BKV Corp

BKV Corporation

Notes to the Condensed Consolidated Financial Statements

Note 1 - Business and Basis of Presentation

General

BKV Corporation (“BKV Corp”) was formed on May 1, 2020 and is a corporation registered with the State of Delaware. BKV Corp is a growth driven energy company focused on creating value for its shareholders through organic development of its properties, as well as accretive acquisitions. BKV Corp’s core business is to produce natural gas from its owned and operated upstream businesses.

The majority shareholder of BKV Corp is Banpu North America Corporation (“BNAC”). BKV Corp's ultimate parent company is Banpu Public Company Limited, a public company listed in the Stock Exchange of Thailand. As of November 13, 2024, the date these condensed consolidated financial statements were available to be issued, BNAC owned 75.5% of BKV Corp's shares. The remaining 24.5% of shares of common stock of BKV Corp were owned by non-controlling members of management, members of the board of directors, and employee and non-employee shareholders.

Basis of Presentation of the Unaudited Condensed Consolidated Financial Statements

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts for BKV Corp's wholly-owned subsidiaries. The condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s 2023 Consolidated Financial Statements (“Annual Financial Statements”), included in our final prospectus dated September 25, 2024 (“Prospectus”), as certain disclosures and information required by GAAP for complete consolidated financial statements have been condensed or omitted. The condensed consolidated financial statements, in the opinion of management, reflect all adjustments, which include normal and recurring adjustments, necessary to fairly state the Company’s financial position, results of operations, and cash flows for the periods presented herein. The interim results are not necessarily indicative of results to be expected for the year ending December 31, 2024 or for any other future annual or interim period. The December 31, 2023 condensed consolidated balance sheet was derived from the audited Annual Financial Statements of the Company, but does not include all disclosures required by GAAP for annual financial statements.

BKV Upstream Midstream, LLC (“BKV Upstream Midstream”), a limited liability company, was formed on May 21, 2024 and is registered in the state of Delaware. This entity is a wholly-owned subsidiary of BKV Corp. Since its formation, all of the midstream and upstream entities of BKV Corp are wholly-owned subsidiaries of BKV Upstream Midstream and include BKV Operating, LLC, BKV Barnett, LLC, BKV Chelsea, LLC, BKV Midstream, LLC, BKV North Texas, LLC, and Kalnin Ventures, LLC.

On June 14, 2024, BKV sold BKV Chaffee Corners, LLC (“Chaffee”), and on June 28, 2024, sold its non-operated upstream assets in BKV Chelsea, LLC (“Chelsea”). See Note 3 - Natural Gas Properties & Other Property and Equipment for further discussion.

Together, BKV Corp and its wholly-owned subsidiaries are referred to collectively as “BKV” or the “Company.” All intercompany balances and transactions between these entities have been eliminated within the condensed consolidated financial statements. Current and deferred income taxes and related tax expense have been determined based on the stand-alone results of BKV by applying the separate return method to BKV’s operations as if it were a separate taxpayer. The Company is organized, managed, and identified asone operating segment andone reportable segment.

Reclassification

A reclassification was made in the prior period's condensed consolidated statements of cash flows within the net cash provided by (used in) investing activities and within net cash provided by operating activities to conform to the current period presentation. A reclassification was also made to the prior period's condensed consolidated statements of operations to reclassify the gains on sale of assets out of other income into revenues to conform with the current presentation. These reclassifications had no impact on previously reported balance sheets, net income, net cash flows, or stockholders' equity.

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Initial Public Offering

On September 27, 2024, the Company completed its initial public offering (the “IPO”) of 15,000,000 shares of common stock at a price to the public of $18.00 per share. After underwriting discounts and commissions of $16.2 million, the Company received net proceeds from the offering of $253.8 million. The Company also granted the IPO underwriters a 30-day option to purchase up to 2,250,000 additional shares of common stock on the same terms. The underwriters partially exercised the option and on October 28, 2024, purchased 701,003 additional shares of common stock, resulting in additional net proceeds of $11.9 million, after deducting underwriting discounts and commissions of $0.8 million.

Upon consummation of the IPO,5,026,638 mezzanine shares were converted into common stock.

Deferred Offering Costs

The Company capitalized legal and other third party fees directly related to the Company's IPO on the condensed consolidated balance sheets, and on September 27, 2024, the Company recognized these costs as a reduction to the proceeds received from the IPO in the amount of $11.6 million.

Liquidity

As of September 30, 2024, the Company held $31.3 million of cash and cash equivalents. The Company’s working capital deficit as of September 30, 2024 was $13.3 million, and for the nine months ended September 30, 2024, cash flows provided by operating activities was $74.8 million. The Company intends to make the payments related to its debt and investments in capital expenditures with cash flows from operations. During the nine months ended September 30, 2024, the Company also sold call options with a counterparty and received a premium of $23.5 million, and early terminated a portion of its derivative contracts and received cash on the gain of $13.3 million. For further discussion on the derivative transactions, see Note 5 - Derivative Instruments.

