NET Power Inc.

Greetings and welcome to the NetPower Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bryce Mendez, Director of Investor Relations. Thank you, Bryce. You may begin.

Good morning, everyone, and welcome to NetPower's third quarter 2023 earnings conference call. With me on the call today, we have our Chief Executive Officer, Danny Rice, our President and Chief Operating Officer, Brian Allen, and our Chief Financial Officer, Akash Patel. This morning, we issued our earnings release for the third quarter of 2023. which can be found on our investor relations website along with this presentation at ir.netpower.com. During this call, our remarks and responses to questions may include forward-looking statements. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. With that, I will now pass it over to Danny Rice, NetPower's Chief Executive Officer.

Thanks, Bryce. Hi, everyone, and welcome to NetPower's third quarter 2023 earnings call. I'd like to briefly revisit our strategic initiatives before I turn the call over to Brian for some key operational updates. Our three-pillage strategy, which we outlined on our inaugural earnings call, serves as a framework to measure our progress towards achieving clean, affordable, and reliable energy. As Brian will speak to shortly, we're working towards not only demonstrating our patented technology at the utility scale, but also towards creating a standardized plant design that will allow us to get to manufacturing mode as efficiently as possible by the end of this decade. Simultaneously, we continue to make great progress towards building out our project pipeline, which I will touch on further in a few minutes. This technology opens an incredible universe of opportunities for us. And our first plan will ultimately set the stage for future deployment. And it's of the utmost importance to get our first one right. We're taking a methodical approach to ensure that this first utility scale project validates the technology while operating with a focus on clean, reliable, and safe operations. Net power is on a mission to lower the cost of power and lower the emissions from power without sacrificing reliability. The world's beginning to see that for energy to be sustainable, it needs to be clean, more affordable, and more reliable. Natural gas has been proven to be the go-to energy source to meet our reliability and affordability needs, and we need technologies like NetPower to eliminate CO2 emissions in the most cost-effective manner possible. So with that, I'll pass it over to Brian for some operational updates.

Thanks, Danny. The NetPower team is diligently progressing the development of our technology, which includes several facets. First, we are advancing and optimizing our process design to ensure that we can deliver the energy trifecta. Second, we are preparing and retrofitting our Laporte demonstration facility for upcoming testing campaigns with our partner, Baker Hughes. And third, we are developing our standard utility scale plant design through our front-end engineering and design, or FEED, work with Zachary as we progress Project Permian, our first utility scale plant. As mentioned on our previous earnings call, each of these areas of technology development are linked and are in development in parallel with the ultimate goal of delivering the energy trifecta at the utility scale. Slide five provides some Q3 updates from our LaPorte test facility. We have several site developments underway in preparation for upcoming combustor and turbo expander demonstration tests with Baker Hughes. The initial phase of these testing campaigns begins in 2024. These test campaigns will help de-risk our first utility-scale project and create further refinement of our plant controls architecture with Baker Hughes equipment. The development at LaPorte includes recycled CO2 compressor relocation, piping and instrumentation enhancements to improve data acquisition, and distributed control system updates to optimize our plant controls. Turning to slide six, we progressed several important work streams surrounding Project Permian during the third quarter of 2023. We continued to advance through the feed process with Zachary, our first pre-qualified engineering procurement and construction partner. We completed our initial surveying and environmental assessment of our plant site, continued releasing bid packages for long lead equipment, and commenced negotiations of supply and offtake agreements. During the second quarter of this year, we submitted our grant application for up to $270 million to the U.S. Department of Energy's Office of Clean Energy Demonstrations. This process is ongoing with a DOE decision expected in Q4 of 2023. As Danny alluded to, it is critical that we get Project Permian right. Our anticipated project timeline is illustrated on the bottom right-hand side of slide six. The global energy supply chain continues to be challenged, which means we are facing extensive lead times across critical components. Our supply chain strategy is intended to alleviate these market constraints in the long term, but we must prudently incorporate the current supply chain realities into our project timing and planning for Permian. As such, we are incorporating a 12-month cushion into our expected schedule for Project Permian. We're expecting to achieve initial electric power generation sometime between the second half of 2027 and first half of 2028. We believe this updated schedule will allow us to accomplish safe, clean, and reliable operations and enable this project to serve as the catalyst for all future net power plant deployments. I'll now pass it back to Danny for a few commercial updates.

