NPWR - NYSE

Greetings. Welcome to the NET Power Inc. Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Bryce Mendes, Director, Investor Relations. Thank you. You may begin.

Good morning, everyone, and welcome to NET Power's second 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 second 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 materially differ from those stated or implies 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, NET Power's Chief Executive Officer.

Thanks, Bryce. Hello, everyone. Welcome to NET Power's inaugural earnings call. Many of you have been following the NET Power story since we announced the transaction should take NET Power back in December 2022. But for all the new investors in NET Power, I would like to provide a brief introduction to the NET Power story and an overview of our technology. Brian and I will then provide an operational update and discuss our corporate strategy, before passing the call over to our Akash to discuss our financial results for the quarter. We are going to reference a few of the slides in the presentation we posted to our website this morning, so I advise you to have those slides open and follow along. But first, let me set the stage a little bit and give some background to the opportunity as we see it. It's been six years since my last earnings call, back then during my time running Rice Energy, we unlocked the supply potential of U.S. natural gas, which has become the lowest-cost source of energy in the U.S. and the world. As a result, here in the U.S., natural gas replaced coal as the number one source of power generation, and has been the number one driver of lowering U.S. CO2 emissions. Lowering the cost of power and lowering emissions from power that is our North Star. So, we hear again on the public stage, continuing this mission with technology that gets us even closer to that North Star. NET Power, a technology that transforms natural gas into one of the cleanest sources of low-cost power, anywhere on the planet. So, before we jump into the details of the technology and the process we are making on commercialization, let's start with a little background on how we got here. I joined NET Power as CEO upon the successful close of the business combination between NET Power and Rice Acquisition Corp. II on June 8th this year. We formed Rice acquisition on the premise that energy demand will continue to grow on every corner of the earth, and it's imperative we continue to develop new sources of low-cost energy to meet this growing demand. And with growing trend in electrification of everything, more and more of that energy demand shifts to the grid. So, at Rice Acquisition Corp, we specifically set out to find the best technology to generate this low-emission power without compromising energy affordability or reliability. So, there were four key tenets to our assessment. How reliable is this power? How affordable is it? What's the carbon intensity? And what's the technological maturity? The solution we chose had to be better than the status quo across the board and it had to be commercial this decade. With these criteria in hand, we proceeded to evaluate all sources of power. We looked at nuclear, both conventional and small modular reactors. We looked at all shades of hydrogen. We evaluated geothermal, hydro, we evaluated post-combustion carbon capture. Suffice to say, we looked at it all, and there's a time and a place for each of these technologies. And while we believe in an all of the above approach, we must first prioritize and pursue the ones that reduce costs and reduce emissions. None of those technologies I just mentioned do both. And then you have this company in its own little bucket, NET power, which a decade ago invented a new way to generate low-cost power from natural gas with no emissions. Knowing what we know now about natural gas, we have over a century's worth of very well-known, very low-cost natural gas that is the feedstock to this NET power cycle. In terms of technological maturity, the NET power team has spent the last 12 years designing the technology and ultimately proved that it is sufficient scale to conclude its technology will work at grid scale size. So here we have a better way to generate power using natural gas that creates no emissions. And with the existing incentives that we have here in the United States through the IRA and 45Q, not only can a NET power plant be a source clean, reliable energy, but can also be more affordable than the Carbon Dominion alternative. So that's really the macro setup for this company, and it's a pretty special position for us to be in. So, to really contextualize our thesis, I'll direct you to Slide 6 of our investor presentation posted to our website this morning. The Y-axis is levelized cost of electricity stated in dollars per megawatt hour. This figure is the price at which the asset owner needs to sell their electricity in order to generate a 10% return on their investment. The X-axis represents lifecycle emissions in grams of CO2 equivalent per kilowatt hour of electricity produced. This is the amount of CO2 emissions, turning these raw materials into power. We should want to get closer to zero cost, zero-emission power. That in itself will never exist, but that is the direction we should be heading. So, to get you oriented, the yellow circle in the center of the chart is where we are in the U.S. today. Our grid system has an average carbon intensity of 390 grams per kilowatt hour, and an average cost of power of $52 per megawatt hour. For context, a decade ago that yellow dot was up into the right higher cost and higher covered intensity. But because of coal-to-gas switching, we witnessed a meaningful reduction in both cost and emissions. So, on this chart, we've plotted all of the possible sources of scalable power that we have at our disposal, and you can visually see the potential trade-offs. You can reduce emissions with nuclear and renewables like wind and solar, but it comes at a markedly higher cost of power and in the case of renewables, challenges with reliability even with batteries. But look at where NET power lands on this chart. Our first utility-scale plant, which will inherently be the most expensive plant we ever manufactured, delivers the same cost as our grid today, but with markedly lower lifecycle emissions. Our first plant is more than half the price of new nuclear and delivers the same reliable around the clock clean power. And as we scale into manufacturing mode, our plant CapEx will go down, and our cost of power drops to mat dramatically into a quadrant all by itself, meaningfully lower emissions and meaningfully lower costs than any source of power today. That's why we're all in on that power, more affordable, cleaner, and with 24-hour reliability without compromise. Now it's worth noting this is a map of the United States grid, and every country will look different. Some countries will have a lower cost of coal power, a higher cost of gas power, a higher cost of renewables, et cetera. But deploying just in the U.S. market, we’ll keep NET power busy for decades. We estimate that replacing every retiring base load power plant in the U.S. over the