On June 11, 2024, BKV Upstream Midstream entered into the RBL Credit Agreement (as defined below) and drew down $425.0 million in revolver borrowings. The Company then repaid the amounts outstanding under (i) its Credit Agreement previously entered into in June 2022 with a syndicate of banks and Bangkok Bank Public Company Limited (New York Branch) as the administrative agent (the “Term Loan Credit Agreement”), (ii) its revolving credit facility previously entered into in August 2022 with Bangkok Bank Public Company Limited (New York Branch) (the “Revolving Credit Agreement”), and (iii) its loan agreement previously entered into in March 2022 with Standard Charter Bank (the “SCB Credit Facility”), in each case with proceeds from the loans under the RBL Credit Agreement and cash on hand. The Term Loan Credit Agreement, the Revolving Credit Agreement, and the SCB Credit Facility were terminated concurrently with the repayment of the remaining amounts owed thereunder. See Note 2 - Debt for further discussion on the RBL Credit Agreement and these transactions.

On June 14, 2024, the Company sold its non-operated interests in Chaffee, a wholly-owned subsidiary, for a purchase price of $106.7 million, subject to adjustment, and on June 28, 2024, sold its non-operated upstream assets in Chelsea for a purchase price of $25.0 million, subject to adjustment. See Note 3 - Natural Gas Properties & Other Property and Equipment for further discussion on these transactions.

Significant Judgments and Accounting Estimates

The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. There have been no significant changes to the Company's accounting estimates from those disclosed in the Company's Annual Financial Statements.

Significant Accounting Policies

The Company's significant accounting policies are described in the notes to the consolidated financial statements for the year ended December 31, 2023 disclosed in the Annual Financial Statements within the Prospectus. There have been no significant changes in accounting policies during the nine months ended September 30, 2024.

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Restricted Cash

As of December 31, 2023, restricted cash included amounts to fund the debt service reserve account, which equaled the current portion of the Term Loan Credit Agreement plus accrued interest to comply with the Company's financial covenant under the Term Loan Credit Agreement. Due to the repayment of the Term Loan Credit Agreement, there was no restricted cash as of September 30, 2024. See Note 2 - Debt. The following table provides a reconciliation of cash, cash equivalents, and restricted cash to amounts shown in the condensed consolidated balance sheets and condensed consolidated statements of cash flows:

Common Shares Issued and Outstanding

As of September 30, 2024 and December 31, 2023, the Company had common shares issued and outstanding of 83,899,298 and 66,275,866, respectively.

Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Standards Accounting Board issued a new accounting pronouncement regarding segment reporting. The standard requires that public entities expand reportable segment disclosures, primarily through enhanced disclosures around segment expenses. This standard is effective for annual periods beginning January 1, 2024 and interim periods beginning January 1, 2025, with early adoption permitted. Management is currently evaluating the impact of this standard on the Company's disclosures and is in the process of preparing to comply with the new disclosure requirements.

In December 2023, the Financial Standards Accounting Board issued a new accounting pronouncement regarding income tax disclosures. The standard requires public entities disclose more consistent and detailed categories in their statutory to effective income tax rate reconciliations and further disaggregate income taxes paid by jurisdiction. For each annual period presented, the new standard requires disclosure of the year-to-date amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign. It also requires additional disaggregated information on income taxes paid (net of refunds received) to an individual jurisdiction equal to or greater than 5% of total income taxes paid (net of refunds received). The standard is effective January 1, 2025, with early adoption permitted. Management is currently evaluating the impact this standard will have on the Company's disclosures.

Note 2 - Debt

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The following table summarizes the debt balances (refer to the Company's Annual Financial Statements disclosed in the Prospectus for definitions and further description of the Company's debt instruments):

On June 11, 2024, the Company paid down the outstanding balances, including interest, and concurrently terminated the SCB Credit Facility, the Revolving Credit Agreement, and the Term Loan Credit Agreement, with proceeds from the revolving borrowings on the RBL Credit Agreements and cash on hand. Due to the early termination of the Revolving Credit Agreement and the Term Loan Credit Agreement, the Company recorded a loss of $13.9 million, which was included in loss on early extinguishment of debt in the condensed consolidated statements of operations during the nine months ended September 30, 2024.

RBL Credit Agreement

On June 11, 2024, the Company and BKV Upstream Midstream entered into a reserve-based lending agreement (the “RBL Credit Agreement”) with Citibank, N.A., as the administrative agent, and the financial institutions party thereto, and with BKV Upstream Midstream as the borrower and BKV Corp as the guarantor on the RBL Credit Agreement. The RBL Credit Agreement includes a maximum credit commitment of $1.5 billion. As of September 30, 2024, the RBL Credit Agreement has a borrowing base of $800.0 million and an elected commitment of $600.0 million. The loans may be borrowed, repaid, and reborrowed during the term of the RBL Credit Agreement. The RBL Credit Agreement matures on June 12, 2028. The obligations under the RBL Credit Agreement are secured and guaranteed on a secured basis by all of BKV Upstream Midstream's current and future material subsidiaries. Loans under the RBL Credit Agreement bear interest at one, three, or six-month term secured overnight financing rate (“SOFR”) or an alternative base rate, as applicable, plus a credit spread adjustment of 0.10% for SOFR borrowings, plus an applicable margin per annum. Interest is payable on the last day of each interest period and at maturity. BKV Upstream Midstream is obligated to pay certain fees to the lenders and administrative agent under the RBL Credit Agreement, including commitment fees on the average daily amount of the undrawn portion of the commitments.