Thanks, Brian. Turning to slide seven. we're actively building out our project backlog with the goal of creating clear pathways to state-level decarbonization by the time our first plant comes online. This process requires careful planning and strong alignment across our stakeholder ecosystem, which is illustrated on the right-hand side of this slide. Through our origination efforts, we continue to identify highly economic prospective plant locations where the subsurface is conducive to CO2 sequestration and the electricity transmission network exists above ground in regions with attractive spark spreads. We then form the right partnerships to secure access to these locations, all while ensuring benefits to each and every partner and stakeholder. The ultimate goal is to maximize the energy and social benefits while minimizing net power's environmental impact. Using this all-encompassing approach, we've identified our first originated project, which we're simply calling OP1 for now. This project has completed its technical feasibility study and we're preparing to commence permitting and feed in 2024. Over the coming quarters, we're going to build stakeholder support with intent of sharing details of the project once all key stakeholders are aligned. I want to reiterate that we're not looking at one-off projects on a bespoke basis, but rather creating a roadmap to future deployments within the same region with the goal of achieving net zero grids at the state and regional level. I'll now pass it over to Akash to walk through our Q3 financial results.

Thanks, Danny. Looking at slide eight, NetPower ended the third quarter of 2023 with a strong balance sheet, including approximately $645 million of cash and short-term investments. For the quarter, our total capital expenditures excluding short-term investment securities was approximately $3.4 million, comprised of approximately 0.9 million spent on Laporte upgrades and roughly 2.5 million of capitalized costs associated with the ongoing Project Permian development activities. Under the current interest rate environment, we are able to benefit from putting our balance sheet cash to work to materially offset our corporate spend. In the third quarter, our cash flow from operations was approximately zero due to the cash interest received during the quarter of approximately $8 million offsetting our operational cash burn. Though we do not expect this trend to continue as we build out the organization and ramp up activity at LaPorte, we believe we have sufficient capital through Project Birmingham Commissioning. Our overcapitalized balance sheet provides us with a unique competitive advantage and is a key differentiator for NetPower relative to other energy transition names. The final slide of this presentation provides the detailed breakdown of the company's fully diluted share count of approximately 247 million shares as of September 30th. This is comprised of approximately 211 million Class A and Class B vested shares currently outstanding, 19.5 million shares issuable upon the exercise of outstanding public and private warrants, 1.7 million shares subject to earnouts or vesting requirements, and over 14 million authorized shares, issuable pursuant to the joint development agreement with Baker Hughes. That concludes our prepared remarks for this call. We'll now turn it back to the operator to open it up for Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Marnin Mallow with Johnson Rice. Please proceed with your question.

Good morning. I wanted to ask first about Occidental, and maybe you could speak to your potential participation in their future DAC projects. They spent a lot of time on their conference call talking about the South Texas DAC Hub.

Yeah, hey, Marty, this is Danny. Thanks for joining us today. I can't speak to anything specifically about Oxy and carbon engineering and, you know, DAC programs specifically. I would say more broadly when you look at DACs, and DACs are certainly getting a whole lot of attention and a whole lot of capital these days, I think one of the really interesting things about our solution is as you look at just DACs is DACs need a lot of power. And I think one of the things that's so interesting about what net power can provide is DACs need that power to be low cost. They need that power to be reliable because you have to be running these machines continuously 24-7 to be able to justify the capital costs of the DAC facilities. But you also need that power to be clean, right? I think you can't just use grid power. You can't use just straight natural gas from a combined cycle plant. Certainly can't use a coal-fired power plant for that power. And so you're really left with limited, if not zero, options on economic and environmental justification for how are you going to power these DAC facilities? And this isn't specific to Oxy. This is specific to every single DAC project across the world. How are you going to get access to low-cost, reliable, clean power? And there's really no option out there today in the world. And while I think we always looked at net power as the base case for net power is power going into the grid to decarbonize the grid, CO2 going underground, But DAC has certainly become a really logical second market for us, where it's power going into powering the DAC, and then you're actually combining our CO2 that's being captured from our plant with the CO2 captured from the DAC plant. So you pick up economies of scale on the CO2 infrastructure, and you go sequester from there. So there's a whole lot of really good environmental and economic reasons why net power pairs up really, really well with DAC. And so we're really excited to explore those in the future with Oxy and with other folks.

Great. And for my follow-up question, I just wanted to ask about the building in of the additional 12-month cushion. Are there specific pieces of equipment that maybe caused you some concern regarding their supply that caused that cushion to be necessary?

Hey, Marty. This is Brian. It's not a specific piece of equipment. It's really just a general issue facing the energy industry right now as we come out of the post-pandemic period. Just to give you, for instance, a simple thing like a transformer that I would have viewed in the past as a commodity item. The pre-feed schedule that we had developed going into this whole program We had bids a few years ago for one year for this item. This is the main transformer for the plant. That's looking more like three years now. So electrical gear is definitely a focus area that in the past I viewed as more commodity. But it also extends really to everything that long leads on the air separation plant, long leads with the baker, rotating equipment. So we just felt, you know, as we looked You can expedite one or two items, but if you're looking at a general trend in the whole supply chain, we just wanted to update that reality into our schedule.

Great. Thank you. I'll turn it back.

Thank you. Our next question comes from the line of Leo Mariani with Roth MKM. Please proceed with your question.