next 20 years would require over 1,300 NET power plants. So, the price here in the U.S. is incredibly beneficial to all our stakeholders. The consumer, the environment, our customers, and our shareholders. Turning to slide seven, the best way we can describe the macro environment for power generation is a growing tug of war between two camps. On one side, the regulatory regimes tasks for driving a reduction in future emissions, and on the other side, the electricity grid operators tasked with ensuring access to reliable and affordable power. Right now, there's no single solution that satisfies both sides, and again, is where NET power fits in. On the regulatory side, the EPA recently proposed new carbon emission standards for current and new fossil fuel-fired power plants. The proposed rules recommend that large-scale base-load coal, gas power plants capture or eliminate 95% of their emissions by 2035. Now, there's no technology able to do this today, and the only solution coming down the pike that we think will be able to do this is NET power. Interestingly, NET power was the technology reference more than any other in the EPA report is having the ability to meet their standards, which we agree. On the industry side, grid operators across the U.S. are making siren calls that we're not building enough reliable dispatchable power capacity to replace the existing aging fleet across the U.S., which will cause issues for cost and access to power down the road. The average coal-fired power plant in the U.S. is over 40 years old. Same with nuclear. Natural gas plants are approaching 30 years of age in average, these plants are unable to operate for another 10 years to 20 years in new plants will need to be built. However, they're not. Why? It's a combination of uncertainty with future potential regulations, which has a chilling effect on building new base load today. EPAs proposed rules are a good example of that. No one wants to build new carbon-emitting base load today if they're needing to comply or shut down within the next decade, but it is also the growing renewable penetration that's eating into these baseload plants operating operational capacity factors and uncertainty in where capacity factors will be in the future has a similar chilling effect on new investment in these baseload power plants. So, these system operators are raising their hands saying they see a major shortage of new dispatchable power being built, which will inevitably cause major reliability and cost issues down the road. For example, PJM, the United States' largest spread operator recently released a study announcing 40 gigawatts of baseload power generation of baseload power generation, largely clean gas on their system will likely be retired by 2030, and there's only 4 gigawatts of new base loads in the interconnect queue. This is really problematic for future grid reliability. And PJM is not alone here. The vast majority of grid operators in the U.S. has signaled the same concern. So, when we think about future-proofing power generation, we would consider NET power the most future-proof power plant solution. Not only does it eliminate the CO2 emissions, but we also have no major sources of air pollutants like NOx and SOx, which is entirely within EPAs purview. So, when we put it all together, NET Power is the only solution we see that gives both sides what they want, reliable, low cost, and clean power. The energy trifecta is quickly becoming the driver of demand, and NET power is preparing to deliver this at scale. On the next slide, we'll briefly walk you through our technology. So, the NET power cycle is a patented oxy-combustion supercritical CO2 power generation cycle. It's important to note that this is not a retrofit system added to existing power plants. This is an entirely new plant, a new power cycle that produces clean electricity using natural gas feed sock. So, the cycle begins with oxy-combustion. First, an air separation unit or ASU captures the oxygen from the air. Air is 78% nitrogen, and we do not let this nitrogen into the combustion chamber. This eliminates the formation of NOx and air pollutant. This is unique to NET Power, so natural gas has nearly no sulfur also. So, there is no socks formed either. So, before the process has even started, we have already eliminated the two primary sources of air pollution from power generation. So, then we take this captured oxygen, nearly 3800 tons per day, and combust it with 45 million cubic feet per day of natural gas. This oxy-combustion process produces three things, a whole lot of energy, carbon dioxide, and water. At this stage in the process, the carbon dioxide is in the dense space commonly known as Supercritical State. Supercritical CO2 is a superior working fluid to spin the turbines blades to generate nearly 300 megawatts of clean electricity per hour and transmit it to grid. With the power generated we take the CO2 water mixture and reduce the temperature and pressure in order to remove water leaving us with the pure stream of CO2 nearly 900,000 ton per year that is ready to be sequestered, no post-processing required. We believe this process could be the most cost-effective way to capture CO2 from gas power generation. So where do we take NET Power plant to make good economic sense? We really need three things. First, we need access to natural gas, the lower the cost, the better. Second, we need demand for power. This is a grid-scale clean power in the larger the power demand, the more plants we can deploy in fleet configurations. Higher the price power, the better. And when we couple gas prices with power prices, we have what's commonly known as spark spread, which is really the economic margin from converting gases energy into power. This varies from region-to-region and country-to-country. And third, we need a place to permanently and safely store the CO2. The most proven and effective place to store CO2 is deep underground, where CO2 will stay forever. We want high porosity, high permeability geologic formations typically found in sedimentary basins. Many countries across the world have instituted an economic incentive to store CO2 as well. And when we put it all together, we the U.S., Canada, and the Middle East look to be really promising markets. Southeast Asia is also very promising long-term as is Europe. And as we have highlighted in prior presentations, the U.S. is the most exciting. We have the world's largest supply of low-cost gaps for the next century. It's the world's second largest power market with an aging base-load fleet that will need to be replaced very soon. The equivalent of nearly 1300 NET Power plants, as I mentioned before. The U.S. also possesses the world's most prolific CO2 storage potential as well, enough to store CO2 for over 300,000 NET Power plants. In addition, the Inflation Reduction Act 45Q provides $85 per ton for each ton of CO2 sequestered. This incentive will be keyed to catalyze in demand, which in turn enables us to scale up and reduce our plant CapEx overtime. And in time, we expect the cost of the plant to be fully underwritten just by the 45Q. So, think about that for a second and how profound that can be. Clean, reliable power