The RBL Credit Agreement contains various restrictive covenants that, among other things, limit BKV Upstream Midstream's ability and the ability of its restricted subsidiaries to, subject to certain exceptions: (i) incur indebtedness; (ii) incur liens; (iii) acquire or merge with any other company; (iv) sell assets or equity interests of its subsidiaries; (v) make investments; (vi) pay dividends or make other restricted payments; (vii) change its lines of business; (viii) enter into certain hedge agreements; (ix) enter into transactions with affiliates; (x) own any subsidiary that is not organized in the United States; (xi) prepay any unsecured senior or subordinated indebtedness; (xii) engage in certain marketing activities; and (xiii) allow, on a net basis, gas imbalances, take-or-pay or other prepayments with respect to proved oil and gas properties. Beginning with the fiscal quarter ending

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September 30, 2024, the RBL Credit Agreement requires BKV Upstream Midstream to always hedge not less than 50% of projected production from our proved developed producing reserves for the subsequent 24 calendar month period immediately following such required delivery date.

The RBL Credit Agreement also includes financial covenants that require BKV Upstream Midstream to maintain:

• on a quarterly basis, a minimum Current Ratio (as defined in the RBL Credit Agreement) of no less than 1.00 to 1.00; and

• on a quarterly basis, a Net Leverage Ratio (as defined in the RBL Credit Agreement) of no greater than 3.25 to 1.00.

The RBL Credit Agreement includes customary equity cure rights that will enable BKV Upstream Midstream to cure certain breaches of the minimum current ratio covenant or the maximum net leverage ratio covenant. As of September 30, 2024, BKV Upstream Midstream was in compliance with the terms and covenants of the RBL Credit Agreement.

The RBL Credit Agreement generally includes customary events of default for a reserve-based credit facility, some of which allow for an opportunity to cure. If an event of default relating to bankruptcy or other insolvency events occurs, the revolving loans will immediately become due and payable; if any other event of default exists, the administrative agent or the requisite lenders will be permitted to accelerate the maturity of the revolving loans. The RBL Credit Agreement is secured by substantially all of BKV Upstream Midstream's assets and those of the guarantors, and upon an event of default the agent under the RBL Credit Agreement could commence foreclosure proceedings.

During the nine months ended September 30, 2024, BKV Upstream Midstream paid $8.1 million in financing costs, which have been deferred and capitalized as debt issuance costs included within other assets and are amortized over the life of the RBL Credit Agreement. As of September 30, 2024, $7.4 million of unamortized debt issuance costs remains outstanding. As of September 30, 2024, the effective interest rate on the RBL Credit Agreement was 8.46% and the outstanding letters of credit was $14.6 million. On September 30, 2024, in conjunction with the IPO, the Company paid down $200.0 million of principal on the RBL Credit Agreement, including interest, with proceeds from the IPO.

Subordinated Intercompany Loan Agreement

On June 18, 2024, the Company paid down $25.0 million of the $75.0 million outstanding on the related party loan with BNAC, including interest, and on September 30, 2024, the Company repaid the outstanding balance of $50.0 million, including interest, with proceeds from the IPO.

Note 3 - Natural Gas Properties & Other Property and Equipment

Accumulated depreciation, depletion, and amortization for developed natural gas properties as of September 30, 2024 and December 31, 2023 was $656.8 million and $560.0 million, respectively. Depreciation, depletion, and amortization expense for developed natural gas properties was $50.4 million and $45.7 million for the three months ended September 30, 2024 and 2023, respectively, and $148.6 million and $110.6 million for the nine months ended September 30, 2024 and 2023, respectively.

Accumulated depreciation for midstream assets as of September 30, 2024 and December 31, 2023 was $15.7 million and $19.4 million, respectively. Depreciation expense on midstream assets was $1.6 million and $1.9 million for the three months ended September 30, 2024 and 2023, respectively, and $5.3 million and $5.6 million for the nine months ended September 30, 2024 and 2023, respectively.

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Other property and equipment consisted of the following:

Depreciation expense for other property and equipment was $1.7 million and $1.3 million for the three months ended September 30, 2024 and 2023, respectively, and $4.6 million and $4.1 million for the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024, the Company received proceeds on the sale of other properties of $1.7 million, and recognized a gain on sale of these properties of $0.8 million, which is included in the gains (losses) on sales of assets in the condensed consolidated statements of operations. During the nine months ended September 30, 2023, the Company received proceeds on the sale of other properties of $1.6 million, and recognized a gain on sale of these properties of $0.3 million, which is included in the gains (losses) on sales of assets in the condensed consolidated statements of operations.