Yeah, hi, guys. I was hoping to hear a little bit more about the OP1 project. When you guys talk about this being your first originated project, I presume that's something that kind of net power went off and sort of found on their own. Are there other partners kind of committed to this yet, or are you still sort of in the process of kind of bringing those partners in? I'm just trying to understand a little bit kind of more about OP1.

Yeah, hey Leo, it's Danny. Good to hear from you again. Yeah, I mean, it's early days. I think as we kind of alluded to on the call last time, you know, we really talked about being able to really just supplement the primary business model on the commercial side, which is licensing with this origination approach, right? And I think like the whole background on origination for new listeners on the call today was, is we really have started to just map out really the United States, but North America in general. Like one of the interesting things that's really unique to North America is the power markets where there are sedimentary basins where you can sequester CO2. They're deregulated, which means that anybody can build a power plant and sell power into those grid systems. Anybody, right? And then when you also, especially within the United States, Given that property owners on the surface, they own the subsurface just like an oil and gas. Anybody can go lease the subsurface. Anybody can go secure surface rights. And so we're sitting in a unique position where when you look at both the surface, the subsurface, and the power markets through the lens of net power, you really start to identify these really cool bright spots. And it's bright spots that we're sitting here today saying, what's stopping us from going and originating projects on our own in the best markets where these plants make really, really good economic sense. And kind of the answer is there's nothing that's really stopping us other than the willpower and the conviction to go do so. And so that's what me and the team have been working on for the last few months is really starting to map all this stuff out. And then from identifying these bright spots, actually then turning our attention to how do we go secure these opportunities. So OP1 is really the first of what will be a lot of these projects. I think we're really looking at these maps and these bright spots in a really unique way that really nobody else is because there's no technology like this that can really take advantage of those sort of subsurface and surface features. So that's kind of like the background on how we got to OP1. I think as we think about just talking about details of these projects going forward, and this is just level setting expectations with everybody, but really for the benefit of the shareholders, I think one of the things that's so important is really making sure we're very judicious and prudent about being very transparent about all the details of these projects only when the project is fully baked. And fully baked does not mean just we have the subsurface under control and we have the surface under control and we're going through the interconnect process. It's we have alignment with the local landowners. We have alignment with the communities. We have alignment with the regulatory agencies both within the state and at the federal level. And it's to part of your question, We have alignment with the local utilities. We have alignment with any other folks that we need to help on the CCUS side, whether it's on CO2 transportation or CO2 sequestration. And so I think when we fully announce these projects, it's going to be in a place where we're going to have a whole host of really important stakeholders on our side. And I think the industry has kind of seen, the CCUS industry specifically, has kind of seen what happens if if you announce projects before they're fully baked, right, I think you put yourself in a position where you're susceptible to just a lot of opposition. And so I think for us, being able to build that support so people really understand the benefit, not just the energy benefit, not just the economic benefit, but just a broader social and environmental benefit to what these projects can do is really, really important to ensure that we're minimizing the roadblocks or potential just derailing of these things between announcement and COD, getting those projects online. So OP1 is going to be the first of, you know, a bunch of projects that we're working on right now. And the goal really for us is by the time that first plant comes online, you know, Project Permian comes online, we're going to have a pretty good backlog of where we want to put plant numbers 2 through 10, 2 through 30. And really all of it's really in advance of getting to manufacturing mode so that we can continuously be producing dozens of plants per year. So I would imagine the origination strategy is going to be really just the foundation of that commercial launch point into manufacturing mode. And really there's going to be a really cool handoff, we think, from origination into just almost pure licensing by the middle of next decade. as the utilities really start to understand this is the playbook, this is how you develop net power plants, here's how you operate net power plants, here's how you build the community benefits piece, I think it's really up to us to be able to demonstrate the optimal way to deploy these plants, and this origination strategy is going to be a key part of making that happen.

Okay, very thorough answer for sure here, Danny. I mean, it certainly sounds like To paraphrase a little bit, it's a bit early days and there's probably still a lot that needs to happen to get all the right stakeholders and investing partners in place here, but it sounds like you guys are well on your way and working on a lot of that.

Yep, that's right. The key piece is these are going to be economic and socially beneficial projects that folks want to be a part of. And that's kind of what we have control over. Yep. Okay.