is free upside. So, we are excited about the opportunity in front of us. Yes. There is substantial economic upsides to be captured. But most importantly, there is a potential for massive emissions reductions globally as a result of correctly deploying technology at scale. Now that it's really on us to get this right, as we shift our focus to global commercialization. So, we are fortunate to have supportive owners and strategic partners, representing some of the largest energy complexes in the world. They are fantastic champions of our technology, and their domain expertise has been and will continue to be an invaluable part of our path to commercialization. A majority of these owners have been with NET Power for several years, and have been instrumental in providing the capital and expertise we needed to develop and validate our technology. We have conducted multiple testing campaigns at our 50-megawatt thermal test facility in La Porte, Texas, just outside of Houston. We broke ground on the facility in 2016, achieved first in 2018, and successfully synced to the ERCOT grid in 2021. We validated the necessary temperatures, pressure, and chemistries needed to move forward with our utility-scale plant and have built out an elaborate proprietary control system. It's worth noting that while our utility-scale plant is an 11x scale-up in thermal input relative to La Porte, it is only expected to be a 3x scale-up in land footprint, thanks to the energy-dense properties of the super-critical CO2 working fluid. Now on to corporate strategy. So, over the past several months, we spent a lot of time synthesizing our technology, the market opportunity, and long-term vision to a long-term plan. We developed these three pillared corporate strategies that will really be the foundation of our focus. While this might appear simple and obvious on surface, the intent is to ensure our capital allocation and the decisions we make over the next several years are fully aligned with our long-term vision. It also serves as a helpful tool to establish alignment amongst all our stakeholders, current and future with where we are today and where we're going. So, the first pillar is to develop improve NET power's technology at the utility-scale. To achieve this, we will continue to progress our joint development program with Baker Hughes. Together with Baker, we plan on conducting several testing campaigns at La Porte in 2024 and 2025, which will provide invaluable operational data ahead of deploying the first utility-scale package targeted for 2026. As we progress through feed, we are concurrently issuing [PH] RSQs for long lead equipment in negotiating supply and offtake agreements for natural gas, water, power, and CO2. This will form the basis for project financing and bring the first project to final investment decision in 2024. Finally, the ultimate goal for the first utility-scale deployment will be to construct and operate with a focus on clean, reliable, and safe operations is it will serve as the launch point for all future deployments. The second pillar of our corporate strategy is to build the project backlog. Because we own the IP to this technology, it provides us immense latitude with how we bring our plants to market. In one hand, we have the ability to follow the traditional licensing model. In the other hand, we have the ability to originate projects in order to accelerate development and cut on the time from FID to COD. Collectively, these two models will enable us to accelerate and ramp plant deployments across a range of geographies domestically and abroad. This is not just another power plant. Yes, this is a clean, reliable, cost-effective power plant, but CO2 sequestration is a major part of our economic proposition in the entirety of our environmental value proposition. We are currently undertaking the mapping exercise to determine the intrinsic value of our plants in every single market. Proximity to CO2 sync and proximity to grid are very important, both for economic reasons and social. We want to minimize our service impact wherever we can. So, we're going through this exercise today to identify the areas where both the subsurface is conducive to CO2 sequestration and the electric transmission network exists above ground within high spark spread regions. These are the areas of our focus, but it goes beyond that. This is grid scale power plants and locating dozens of these plants in many states has the potential to fully eliminate all power emissions and get to true net zero grid without compromising cost or reliability of power. So, this planning exercise we're conducting isn't just for identifying sites for individual plants, but rather developing master plans for statewide deployments. Starting from the CO2 storage and working our way outwards, we want to set our customers up for success and their team we're building here in that power will be a combination of surface and subsurface experts to ensure our plants are deployed from a methodical thoughtful plan. Our focus over the next few years is to convert this information into full-scale deployment plans for each region, such that when our first plant comes online, we have clear visibility where to deploy the next hundred plants. And this is where our origination will play an outsized role in setting the table for future deployments. Lining up the CO2 sequestration, securing the surface rights for plant sites, going through the steps to connect to the regional grid system, and forming strategic partnerships for a variety of stakeholders to set these projects up for success. With this approach, we believe we will accelerate deployment of NET power's technology in the most cost effective and responsible manner for the benefit of our customers, the communities where these plants will be located, and our owners. Importantly, this can all be done with limited capital allocation prior to the first utility-scale plant coming online, our goal is to have a robust backlog that creates pathways to state level decarbonization by the time that first plant comes online. Finally, the third pillar is to prepare for manufacturing mode. Similar to the IP, giving us creative control over how we go-to-market commercially. The IP also gives us total creative control over the design of our plant. And as we think about setting our customers up for success, one of the largest drivers of our plant economics is CapEx. The easiest way to reduce CapEx is standardization of the design and producing these plants in a manufacturing mode. Rather than each plant being bespoke with different parts sourced one-off. A standardized design means continuously producing the same parts over and over. These scale efficiencies will be a big driver of future CapEx reductions. Similarly, more work will take place in a controlled factory environment unless will take place in the field at remote locations where power, wherever power is needed globally. By taking this approach, we will ensure that we have control over driving down the plant capital cost, reduce project risk, and reduce lead time to build NET power plants. This will entail working with world-class partners and we're well on our way with Baker Hughes,