Sales of BKV Chaffee Corners, LLC and BKV Chelsea, LLC

On June 14, 2024, the Company sold its wholly owned subsidiary, Chaffee, representing a non-operated interest in approximately 9,800 net acres and 116 gross (24.2 net) wells and 122 Bcfe of proved reserves in the Marcellus Shale in the Appalachian Basin of Northeast Pennsylvania (“NEPA”), as well as our interest in the Repsol Oil and Gas operated midstream system, for $106.7 million. The Company recognized a gain on the sale of $6.0 million, net of transaction costs of approximately $3.5 million, which is included in the gains (losses) on sales of assets in the condensed consolidated statements of operations.

On June 28, 2024, Chelsea sold certain of its non-operated upstream assets, including interest in approximately 6,800 net acres and 214 gross (15.4 net) wells and 35 Bcfe of proved reserves in NEPA, for a purchase price of $25.0 million and transaction costs of approximately $0.4 million. Due to the immateriality of the upstream assets sold, the Company utilized the practical expedient to account for the sale of Chelsea's non-operated upstream assets sold as a normal retirement with no gain or loss recognized as sale of these assets did not significantly impact the depletion rate with respect to the total reserves retained in NEPA.

Following the divestiture of these assets, the Company holds approximately 19,480 net acres in NEPA, approximately 98% of which is held by production.

Note 4 - Fair Value Measurements

As the Company uses the market approach to determine the fair value of its derivative instruments, these fair values are also compared to the values given by counterparties for reasonableness. Since natural gas and NGL swaps do not include optionality and therefore generally have no unobservable inputs, they are classified as Level 2. The Company factors its own non-performance risk into the valuation of derivatives using current published credit default swap rates. As of September 30, 2024 and December 31, 2023, the impact of the non-performance risk adjustment to the Company's fair value of commodity derivative liabilities was $3.1 million and $1.0 million, respectively.

Contingent consideration, minority ownership puttable shares, and equity-based compensation from the 2021 Plan (as defined in Note 8 - Stockholders' Equity) are measured at fair value using Level 3 valuation techniques. There were no transfers between fair value levels during the three and nine months ended September 30, 2024 and 2023.

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The following tables set forth by level within the fair value hierarchy, the financial assets and liabilities that were accounted for at fair value on a recurring basis:

The contingent consideration was generated from the 2019 acquisition of interest in proved reserves and related upstream assets in the Barnett formation from Devon Energy Corporation (the “Devon Barnett Acquisition”) and the 2022 acquisition of natural gas upstream and the associated midstream infrastructure in the Barnett from XTO Energy, Inc and Barnett Gathering, LLC, subsidiaries of Exxon Mobil Corporation (the “Exxon Barnett Acquisition”). The fair value of the contingent consideration as of September 30, 2024 and December 31, 2023 represents management’s best estimate if a third party were paid to assume the contingency. The fair values were determined using Monte Carlo simulations, which use observable (Level 2) inputs based on forecasted monthly Henry Hub Prices and West Texas Interme diate (“WTI”) prices, as applicable, andunobservable (Level 3) inputs. The Devon Barnett Acquisition and the Exxon Barnett Acquisition contingencies are described further in Note 10 - Commitments and Contingencies.

The minority ownership puttable shares were recorded at fair value upon initial recognition in mezzanine equity on the condensed consolidated balance sheets. The fair market value of the Company's common stock was used to determine the initial carrying value and redemption value of the minority ownership puttable shares in mezzanine equity on the condensed consolidated balance sheets as of December 31, 2023. Prior to the Company's IPO, its common stock was valued using both observable (Level 2) and unobservable (Level 3) inputs. The minority ownership puttable shares are further described in Note 8 - Stockholders' Equity.

Equity-based compensation is recorded at fair market value on the grant date. The underlying market condition was valued using the application of Monte Carlo simulations using both observable (Level 2) and unobservable (Level 3) inputs. Prior to the Company's IPO, the remaining components of the awards were valued based on the fair market value of the common stock of the Company, which is valued consistent with valuation methodologies described for the minority ownership puttable shares. As of

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December 31, 2023, the fair market values of the Company's market condition and common stock were used to determine the redemption value or fair market value of equity-based compensation in mezzanine equity on the condensed consolidated balance sheets. Equity-based compensation is further described in Note 8 - Stockholders' Equity.

Quantitative data regarding the Company's Level 3 unobservable inputs are as follows:

(1)The Company uses the midpoint of valuation results when estimating the fair value of common stock.

(2)Represents an observable input.