And then just a question on kind of the financials here. I know it's, you know, always a little tricky to kind of predict these things going forward. But as I'm looking at your kind of, you know, third quarter numbers, just kind of eyeballing this. I mean, it looks like if I just kind of call cash costs, if I add up sort of G&A, kind of sales and marketing, R&D, I assume that's kind of pretty much your cash costs. Looks like that's kind of 17, 18 million bucks here, you know, in the third quarter. Is that kind of roughly the runway we should expect as we roll into into fourth quarter uh in 2024 or do you think there's going to be some flow creep on those costs uh you know next quarter and into next year and similar sort of line of thinking around capex from three and a half million this quarter is it going to be substantial at all you know next quarter or next year or is this something that really takes that a few years for some of these uh costs to start building and your cash burn stays i'll call it relatively low uh you know for the next year

Leo, I'll take that one. It's Akash. So, you know, I appreciate that our presentation of financials is a little bit different than just the standard company given the, you know, the reverse purchase accounting that happened. But if you just take a look at, like, the cash flow from operations that we posted a year to date in the third quarter versus a year to date in the second quarter, that effectively gets you the cash burn of the company for the third quarter. And that was actually positive about $100,000. And so when you look at the income statement, there are a few non-cash items that hit the income statement, particularly around the Baker Hughes joint development program. That program, again, is half cash, half in shares. And so you see the shares get funded every quarter. But what hit the income statement is only effectively half of what actually is the cash burn of the company. And so, you know, we had roughly $8 million of interest income come in the door, and that was roughly what the cash burn of the company was for the quarter. I do note that we had a few just items related to the DSPAC go public transaction that bled into Q3. And so our cash burn adjusted for those was just a touch under that $8 million. So if you analyze that, that gets you kind of where we are today. And again, we are ramping up the company. We're building out the organization. And as we continue ramping up the port in preparation for testing, that capex will come up over time. but we're not providing guidance at this point to the magnitude. But, you know, we do, again, feel that we have ample capital for not only the testing, but also to get us through until Project Permit comes online.

Yep, okay. I appreciate the call, Irv. It sounds like it's not going to be too dramatic of a ramp, at least in the near term, from your comments.

Right. Thanks, guys.

Thank you. Our next question comes from Noel Parks with Thule Brothers. Please proceed with your question.

Hi, good morning. You know, one theme that has come up a bit more in the last few months on the sequestration side is from the oil and gas industry players that are looking for sort of storage only type transactions in CCS. I've been hearing them talk more about there being an increased sort of land grab mentality out there about just securing access to and control of poor space. And I was just wondering if that was anything that you were perceiving in your marketplace. I had sort of been thinking that it was going to be more sort of just demonstrating the economics that was going to lead the discussion. But any thoughts you have on that would be great.

Yeah, this is Danny. That's a great question, Noel. I think when you take a step back and you look at where a lot of the CCS activity is happening, and really leasing activity specifically, you know, a lot of it is happening, almost all of it is happening in and around areas where you have these high concentrations of CO2 coming off of industrial plants. And so those are almost all within the Gulf Coast region from Louisiana into southeast Texas. And so that's where you're seeing a lot of people focus all of their activities on the subsurface is around where those sources of CO2 today. And so, you know, that's where the industry is. But I think with net power, I think what makes us a little bit different, both in terms of what we're trying to do on the origination side, but also where these plants make good sense, is not where the sources of CO2 are today, right? Because we are the source of CO2. And we can put our plant wherever the sink is, regardless of whether there's CO2 in that region or not. All we need is access to the grid and access to natural gas infrastructure. And so... The maps that we're looking at are probably much, much different than the maps that CCS players are looking at because their maps are saying, where are there existing sources of CO2 that I can capture, gather, and sequester in close proximity to those emission sources? Our maps are just saying, where is there high porosity, good permeability, thick rock with a cap rock on top of it? and are there gas pipelines and are there power transmission lines? So we don't really care about where the existing sources of CO2 emissions are because we are that CO2 factory that you could put anywhere you want. And so we're looking at parts of the country that nobody else is looking at because there's no CO2 emissions in those areas. And because there's no CO2 emissions in those areas, that subsurface is not worth anything to somebody that would want to go secure that pore space. You really need that pure form of CO2 to be able to unlock the value of the 45Q in those places. So there's parts of this country where that subsurface is only valuable to net power. So it's a really interesting dynamic. And I think more importantly, it creates an opportunity for parts of this country that right now are thinking, I don't know how I'm going to get to net zero. I'm not in an area that has great wind or solar potential. All I have is coal and gas-fired power. And we look at those markets and we say, there's great subsurface potential within these sedimentary basins within this state or within this region. They have access to natural gas coming from Appalachia. They have access to gas coming from the Rockies or coming from the Permian. And we say, those are perfect markets to decarbonize their grids. by just replacing their aging coal and gas plants with net power. Take advantage of the sub-circus that nobody's taking advantage of and decarbonize their grids probably a whole lot faster than other areas that have taken a renewables-only approach. So it's a really interesting dynamic that the power of our technology really unlocks for us and our future customers.

Great. Thanks a lot. It is a helpful distinction that you made there. And early in the prepared remarks, I think there was a mention of just different technical tasks, I guess, more on the design engineering side. And for example, it was mentioned further refinement of plant controls architecture with Baker Hughes. I just wondered if you could just talk about some of those initiatives. What's involved? Are these lengthy processes? in any way unexpected compared to what you were looking at earlier in the year?

