Bkv Corporation(BKV) - 2024 Q4 - Annual Report

Production and Reserves - Total production volumes for the company in 2024 were 288.4 Bcfe, a decrease of 8.1% from 313.8 Bcfe in 2023[142]. - Estimated proved reserves as of December 31, 2024, were 3,131,909 MMcfe, down from 4,093,791 MMcfe in 2023, a decrease of 23.5%[149]. - The company experienced a decrease of 961.9 Bcfe in proved reserves during 2024, primarily due to lower commodity pricing and changes in planned drilling activity[151]. - Proved undeveloped reserves scheduled for development within five years as of December 31, 2024, totaled 262,555 MMcfe, down from 706,373 MMcfe in 2023[149]. - Proved reserves decreased by 2,042.1 Bcfe in 2023, primarily due to decreased commodity pricing and changes in drilling activity, resulting in total downward revisions of 1,986.3 Bcfe[158]. - The company produced 288.4 Bcfe during the year ended December 31, 2024[151]. - The company produced 313.8 Bcfe during the year ended December 31, 2023[158]. - Extensions and discoveries added 139.2 Bcfe of proved undeveloped reserves across 98.0 gross (89.4 net) locations, driven by optimized capital allocation and enhanced drilling programs[155]. - Improved recoveries added 52.2 Bcfe of proved developed reserves through enhanced recovery techniques applied to producing wells in 2024[155]. Financial Performance - Average sales price for natural gas (excluding derivative settlements) decreased to $1.87 per Mcf in 2024 from$2.28 per Mcf in 2023, representing a decline of 17.9%[142]. - The Standardized Measure of proved reserves value decreased to $633 million in 2024 from$1,062 million in 2023, a decline of 40.4%[149]. - The average production cost for the total company was $1.25 per Mcfe in 2024, slightly down from$1.27 per Mcfe in 2023[142]. - The company plans to finance future development costs of approximately $135.1 million through cash flow from operations and/or borrowings under its RBL Credit Agreement[150]. - The Standardized Measure of estimated proved reserves is$1,990 million, while the PV-10 value is $2,446 million as of December 31, 2024[168]. Regulatory and Environmental Compliance - The company is in material compliance with current environmental laws, with no expected material impact on financial condition from existing regulations[198]. - The company is subject to the Oil Pollution Act, which imposes strict liability for containment and cleanup costs related to oil spills, potentially affecting financial condition and cash flows[203]. - Compliance with the Clean Water Act may lead to increased costs due to restrictions on wastewater disposal options for hydraulic fracturing waste[204]. - The Safe Drinking Water Act requires permits for disposal wells, and any leakage could result in significant remediation costs and operational delays[205]. - The company engages third parties for hydraulic fracturing services, which may face increased regulatory scrutiny and operational delays due to potential induced seismicity concerns[205]. - The EPA's Class VI well classification for CO2 sequestration projects requires a lengthy permitting process, potentially delaying CCUS project development[207]. - Increased regulation of hydraulic fracturing could lead to operational delays and higher compliance costs, adversely impacting financial results[211]. - The Clean Air Act mandates permits for new and modified sources of air pollutants, with potential fines for non-compliance impacting operations[212]. - The EPA's recent Methane Rule imposes new requirements for methane emissions, which could increase compliance costs and operational impacts[213]. - The company may face significant costs and operational modifications due to evolving greenhouse gas regulations and climate change legislation[215]. - The EPA's "Final Mandatory Reporting of Greenhouse Gases" Rule requires operators of facilities emitting over established thresholds to report GHG emissions annually on a facility basis[220]. - The U.S. NDC aims for a 50-52$1 billion in annual revenue to report GHG emissions and those with over $500 million to prepare biennial risk reports[223]. - The company may face increased costs and operational impacts due to compliance with current and future climate change regulations[224]. - The presence of endangered species could lead to increased costs and limitations on exploration and production activities[226]. - The National Environmental Policy Act requires environmental assessments for major agency actions, which could delay oil and gas projects[227]. - The establishment of the White House Office of Environmental Justice may impede the development of fossil fuel assets and CCUS projects[228]. Human Resources and Safety - The company employs a total of 366 employees as of December 31, 2024, and hires independent contractors as needed[188]. - The company emphasizes safety as a top priority, conducting routine maintenance and offering annual specialized training to staff on spill prevention[189]. - The company has implemented a compensation framework to ensure competitive pay, reflecting employee skills, experience, and performance[190]. - The company is committed to diversity and inclusion, fostering a safe and inclusive working environment[192]. Risk Management and Financial Instruments - The company has a net liability of$67.6 million for commodity derivative instruments as of December 31, 2024, compared to a net asset of $102.5 million as of December 31, 2023[672]. - A hypothetical increase or decrease of$0.10 per Mcf in NYMEX would have resulted in a $9.7 million,$1.6 million, and $7.7 million decrease or increase in natural gas hedge revenues for the years ended December 31, 2024, 2023, and 2022, respectively[668]. - The company enters into financial derivative instruments to mitigate the impact of commodity price fluctuations, covering portions of projected positions through 2027[667]. - The estimated fair value of the company's commodity derivative instruments is subject to volatility, impacting earnings but not cash flows until contracts are settled[672]. - The company has a hedging strategy that limits benefits from increases in commodity prices above fixed hedge prices while mitigating negative effects of falling prices[673]. - The company requires specific minimum credit standards for counterparties and actively monitors their credit ratings to manage counterparty credit risk[674]. - The company utilizes ISDA Master Agreements with derivative counterparties to provide rights of set-off upon defined acts of default[675]. - The company relies on a third-party marketer to sell its natural gas production, which consists of credit-worthy counterparties[676]. - The company’s financial hedging activities include commodity price swaps, basis differential swaps, call options, and producer collar agreements[666]. - The company is exposed to basis risk in its operations when derivative contracts settle financially and physical electricity is delivered on different terms[669]. Debt and Borrowing - As of December 31, 2024, the company had$165.0 million of outstanding borrowings on its RBL Credit Agreement, which has a floating interest rate[677]. - As of December 31, 2023, the company had $75.0 million of outstanding borrowings with BNAC,$456.0 million under the Term Loan Credit Agreement, $31.0 million under the SCB Credit Facility, and$96.0 million under the Revolving Credit Agreement[677]. - The average annualized interest rate on outstanding borrowings was approximately 9.3% for 2024 and 8.7% for 2023[677]. - A 1.0% increase in average interest rates would have resulted in an increase of $4.9 million in interest expense for 2024 and$7.8 million for 2023[677].