The table below sets forth the changes in the Company's Level 3 fair value measurements:

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Note 5 - Derivative Instruments

The Company may utilize derivative contracts in connection with its natural gas and NGL operations to provide an economic hedge of the Company’s exposure to commodity price risk associated with anticipated future natural gas and NGL production. The derivative contracts outstanding as of September 30, 2024 consisted of commodity swaps, basis swaps, call options, and producer collar agreements, subject to master netting agreements with each individual counterparty. The following table presents gross commodity derivative balances prior to applying netting adjustments recorded in the condensed consolidated balance sheets:

Collar, Commodity Swap, and Basis Swap Contracts

A commodity collar provides for a price floor and a price ceiling. The floating price for the collar contract is traded for a fixed price when the floating price is not between the floor and ceiling. If the floating price is between these contracted prices, no trade occurs. A commodity swap agreement is an agreement whereby a floating price based on the underlying commodity is traded for a fixed price over a specified period. Basis swaps provide a guaranteed price differential for natural gas from two different specified delivery points over a specified period. The fair value of open collar, commodity swap, and basis swap contracts reported in the condensed consolidated balance sheets may differ from that which would be realized in the event the Company terminated its position in the respective contract.

Derivative Contracts

The following tables set forth the derivative gains, net on the condensed consolidated statements of operations:

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Settled derivative gains, net for the nine months ended September 30, 2024 includes gains of $13.3 million related to the termination of certain natural gas commodity derivative swap contracts prior to their contractual settlement dates. $8.4 million of such gains is attributable to early-terminated natural gas commodity derivative swap contracts covering production during the nine months ended September 30, 2024. There wereno early-terminated natural gas commodity derivative swap contracts during the three months ended September 30, 2024. Settled derivative gains, net for the nine months ended September 30, 2023 includes gains of $39.1 million related to the termination of certain natural gas commodity derivative swap contracts prior to their contractual settlement dates. $29.0 million of such gains is attributable to early-terminated natural gas commodity derivative swap contracts covering production during the nine months ended September 30, 2023. There wereno early-terminated natural gas commodity derivative swap contracts during the three months ended September 30, 2023.

During the first quarter in 2024, the Company entered into an agreement to sell a call option and subsequently received a net premium of $23.5 million for contracts that settle in 2026 and 2027. The call option has an established ceiling price. If at the time of settlement the contracted settlement price exceeds the ceiling price, the Company pays the counterparty an amount equal to the difference between the contracted settlement price and the ceiling price multiplied by the contract volumes. The premium received was recorded as a liability and is subsequently adjusted to the current fair value of the option written.

Volume of Derivative Activities

As of September 30, 2024, the Company’s derivative activities based on volume and contract prices, categorized by primary underlying risk and related commodity, by year, were as follows:

The following table represents natural gas commodity derivatives indexed to NYMEX Henry Hub pricing:

The following table represents natural gas basis derivatives based on the applicable basis reference price listed below:

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The following table represents natural gas liquids commodity derivatives for contracts, by contract type, expiring through December 31, 2026 based on the applicable index listed below:

Note 6 - Revenue from Contracts with Customers

All of the Company's revenues are generated in the states of Pennsylvania and Texas. Revenues consist of the following:

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Accounts receivable and revenue from contracts with customers

As of September 30, 2024 and December 31, 2023, the Company’s receivables from contracts with customers were $21.9 million and $32.8 million, respectively. Also, as of September 30, 2024 and December 31, 2023, one purchaser accounted for more than 10% of accounts receivables, and for the three months ended September 30, 2024 and 2023, that purchaser’s revenues were $88.1 million and $116.5 million, respectively, and for the nine months ended September 30, 2024 and 2023, the same purchaser’s revenues were $264.2 million and $358.5 million, respectively. Another purchaser’s revenues, that also accounted for more than 10% of the Company’s revenues during the three months ended September 30, 2024 and 2023 amounted to $33.2 million and $44.0 million, respectively, and during the nine months ended September 30, 2024 and 2023, amounted to $107.7 million and $126.9 million, respectively. The Company does not believe that the loss of these customers would have a material adverse effect on the condensed consolidated financial statements because alternative customers are readily available.

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Note 7 - Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities included in current liabilities consist of the following:

Note 8 - Stockholders' Equity

Equity-Based Compensation

2024 Equity and Incentive Compensation Plan

The Company's 2024 Equity and Incentive Compensation Plan (the “2024 Plan”) became effective immediately prior to the consummation of the IPO. The 2024 Plan permits the grant of awards to the non-employee directors, officers, and other employees of BKV Corp and its controlled subsidiaries in order to provide incentives and rewards for service and/or performance. The Company may grant stock options, appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares, performance units, cash incentive awards, and certain other awards based on or related to shares of the Company's common stock. Under the 2024 Plan, the Company can issue up to 5,000,000 shares of its common stock, which are subject to adjustment to reflect any extraordinary cash dividend, stock dividend, split, or combination of the Company's common stock. The aggregate number of shares of the Company's common stock available for award under the 2024 Plan will be reduced byone share of the Company's common stock for every one share of its common stock subject to an award granted under the 2024 Plan. Each grant of an award under the 2024 Plan will be evidenced by an award agreement that includes terms and provisions, determined by the Company's Compensation Committee (or other committee of the board of directors designated by the board to administer the 2024 Plan), which outlines the number of shares of common stock, earning or vesting terms, and any other terms consistent with the 2024 Plan.