Yeah, sure, Noel. This is Brian. No, nothing unexpected. I think anytime you change turbo machinery, every OEM has different strategies on things like how they cool their turbine or how they start and ignite, just fundamentals of how a turbine operates. so we have to account for those in our plant design or plant controls which is great so we're making those controls updates which will then port over in the long term to the utility scale design because you know that turbo expander that turbo machinery will have a similar architecture and similar strategy so it's really more of a real time in terms of the controls real-time updates as the development progresses But I would say also, as we make some modifications to our plant, moving the CO2 compressor and whatnot, there's always more. When we designed the plant originally, there's things we learned and different measurements we want to take. So we're taking the opportunity to upgrade some of our data acquisition just for enhanced analysis of the cycle.

Great. Thanks a lot.

Thank you. Our next question comes from the line of Wade Suki with Capital One. Please proceed with your question.

Good morning, everyone. Thank you for taking my questions. I guess just to go back to the supply chain constraints that you kind of discussed earlier in the call. Any update you can give us on cost for SN1 or even more broadly as you think about OP1?

Yeah, this is Brian. I'll address the first one. So, you know, we're still in the middle of the feed with Zachary. We are getting initial information from long lead suppliers, but we're not at a point yet where we've really gotten, I'll say, firm negotiated bids. That'll keep progressing through the feed into probably all the way through mid next year. Certainly it's something we're watching and I'll remind you that we're in also a value engineering and optimization exercise here. So we're not just a taker of price. I mean, our cycle sets the entire plant design and there's things we can change and trade off. So as we keep continuing the feed process with Zachary and interface with Baker on much of the major equipment, interface with the ASU supplier, interface with our major heat exchanger partner, all of these things, we're really optimizing the overall plant design and thus the cost. That will really come together at the end of feed, targeting mid-next year.

Great. Thank you. And maybe could you give us an anticipated time, promise not to hold you to it, but an anticipated timeline for OP1, just broadly speaking?

Yeah. So I think it's really interesting. If you look at just the schedule that we have right now for Project Permian, you know, on line 27, beginning of 28. So we're talking about, you know, four years from now. I mean, OP1 is going to be in a position and possibly OP2 and OP3 as we start to finalize those ones. You know, those are all being positions where assuming that we can get the requisite class two, class six permits in place as those just kind of bottlenecks within the EPA for class six approval starts to get worked out and you get to that reasonable you know, two to three year kind of time from submittal to approval, which is kind of what the EPA is targeting. You know, you can see a place where those projects are ready to go, like ready to be turned online, you know, shortly after serial number one. And so ultimately it's going to be a judgment call for us on how soon after serial number one do we want to get OP1, OP2, OP3, online. And I guess the obvious question that that response would cause is why wouldn't you guys get it on right afterwards? And I think it's really a function of making sure that we have as high enough of a confidence in the expected performance of Project Permian before we start ordering the equipment and start really finalizing the design of those follow-on projects. And I think we're going to learn a lot as we go through this report demonstration testing with Baker over the course of the next 24 months. That's really going to bring up just our confidence level in the performance of serial number one, because these are just going to be scaled down components that Baker's going to be testing. That'll be really, really good read-throughs to Project Permian. And so as we start to go through this process, this confidence will start to build in advance of Project Permian coming online that we'll probably want to take advantage of being able to start to bring a lot of that backlog earlier into the end of this decade. So I guess the short answer is you could see it online a year after Project Permian if you wanted to take some technology risk, depending on our confidence level. Or you could see it being a year and a half or two years after Project Permian if we don't want to take any sort of commercial risk and really know that this project's going to be able to have all of the guarantees and work exactly as performed But the nice place that we're at, because Brian and the team are really designing this to be a standardized plant design, it allows us to be able to just swap slots. So as the markets really start to continue to evolve on power, on the cost to sequester the CO2, some projects today that look to be more economic, by 2027, 2028, they may be less economic than another project that our markets in that area, spark spreads really spike in the entire back end of that curve really moves up on the power side that we say it will be more economic to accelerate this project over that project. And because we have the standardized plant design and everything inside of that plant fence is identical from one project to the next, that gives us so much flexibility to be opportunistic and take advantage of those really attractive economics as soon as possible. and really allows those projects to rise to the top of the queue. And so that's really going to be the really interesting part of the backlog as we build it is OP1 today may not necessarily be that second plant online. If there's another project that comes along that we originate or that a customer wants, that is even more economic and even more beneficial to the community and to the environment that we say it makes more sense for this project to take the next plant that's in that manufacturing process. But That's something you can only do if you have this standardized plant design, and that's certainly one of the strategic reasons why we designed this thing to not be a bespoke plant like every other thermal plant in the industry today.

