23 Nov, 2022
A Texas gas producer with a twist, BKV files initial public offering
By Bill Holland
The Thai-backed BKV Corp. LLC broke the drought of initial public offerings by independent U.S. oil and gas companies, relying on aggressive plans for net-zero emissions to attract interest from investors.
"For general upstream IPOs, the market has been essentially closed for years," said Andrew Dittmar, a director at Enverus who specializes in mergers and acquisitions analysis in the upstream sector. "The challenge is standing out in a sea of [exploration and production companies] that already have attractive valuations. Maybe BKV manages to do that with their integrated model."
Dittmar observed that exploration and production companies, or E&Ps, are beginning to recover market share in the S&P 500, "in the strongest commodity price environment since 2014."
BKV filed for its initial public offering with the U.S. Securities and Exchange Commission on Nov. 18.
Carbon strategy
As outlined in the IPO filing, BKV's plan to hit net-zero emissions by early in the next decade would use systems for carbon capture, use and sequestration, or CCUS, to reduce these emissions at every stage of the supply chain. The company will use proprietary processes to monitor and capture carbon emissions at point sources all along the path to the consumer, from wells to pipes to power plants. The carbon waste from each source will be sequestered in underground injection wells, the company said.
"We believe that we will be able to complete a sufficient number of these or other CCUS projects in order to meet our Scope 1, 2 and 3 emissions goals by the early 2030s," BKV said. The company will offset any remaining emissions with credits it earns for CCUS, resulting in a carbon-negative production profile, it said.
In addition to revenue from natural gas and power sales, BKV will also collect and possibly sell credits worth up to $85 per tonne for captured carbon under the federal 45Q tax credit program. The company also planned to sell its carbon capture services to other E&Ps.
The parent of a family of companies, BKV has upstream operations, midstream assets and a Texas power plant. It produces 723 MMcfe/d of oil, gas and liquids, with natural gas dominant in this mix, from wells in the Barnett and Marcellus shales. Some of BKV's gas production fuels its 1,572-MW Panda Temple Facility in Temple, Texas. Gathering, processing and transportation services are performed by a subsidiary or contracted out.
BKV's vertically integrated corporate design is a legacy of BKV's primary owner and backer, Bangkok-based Banpu Public Co. Ltd., according to Dittmar. Dittmar compared BKV to LNG exporter Tellurian Inc., a company that owns part of the gas production it exports.
"That potentially gives BKV a leg up and experience in this area that other pure E&Ps would lack," Dittmar said. "In a still fairly crowded [small- to mid-] cap space, I think there is value in having a differentiating factor to stand out to investors."
Barnett operations
"We only track 16 [million tonnes per year] of CO2 emissions from industrial emitters ... in the Barnett, meaning that the company will need to extend beyond play boundaries to achieve its desired scale" of 30 Mt/y worth of emissions, Enverus Vice President of Intelligence and CCUS expert Heather Leahey said in an email.
"While relatively few CCUS projects have been announced in the Barnett, we've already seen announcements in the Haynesville, and the Gulf Coast region is a much more competitive landscape," Leahey said.
Starting out in an older play will give BKV the benefit of a significant amount of unused infrastructure that can be converted to CO2 pipeline, Leahey said. The infrastructure was put in place when U.S. shale development accelerated after 2008 with the help of hydraulic fracturing and horizontal drilling. The company will also benefit from using existing pipelines rather than having to get permits to build new ones, projects that often attract environmental and residential opposition, Leahey said.
BKV is not the only operator incorporating CCUS into its plans. Midstream giant Williams Cos. Inc. rolled out its plans for carbon capture and storage, centered on the Haynesville Shale of north Louisiana and east Texas, on its third-quarter earnings conference call Nov. 1.
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