Any shares of common stock awarded under the 2024 Plan that have been canceled, forfeited, expired, settled for cash shares, or is unearned (in whole or part) will be added back to the aggregate number of shares of common stock available under the 2024 Plan, with the exception of the following: (i) shares of common stock withheld by the Company in payment of the exercise price of a stock option; (ii) shares of common stock tendered or otherwise used in payment of the exercise price of a stock option; (iii) shares of common stock withheld by the Company or tendered or otherwise used to satisfy a tax withholding obligation; (iv) shares of common stock subject to share-settled appreciation rights that are not actually issued in connection with the settlement of such appreciation right; and (v) shares of common stock reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of stock options. As of September 30, 2024,3,825,516 shares were available for future grants under the 2024 Plan.

Performance-Based Restricted Stock Units

During the three and nine months ended September 30, 2024, the Company granted 704,649 performance-based restricted stock units (“PRSUs”) under the 2024 Plan. These PRSUs cliff vest on December 31, 2026 and are subject to a performance period beginning January 1, 2024 and ending on December 31, 2026 (the “2024 PRSU Performance Period”). The table below

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summarizes the PRSU activity for the nine months ended September 30, 2024:

These PRSUs are eligible to be earned based on three performance conditions: (i) annualized Total Shareholder Return (“aTSR”) of the Company's common stock during the 2024 PRSU Performance Period, (ii) relative Total Shareholder Return (“rTSR”) of the common stock of the Company's benchmark group during the 2024 PRSU Performance Period, and (iii) Return on Capital Employed (“ROCE”) based on the average annual performance over the 2024 PRSU Performance Period.

The aTSR and rTSR components of the awards are market-based conditions valued using the Monte-Carlo Simulation pricing model, which calculates multiple potential outcomes and establishes grant date fair value based on the most likely outcome. For purposes of the grant date fair value during the nine months ended September 30, 2024, the aTSR and rTSR components assumed a risk free rate of 3.5%, a dividend yield of aimmaterial amount, and volatility of 40% that used a combination of daily historical and implied volatility over a look back period commensurate with the remaining term of the assets. The weighted average grant date fair value of the aTSR and rTSR components of PRSU awards granted during the nine months ended September 30, 2024 was $6.78 and $9.91, respectively.

ROCE is considered to be a non-market performance condition. Thus, the likelihood of achievement must be reassessed at every reporting period, and compensation expense is adjusted accordingly. As of September 30, 2024, management estimates ROCE performance to be greater than the target performance level by approximately 27.5%. The grant date fair value of the PRSUs presented in the activity for the nine months ended September 30, 2024 takes into account the grant date fair value for ROCE, due to the non-market performance conditions being probable of achievement as of the respective modification date or grant date which establishes a grant date fair value. The weighted average grant date fair value of the ROCE component of PRSU awards granted during the nine months ended September 30, 2024 was $18.05.

As of September 30, 2024, there was $10.0 million of unrecognized compensation expense related to the 2024 PRSU awards, which will be amortized over a weighted average period of 2.25 years.

Equity-based compensation related to PRSUs was negligible for both the three and nine months ended September 30, 2024, which are included in general administrative expenses in the condensed consolidated statements of operations.

Time-Based Restricted Stock Units

During the three and nine months ended September 30, 2024, the Company granted 469,835 time-based restricted stock units (“TRSUs”) under the 2024 Plan. Under the applicable provisions of the 2024 Plan, the TRSU incentive award vests annually over three anniversary dates in equal portions with the first tranche vesting on January 1, 2025, subject to continued employment with the Company and board of director approval. The table below summarizes the TRSU activity for the nine months ended September 30, 2024:

As of September 30, 2024, there was $8.4 million of unrecognized compensation expense related to the 2024 TRSU awards, which will be amortized over a weighted average period of 2.25 years.

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Equity-based compensation related to TRSUs was $0.1 million for both the three and nine months ended September 30, 2024, which are included in general administrative expenses in the condensed consolidated statements of operations.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan (the “ESPP”) became effective immediately prior to the consummation of the IPO. A total of 500,000 shares of the Company's common stock is available for awards under the ESPP and only permits eligible employees to purchase shares of the Company's common stock through payroll deductions, which cannot exceed 10% of the employee's eligible compensation. The ESPP will be implemented through a series of offerings of up to a period of 27 months, which will consist ofone offering period. During the offering period, payroll contributions will accumulate without interest and, on the last trading day of the offering period, accumulated payroll deductions will be used to purchase shares of the Company's common stock. For the three and nine months ended September 30, 2024, the Company did not recognize any equity-based compensation expense related to the ESPP.

2021 Equity and Incentive Compensation Plan

On January 1, 2021, the BKV Corporation Long-Term Incentive Plan (the “2021 Plan”) was established and as of September 30, 2024,7,724,499 RSUs were considered to have been granted under Accounting Standards Codification (“ASC”) 718 -Compensation-Stock Compensation (“ASC 718”), when taking into consideration performance RSUs at the maximum performance level and time-based RSUs anticipated to be legally granted in thethree years following inception. As of September 30, 2024, the awards considered granted under ASC 718 since inception equaled the number of RSUs legally granted.