I think that makes a lot of sense. One more, if I could squeeze it in. Anything cooking internationally that you can speak to?

Yeah, the pot's boiling. We're getting ready. Yeah, no, there's a whole lot of things internationally. You know, I think as we talked about when we were completing the DSPAC and we just talked about, you know, what are the key things you need of this recipe for this thing to be successful? You need access to natural gas. The lower the cost of natural gas, the better, just because the more competitive you'll be on the cost of power. You need access to a place to store the CO2, and certainly markets where there's value in that CO2, either on the voluntary side, like for enhanced oil recovery, or on the involuntary side through federal credits, federal subsidies, federal taxes, like the 45Q here in the United States. Those all make the carbon part of the equation valuable, right? And then the third piece is you need access to a lot of power demand, because these are really, really large power plants. And when we're looking at deploying four net power plants, you're talking about a gigawatt. So this is grid scale sort of power. And so you need those three things. You need access to the gas, you need the subsurface, a valuable subsurface, and you need power. And so when we look internationally, Canada, Western Canada is pretty amazing. It has all three of those criteria. The Middle East is really, really exciting to us. Southeast Asia, we're reforming a joint venture with SK Group. is really interesting, and then parts of Australia are also really, really interesting. Europe's one that everybody says, what about Europe? In Europe, Europe should make great sense. They've been sequestering in the North Sea for almost 20 years now, so they've demonstrated that you can safely and responsibly store that CO2 for millennia. But I think Europe's challenge right now is they've stopped developing their own gas supply. And so right now what they're facing is a high cost of natural gas, which is leading to a high cost of power. And so I think if Europe can really just figure out its energy procurement strategy around low-cost, reliable natural gas, Europe becomes a really, really interesting market for us. But I think right now they're facing bigger problems, which is just procuring energy security right now, because right now they're really at the mercy of a whole lot of other countries And they don't have control of their energy destiny. So energy security is, above all else, the most important thing. It's the foundation of a sustainable energy future that you can then decarbonize with net power. But first, you have to secure that energy. And I think Europe has a lot of work to do to make that happen.

Great. Thank you all. Appreciate it.

Thanks, Wade.

Thank you. Our next question comes from Betty Jing with Barclays. Please proceed with your question.

Good morning. Thank you for all the helpful comments today. Just a question on CO2 transport. One of the major proposed CCS pipeline was canceled last month, and a lot of that due to regulatory issues and local community pushback. I know you're focused on just short distance transport of less than 40 miles. Are there any lessons learned there and how do you limit your risk in your CO2 transport strategy?

Yeah. Hey, Betty. This is Danny. That's a great question. I think first to address the the the challenge with these long pipelines i think these this infrastructure challenges in opposition to new infrastructures specific to ccs it's it's specific to any infrastructure projects whether it's pipelines whether it's solar farms wind farms you're seeing people that are very sensitive to their landowner rights um because it's their rights right especially here in the united states um And so I think one of the things that we've kind of learned just from observing over the last couple years is just because you're doing something that's good for the environment doesn't necessarily give you the social license to operate wherever you want, however you want, whenever you want. I think you always have to be a good steward and a partner of those communities that could be adversely impacted by your activities. And just because you're doing what's great for the environment doesn't give you the rights to be able to trump that. And so I think for us that certainly shapes our approach on origination, where we are really trying to minimize the impact in order to maximize the benefit of our plants. And so what does that mean in practical terms? That means as we're really mapping this stuff out to really understand where the CO2 sinks, where's the electricity infrastructure, where's the natural gas pipeline infrastructure, we're not really just identifying just like broad areas and saying we'll build a 200-mile pipeline because that 200-mile pipeline, it's not good for our bottom line, right, because it's incremental capex, but it also just exposes us just to more risk on the social side. And so what we're ideally trying to do is identify areas where we can put the plant adjacent to the electricity transmission line and the sink is directly below. And so we're really minimizing all infrastructure, and that's kind of an ideal scenario for us. is put the plant directly on top of a sink and sequestered directly beneath the plant without having to build a 20 or a 50 or 100-mile pipeline or, God forbid, a 1,000-mile pipeline. If we're having to build a 1,000-mile pipeline, we're doing something wrong, right? And I think that's like one of the advantages of why we're excited about Project Permian where it is is there's already that CO2 infrastructure network. We don't have to build really any new CO2 pipelines. The permits are already in hand. And so it really just minimizes the risk of execution on project number one. But it's also the approach that we're taking on the origination projects, OP1 and beyond is really identify those areas where we can minimize any above ground and below ground disturbance in order to really be able to highlight the benefits of what these projects are going to be able to do. But again, it comes back to proper planning. And so that's one of our key criteria is really identifying where we can establish these plants with minimal new infrastructure.

