you heard in the release as well, another natural gas processing project for first half of twenty twenty six start up.

Speaker 6

Got it. Appreciate that color. Thank you.

Operator

Our next question comes from Bert Dans with Truist Securities. Please proceed with your question.

Speaker 7

Hey, good morning team and congrats on your first public earnings call. Just wanted to start off, I think you've got the reputation of the natural consolidator in the Barnett. Are the other operators willing sellers? And is there room for synergies in scaling up these positions? Or is it more just about growing your cash flows and gas volumes to maybe flow through to the power and CCUS side?

Speaker 2

Yes. Hey, Bert, it's Chris. Thanks for the question. So there is absolutely a market to sell and consolidate our net assets. I think the issue we've had in the last, I would say, 18 months is the volatility around prices.

Speaker 2

And I think what both buyers and sellers are looking for is more stability in the strip so that we can agree on what that strip is to transact. And I think once you see sort of some normalizing of the strip, is it $3 is it $3.50 What are we seeing in terms of the more steady state outlook for that strip? I think that's when you're going to see the transactions. To your question about what are the opportunities, certainly aggregating cash flow is nice and attractive, but I think there's a lot of synergies to bringing in smaller players to our portfolio. We are able to develop full year round.

Speaker 2

That's a big advantage over someone who's smaller. We're able to assess refrac. We have more information on the Barnett than any player previous to us because we have the biggest footprint. We have better marketing takeaway. We can drop costs because we have the economies of scale.

Speaker 2

And when you think about just opportunities to kind of merge the assets and kind of plan that overall your capital program, you're able to do that. So, I think there's tremendous synergy on top of just aggregating cash flow. And I think most of the players in the Barnett are looking to exit. They're subscale and it's really hard when you're not the big player in the basin to kind of take advantage of these benefits. So, I think it's a matter of just kind of getting some stability in the curve and then I think we'll be poised to kind of transact at the right time.

Speaker 7

Well said. And then maybe the second one is just your what's the appetite for adding additional power plants in the JV? Is now the right time or do you wait for some of the data center demand to kind of actualize? I imagine other players in the space are well aware of the demand. So maybe are you able to create more value because of their closed loop system or just your thoughts there?

Speaker 2

Yes. Listen, we're bullish on power, right? I think when you look at the demand for data centers that are coming in the U. S, it's unprecedented. We have not seen this kind of load come onto the grid for years years.

Speaker 2

And I think as you look at the data and if you really kind of do the forecasting, both in ERCOT and broader across the U. S, you see a huge wave of demand that I don't know we're prepared to handle. And AI is real and it's growing. And so, with that said, I think BKB's posture is leading forward in a 45 degree angle on power. And I think there is an opportunity right now where people are kind of looking at what this means on the private side particularly and I think that creates a space for BKB to still transact at reasonable prices.

Speaker 2

And so we're going to be leaning forward on the acquisition side on the power. I now is the moment. If you look forward in the next few years, I think opportunity to acquire existing power plants at reasonable prices will be hard. And I think we're going to go into new build sort of territory. And I think that's a whole another can of worms.

Speaker 2

So, we're going to be leaning forward. Obviously, the M and A markets are unpredictable. We got to kind of see the right opportunities. We bought smart in all our deals so far, but, we're in a lean forward posture on

Speaker 7

that. Great update. Thanks, Dean.

Operator

Our next question comes from Jack Roberts with T. P. Holt. Please proceed with your question.

Speaker 7

Good morning.

Speaker 8

Maybe for Eric, I just wanted to I know it might be a bit early for 2025, but I believe restimulations are imagined to play a bigger part of the program next year. I just wanted to maybe try to understand how capital allocation between those and the more traditional horizontal wells changes as strip moves?

Speaker 3

Yes. Great question, Jake, and good morning to you. Yes, the refracs, as you mentioned, have been a pivotal part of our success in the Barnett. And if you're aware that we feel like the Barnett is uniquely positioned because of the vintage and the early development of the Barnett, where our predecessors left 200, 300, 400, 500 feet between perf clusters as opposed to modern day fracs in the 40 to 50 feet between perf cluster range. So that's why we're differentiated and the backbone of why over the last 3 years we've been a leading refrac operator in the United States shale.

Speaker 3

We've done 360 refracs in the last 3 years. So you're right, the 2,100 refracs that we have remaining in our inventory will continue to play a big part of our development program going forward. We're really pleased with the economics, the low cost investment and then the results and the return of those refracs that we've done to date and anticipate that will absolutely continue going forward. As we get into 2025 and 2026, you're right, it does depend on kind of the pricing environments and what level of CapEx we have. You can typically think of our refraction that kind of 20% to 25% of our total dev CapEx spend range and the rest new drills largely Barnett and some NEPA.

Speaker 3

So that's the way I think about it under most pricing scenarios, Jake.

Speaker 8

Great. Appreciate that. Maybe staying on the same topic, is there a meaningful shift to either declines or LOE as you see more refraction to the program?

Speaker 3

Meaningful shift charges, oh, declines or LOE? I mean, yes, I think what we've seen is, on the in 2021, we were able to keep production flat on the Devon asset from the back of refracs alone. So it shows the strength of our refrac program being able to keep production flat. On the refracs themselves, there's sort of a little higher decline than the new wells, but not much. So on new wells, I think we say we're at like 45% 1st year decline, refracs are in that kind of mid-fifty range.

Speaker 3

That's because they're not fully virgin, but there's a lot of meat left on that bone. So they do contribute to sort of our low decline asset base, low decline new drills, low decline refracs and certainly industry leading low decline base production. And then on the LOE side, the more we work on that flat denominator, the more it helps LOE. You've seen us lower LOE, just through structural moves and flattening our organization, owning versus renting, prioritizing by profitability and big data everything we do and then refracs have certainly helped on the denominator side along with our ability to maintain base production and flatten it with technology and moving towards machine learning and artificial lift.

Speaker 8

Thanks a lot. Appreciate the time. There

Operator

are no further questions at this time. I would now like to turn the floor back over to Chris Kalm for closing comments.

Speaker 2

Thank you, operator, and thank you everyone for joining our inaugural earnings call. We're really pleased about our results this quarter. We look forward to continuing to grow BKV as a new kind of energy company, and we're really pleased that you'd spent the time with us today. So thank you.

Operator

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

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