Performance-Based Restricted Stock Units

PRSUs cliff vest and were subject to a vesting or performance period beginning January 1, 2021 and ending on December 31, 2023. As of December 31, 2023, the Company achieved its performance targets as follows: TSR met its threshold at 136%, ROCE met its threshold at 131%, and IPO readiness met its threshold at 200%. In February 2024, the Plan's committee approved the Company's goals and the PRSUs outstanding as of December 31, 2023 vested with some being forfeited prior to the Plan's approval.

(1)Forfeited award amounts take into consideration performance shares at the maximum performance level.

Due to the PRSU cliff vest, there wasno equity-based compensation under the 2021 Plan for the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, equity-based compensation related to the PRSUs was $6.0 million and $14.9 million, respectively. These costs are included in general and administrative expenses in the condensed consolidated statements of operations.

Time-Based Restricted Stock Units

The following table summarizes the TRSU activity under the 2021 Plan for the nine months ended September 30, 2024:

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(1)For the nine months ended September 30, 2024, the total fair value of the shares vested was $18.00.

For the three months ended September 30, 2024 and 2023, equity-based compensation expense related to the TRSUs under the 2021 Plan was $10.5 million and $1.1 million, respectively. For the nine months ended September 30, 2024 and 2023, equity-based compensation expense related to the TRSUs under the 2021 Plan was $12.7 million and $2.5 million, respectively. These costs are included in general and administrative expenses in the condensed consolidated statements of operations. Upon consummation of the IPO, the remaining TRSUs from the 2021 Plan vested.

Equity Investments

The Company made a capital call on BNAC of $150.0 million, and pursuant to the requirements of the existing stockholders' agreement, on September 27, 2023, BNAC made a capital contribution in exchange for 7,500,000 shares of BKV common stock. To comply with a financial covenant under the Term Loan Credit Agreement, $138.3 million of BNAC's capital contribution was placed in a debt service reserve account, which was released upon termination of the Term Loan Credit Agreement. See Note 1 - Business and Basis of Presentation and Note 2 - Debt for further information.

Note 9 - Equity Method Investment

The Company is a 50% owner of BKV-BPP Power, LLC (the “Power Joint Venture”) which is accounted for as an equity method investment. On July 10, 2023, the Power Joint Venture acquired CXA Temple 2, LLC, the owner of 100% of the interests in Temple II, a combined cycle gas turbine and steam turbine power plant located on the same site as Temple I in the Electric Reliability Council of Texas North Zone in Temple, Texas for an aggregate purchase price of $460.0 million. Temple I and Temple II deliver power to customers on the ERCOT power network in Texas.

The Power Joint Venture has a term loan from each of its affiliates, BNAC and Banpu Power US Corporation (“BPPUS”), each in the amount of $141.0 million, both of which mature on November 1, 2026.

During the three months ended September 30, 2024 and 2023, the Company recognized, based on its 50% ownership interest in the Power Joint Venture, earnings of $50.6 million and $49.1 million, respectively, and during the nine months ended September 30, 2024 and 2023, the Company recognized earnings of $27.6 million and $34.8 million, respectively. For the three months ended September 30, 2024, the Power Joint Venture's total revenues, net, included unrealized derivative gains of $107.0 million and operating expenses included unrealized derivative gains of $1.8 million. For the three months ended September 30, 2023, the Joint Venture's total revenues, net, included unrealized derivative losses of $46.9 million. For the nine months ended September 30, 2024, the Power Joint Venture's total revenues, net, included unrealized derivative gains of $75.9 million and operating expenses included unrealized derivative losses of $3.9 million. For the nine months ended September 30, 2023, the Power Joint Venture's total revenues, net, included unrealized derivative losses of $67.0 million.

The table below sets forth the summarized financial information of the Power Joint Venture:

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Note 10 - Commitments and Contingencies

From time to time, the Company may be subject to various claims, title matters, and legal proceedings arising in the ordinary course of business, including environmental contamination claims, personal injury and property damage claims, claims related to joint interest billings and other matters under natural gas operating agreements, and other contractual disputes. The Company maintains general liability and other insurance to cover some of these potential liabilities. All known liabilities are fully accrued based on the Company's best estimate of the potential loss. While the outcome and impact on the Company cannot be predicted with certainty, for the periods presented in the condensed consolidated financial statements, the Company believes that its ultimate liability, with respect to any such matters, will not have a significant impact or material adverse effect on its financial positions, results of operations, or cash flows. Results of operations and cash flows, however, could be significantly impacted in the reporting periods in which such matters are resolved.

The Company has volume commitments in the form of gathering, processing, and transportation agreements with various third parties that require delivery of 1,207,540,573 dekatherms of natural gas. The significant majority of the agreements terminate by 2029, with one agreement extending through 2036. As of September 30, 2024, the aggregate undiscounted future payments required under these contracts total $337.6 million. The Company expects to fulfill the commitments from existing productive wells.