Thanks, Danny. Looking at slide 12, we're hard at work advancing our technology for the 300-megawatt class utility scale plan. Our technology development encompasses three main areas. First, we are advancing and optimizing our process design to ensure that our technology can deliver the energy trifecta. This work is informed by our prior testing results and lessons learned at La Porte. The joint development work with bakery use is progressing well and we have implemented cycle process improvements based on their turbo expander and other key rotating equipment design progress. Second, we are taking advantage of our La Porte facility to conduct additional demonstration testing over the next few years. We're currently retrofitting La Porte to conduct future Baker Hughes Combustor and Turbo Expander demonstration tests. These demonstration tests will de-risk the first utility-scale project and allow us to refine our plant control system with the baker used equipment. Third, we're developing the standard utility-scale plant design through our front-end engineering and design for feed work with

Thanks, Brian. The NET Power team is very excited to begin this next chapter as a well-capitalized public company. As mentioned by Danny at the outset of this call, we successfully completed the business combination of NET Power and Rice Acquisition Corp. II on June 8 and had the honor of ringing bell our New York Stock Exchange on June 9th. Through the transaction, we have received gross proceeds of more than $670 million, consisting of approximately $133 million from RONI's trust down and approximately $540 million in upsized pipe capital received from both strategic and financial investors. Net of transaction expenses and company operations since close, we ended Q2 with approximately $649 million in cash on the balance sheet. The proceeds from the Go Public transaction are expected to fully fund our corporate build out, and provide ample capital to not only anchor the equity capital required for our first utility scale plan, but also to accelerate the origination efforts for future deployments. The final slide of our presentation provides a detailed breakdown of the company's fully diluted share count of approximately 246 million shares as of June 30th. This is comprised of approximately 210 million Class A and Class B shares currently outstanding. 19.5 million shares issue both upon the exercise of outstanding public and private warrants, 2 million shares subject to earn outs or vesting, and over 14 million shares issuable pursuant to Baker Hughes joint development agreement. That concludes our prepared remarks for this call. We'll now turn it back over to the operator and open it up for Q&A. Thank you.

[Operator Instructions]. Our first questions come from the line of Thomas Meric with Janney Montgomery. Please proceed with your question.