Great. No, that's really helpful. Thanks. And then a quick follow-up on your comments earlier about lead time in the future for OP1, two, three timing relative to Project Permian that you want to learn more and seeing how the equipment perform. and before we move on to the next plant. I'm wondering about the lead time between deciding to move forward with the plant and then how long it takes to purchase all the equipment. Basically, once you have all the learnings that you do, how long would it take for you to move before we see the next project?

I'll take one part of it, and then I'll hand it over to Brian on the equipment piece, because there's really two pieces to the project, right? There's the surface, there's the subsurface, there's the permitting piece and the interconnect piece, and there's the actual plant piece. And I think with origination, what I'm really focused on, staying ahead of Brian on the equipment side, is setting the table for him. So it's securing the acreage, securing the subsurface, getting into the interconnect queue, getting the class two, class six permits, sequestration permits in place, these are all like, those are actually like the longest lead time things. You know, you're talking about probably four to five years today to get a class six permit with any, you know, degree of confidence. And so those are long lead items that are really low dollar in the grand scheme of things, you know, within the context of a $700 to billion plant, like what a power plant could be. And so these are low dollar things. that remove the long lead item, the longest lead item from the equation. And so as we look at really just setting the table, really what we're going to be doing on the origination side is setting that table for Brian so that we have not just the rights secured, but we have the permits in hand for both power and sequestration. And we've really set the table for Brian and team to say, now we're ready to deploy plants on this location, on that location, on that location. And so these are things that we're going to be doing in getting these projects essentially to FID over the course of the next few years. And then really that decision point on going from securing the opportunity to then developing it and turning it online, that's really a function of Brian and the engineering team and the operations team's confidence in when they want to start to sequence the next group of projects. But in terms of equipment, Brian,

Yeah, Eddie, I think that's where this ties nicely with our three-pillar strategy. So as we go through serial number one and we're executing the feed with Zachary and engaging with world-class supply chain partners, we're not having discussions on a transactional basis of just one project. Every discussion we're having with whether it's the ASU, the heat exchangers, the turbo machinery, the whole plant design, it's all about getting to manufacturing mode. So we're setting ourselves up that as we identify who are those best partners to work with us on the first plant, we're really designing our process around those specific suppliers and we're identifying folks and talking to them and expecting that they can move into manufacturing mode. So really the first plant is, I'll say, the trial run to find the right partners that we then line up the global supply chain and supply agreements for the second, third, and fourth projects and onward. So, I mean, that's how we'll mitigate the supply chain long lead times is really standardize the design. So, as Danny said, you can swap slots. Essentially, the core design of the power cycle, all that equipment will be standardized. And then we work with those folks not just on a transactional first project basis, but we're lining them up with expectations that they can move us into manufacturing mode.

Got it. Great. Thank you.

Thank you. Our next question comes from the line of Ryan Levin with Citi. Please proceed with your question.

Good morning. I'm hoping to follow up a little bit more on the international front. How do you see the permitting or execution timeline differ as you pursue different geographies and any key challenges or opportunities that may emerge on the permitting or regulatory environment side? Yeah, hey, Ryan, this is Danny.