As a part of the consideration paid for the Devon Barnett Acquisition, additional cash consideration will be required to be paid by the Company if certain thresholds are met for average Henry Hub natural gas and WTI crude oil prices for each of the calendar years during the period beginning January 2021 through December 31, 2024 (the “Devon Barnett Earnout”). Average Henry Hub payouts and threshold are as follows: $2.75/MMBtu $20.0 million, $3.00/MMBtu $25.0 million, $3.25/MMBtu $35.0 million, and $3.50/MMBtu $45.0 million; average WTI payouts and thresholds are as follows for these periods: $50.00/Bbl $10.0 million, $55.00/Bbl $12.5 million, $60.00/Bbl $15.0 million, and $65.00/Bbl $20.0 million. The maximum remaining amount payable under the arrangement is $65.0 million for the year ending December 31, 2024. Payments are due in the month following the end of the respective measurement period for which the hurdle rates are set. On January 12, 2024, the Company paid the 2023 contingent consideration of $20.0 million. As described in Note 4 - Fair Value Measurements, management uses NYMEX forward pricing estimates for both Henry Hub and WTI hurdle rates and Monte Carlo simulations to determine the fair value of the contingent consideration. As of September 30, 2024 and December 31, 2023, the Company's estimate of the fair value of the unsettled contingent consideration was $19.7 million and $47.5 million, respectively. For the three months ended September 30, 2024 and 2023, the change in the fair value of the contingent consideration was a gain of $3.9 million and a gain of $0.5 million, respectively, and for the nine months ended September 30, 2024 and 2023, the change in the fair value of the contingent consideration was a gain of $7.8 million and a gain of $14.0 million, respectively. These changes in the fair value during these periods impacted the associated liability on the condensed consolidated balance sheets and recognition of the gain was recognized in the gains on contingent consideration liabilities on the condensed consolidated statements of operations.

In conjunction with the Exxon Barnett Acquisition, additional cash consideration will be required to be paid by the Company if certain thresholds for future Henry Hub natural gas prices are met for the year ended December 31, 2024. Payouts and thresholds are as follows for the year ended December 31, 2024: $3.75/MMBtu $10.0 million, $4.25/MMBtu $17.5 million, and

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$4.75/MMBtu $25.0 million. Payments of the additional cash consideration are due by January 31 of the calendar year following the applicable threshold measurement periods. The fair value of the contingent consideration was zero as of September 30, 2024. As of December 31, 2023, the fair value of the contingent consideration was $2.2 million. The change in the fair value of the contingent consideration for the three months ended September 30, 2024 and 2023 was a gain of a negligible amount and a gain of $0.7 million, respectively, and for the nine months ended September 30, 2024 and 2023, the change in the fair value of the contingent consideration was a gain of $2.2 million and a gain of $10.1 million, respectively. These changes in the fair value during these periods reduced the associated liability on the condensed consolidated balance sheets and recognition of the gain was recognized in the gains on contingent consideration liabilities on the condensed consolidated statements of operations. Refer to Note 4 - Fair Value Measurements for the valuation methodology and associated inputs.

A summary of the Company's commitments, excluding contingent consideration, as of September 30, 2024, is provided in the following table:

Note 11 - Income Taxes

The effective tax rates for the three months ended September 30, 2024 and 2023 were 46.8% and 21.7%, respectively, and for the nine months ended September 30, 2024 and 2023 were 26.0% and 22.5%, respectively. For the three and nine months ended September 30, 2024, the difference in the effective tax rate from the U.S. statutory federal income tax rate of 21.0% was primarily due to executive compensation disallowance, offset by the Company benefiting from the monetization of certain tax credits under the Internal Revenue Code (“IRC”) Section 45Q from the injection of CO 2 waste in the Barnett Zero well, IRC Section 45I Marginal Well Credits from marginal production, excess tax benefits relating to the vesting of restricted shares, and by state apportionment changes due to the sale of Chaffee. For the three and nine months ended September 30, 2023, the difference in the effective tax rate from the U.S. statutory federal income tax rate of 21.0% was primarily due to state taxes.

Note 12 - Earnings Per Share

Basic net income (loss) per common share for each period is calculated by dividing net income (loss) by the basic weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) of the Company by the diluted weighted average number of common shares outstanding for the respective period. Diluted weighted average number of common shares outstanding and the dilutive effect of potential common shares is calculated using the treasury method. The Company includes potential shares of common stock for PRSUs and TRSUs in the calculation of diluted weighted average shares outstanding based on the number of common shares that would be issuable if the end of the reporting period was also the end of the performance period. During periods in which the Company incurred a net loss, diluted weighted average common shares outstanding were equal to basic weighted average of common shares outstanding because the effects of all potential common shares was anti-dilutive.

The following is a reconciliation of the Company's basic weighted average number of common shares outstanding to the diluted weighted average number of common shares outstanding:

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