Yeah, so there's really, I mean, there's a few pieces on the permitting piece. There's permitting at the state level and permitting and there's permitting at the federal level, right? And both of them apply to net power projects for a variety of applications. You know, I think let's start on the subsurface piece, and then we'll move to the grid, and then we'll move to the air. So starting below ground, you know, almost all states that have oil and gas activities today control primacy over Class II, so primarily enhanced oil recovery. And so that permit process is, It's state-by-state dependent, but it's very quick. You know, you're talking about less than 12 months. In some of those states, it could be a matter of months. And so as you look at Project Permian, for example, we're already tied into Oxy. We'll be tied into Oxy's CO2 network where they already have existing EOR operations. And so for us and why we really like Project Permian, While it's not going to be indicative of the true potential of what net power can do to decarbonize a grid when we go into class six permanent geologic sequestration areas, but what it does is it isolates and eliminates the risk of that permitting process for class two because we already have the permits and the infrastructure in place to make it happen. When you look at class six, class six is an interesting one because right now only two states in the United States have class six primacy, North Dakota and Wyoming. And they're issuing Class 6 permits really, really quick, less than a year versus where the EPA is at, which is for all other states, which could be three to five years. Now, the EPA is kind of in reactive mode, responding to a massive influx of new permit applications for Class 6. So they're really playing catch up, trying to just remove this bottleneck in their approval process. I think the EPA's goal, as they've publicly stated, is to be able to get it down to less than three years, and I think they're targeting two years for that permit process from initial submission through approval. And so that's going to be fantastic on the subsurface side if they can get it down to that level. But I think ultimately the EPA is actually encouraging every single state that's looking at sequestration within their borders to take primacy over Class 6. And I think you're going to see the net power probably play an active role in helping those states that wouldn't otherwise be pursuing primacy for Class 6 will be the ones to work with them to help push them to file for that primacy, just because we might be the only source of captured CO2 within those borders that would necessitate primacy over Class 6. So we see Class 6 times coming down across the board. It stays with the EPA and certainly gets down to less than 12 months in most instances if states take primacy over it. On the interconnect side, again, the process is different from each grid system. There's six major grid systems in the U.S. ERCOT, the process is fairly fast compared to some of the other ones. That's another reason why Project Permian is where it is. We're already going through the interconnect process with ERCOT right now, so that's not going to be a gating item in COD of Project Permian. But if you look at some of these other states, there's a bottleneck within their interconnect queue. And so, again, it requires just proper planning. It could be a couple years in some of these states to get an interconnection. I think if we were talking about trying to get these projects online in 24 or 25, like a lot of these renewable guys, it would be problematic, but certainly not And then the last thing on the air, and then I'll get to the international piece. This is probably one of the most unique features of net power that we don't really talk about because everybody, when they think about air quality, people associate that with CO2. But that's really atmosphere quality. And so, yes, net power essentially eliminates all CO2 from power generation, which is so differentiated. But we don't have any NOx because we don't let nitrogen into the combustion chamber. We don't have SOX because this is natural gas and it's not coal, so there's no sulfur. So it can't be oxidized. And we don't have any particulate matter. And so when you look at those three criteria air pollutants, we don't have any of them. And so within the eyes of the EPA and the things that they regulate, which are those criteria air pollutants, we don't have them. So we'll be able to get just a minor source permit on the air piece, which is so differentiated versus any carbon emitting plant in the world today. I think when you go internationally, the permitting process is actually a whole lot faster. And it's mostly just because most of these are nation states, and the entities within these states are all kind of controlled by the country, right? And so you have the National Energy Company, which also owns the National Oil Company, which also owns the surface and the subsurface in the whole permitting process. So things are fairly streamlined in most international markets. whether it's the Middle East, whether it's parts of Southeast Asia, it's a lot different than it is here in the United States where individuals in states have a lot more say in the outcome. And so the permitting process in these other states are obviously going to be a whole lot faster than I think they will in the United States. I think that's certainly one of the challenges that we have here. But when we look at just why the United States is so attractive to us, It's just because this is the largest market in the world for net power and one of the most economic, both because of our access to the lowest cost gas in the world, a really, really valuable carbon market, and an aging fleet of coal and gas plants. Like, if we could just replace all of the aging coal and gas plants within these sedimentary basins, we're talking about 1,000 net power plants. And so we could just sit here and be fat and happy just deploying these and replacing these aging coal and gas plants over the next 10 to 20 years and not spend any time on the international markets. But I think part of the reason why the international markets are important to us is global warming is a global thing. It's not just a U.S. thing. And so we have a responsibility. If we have a technology that can help other countries achieve their decarbonization goals, we feel like we have a social responsibility to deploy in those areas. So It's going to be a focus area of ours over the course of the next decade, and hopefully one of our first 10 projects is something in an international market.

Great. And then one other question. In terms of some of your comments, it seems to suggest, but correct me if I'm not interpreting correctly, that within the U.S., the MISO power market may be more attractive relative to maybe some of the Yeah, the regions. Is that what you were signaling? Or is there any color you could share regarding what power markets are most attractive beyond the first two projects?

Yeah, I mean, we don't have a contrarian view of where we think power markets go. Just looking at forward spark spreads and spark spreads for the listeners is really just the between buying a BTU of gas and converting it into an electron. that spark spread is really just that proxy for the value of gas-fired power. And there is a whole futures market for spark spreads. And so all we're really doing is looking at all of those deregulated competitive power markets where you have these future pricings to really look at what are future spark spreads across the competitive power markets. So from KISO, California, ERCOT, MISO, PJM, Pennsylvania, principally New York ISO, New England ISO, SPP. When you look across all of those, there's markets that are better than others, and there's markets that are worse. And so when we look at it through the lens of origination, we're really focused on the most economic markets. ISO is great. PJM is amazing. California is great. ERCOT's okay. It's actually the most challenging of all of them. And if we can get the economics to work in ERCOT, you can get these economics to work anywhere in the world, which I think is a testament to the efficiency of what net power can deliver. But certainly for origination, we're going to be focused on those markets that have good spark spreads. That's ultimately going to be what helps ensure that we can get these projects financed, get these projects online, and actually start getting to work on decarbonizing these grid systems sooner. Appreciate the response. Thank you. Thanks, Ryan.

Thank you. There are no further questions at this time. I would now like to turn the floor back over to Danny Rice for closing remarks.

Thanks, everybody, for joining us today. Those are really, really good questions from the investor community. We hope you guys keep them coming as we continue to build this company and deliver the energy trifecta. So appreciate everybody's support, and we look forward to speaking with you next quarter.

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