Good morning everyone. Just a couple for me, and maybe I'll start with Project Permian. Just if you could update us on the current strategy for financing the project? I know you mentioned the 270 grant applications submitted, but beyond that, what's the consortium contemplating? And then maybe specifically if you have any update for the LPO application.

Yeah, so, just to go back to where we ended the transaction, we ended up with $650 million on the balance sheet. And primarily, we do fully fund our corporate operations with that capital. But obviously, we outsize the raise in order to ensure that we have an anchor equity investment for the first project. So, the first project will be the most expensive one we ever build. Our current estimate is roughly $950 million, and we're going to hone in on what the actual capital is once we get the fee right. So, as we finalize the CapEx and we finalize the gap supply, the power off-take and the commercial contracts associated with that, we'll have a really good understanding of where the project returns are and what the actual required funding is beyond our equity investment. And then simultaneously with that, we did apply to the DOE grant program in May. And so, we'll be hearing back on that in the coming months. So, long-winded way of saying, we are building a consortium, we're waiting to hear back on the grant program and as we hone in on the total capital required and what the actual returns are of the project, we'll be able to build a consortium. But importantly, we have all existing strategic investors as well as future customers that recognize really two things. One is the importance of a successful first project and the market that unlocks. And two, they view SSM one as a vehicle to deploy multiple projects thereafter. And so, we feel pretty confident in our ability to get that project funded. We just got to go through the methodical process of what's required to get there.

Helpful thanks. And maybe more medium-term, just on delivering a class two estimate to potential customers. Is there any updated view on when that could potentially come out?

So, what do you mean by class two estimate?

Just a commercial CapEx estimate to potential commercial licensees.

Yeah, this is Brian. So, we're in the feed right now for the first project and really, we need to advance that in order to be able to support the downstream project estimates. So, our goal coming out of feed as we're doing the joint development work is to develop a class two estimate to move forward with the first project financing. We don't really have a date to share at this moment of when that would be ready for a standard design to start sharing with other customers. But certainly, that will follow after we complete the feed for the first one.

Got it. And then the last one for me, just kind of more regulatory in nature and a little bit high level, but on Class six primacy applications from what states do you think are far along in that application? I know Louisiana has their application in, but thinking of other states like Illinois, Texas, or even California, do you have any updates or expectations for those applications?

No. I mean, we don't have any additional information other than what's out there publicly. I think just to provide just context for everybody. So, right now, North Dakota and Wyoming have Class 6 primacy, and Louisiana is on the doorstep of receiving it. And then there's a bunch of states in that process right now to take over primacy from the EPA. I think, when we take a step back and look at just like what are some of like the timing risks on plastic sequestration, I really don't think it's going to be Class 6 permitting long term. Right? And I think if we were sitting here today needing Class 6 permits for projects that we had coming online in 2024 or 2025 or 2026 that would make us a little bit squeamish. But we're really talking about as we look at projects in 2027, 2028, and beyond, there's more than enough time between now and those dates for one state to take over primacy and two, for companies to go through that permitting process through the EPA right now. But I think one of the other things that we're really looking at that is really important here is really looking at being able to co-locate these -- locate these plates where there's both class 2 and class 6 sequestration potential, right? And that's certainly like what we're going to be doing with this first plan it really expedites through the sequestration process being able to tap into doing Class 2 sequestration, which is what we have with the project per in West Texas, right? There's no new permitting that needs to happen. The CO2 is going to be going into Class 2 wells, and typically in most states that have primacy over Class 2, that permitting process is really, really quick. We're talking about months, not years. And so, it is just part of this mapping exercise of really where do we want to start focusing our early plant deployments? It -- in an ideal world, there's going to be areas where you have the Class 2 potential, not because necessarily you want to produce oil, but because it's a faster pathway to permitting. But the real prize is Class 6 permanent sequestration down the road as both those states acquire primacy. And as you start to prove the sequestration potential of these deeper saline aquifers. So, I think all of this really factors into a lot of why it's really important we internalize a subsurface team is to be really to identify those areas where that there's that stacked potential per se on Class 2, Class 6. But I mean the most interesting thing for us, and this is really important, is most of these states that are sitting there today, there's no CO2 within their boundaries. There's not a lot of CO2 activity happening on EOR or in Class 6, and it's just because there's no CO2 anywhere to be found. And so, for a lot of those states, they're thinking I probably won't ever really meet to go through the Class 6 process to take over primacy. But then all of a sudden you have a company like NET Power that can decarbonize their grid and capture that CO2 for sequestration within these state boundaries. And so, we're probably going to be one of the few companies that are -- that will be proactively working with a bunch of these states saying, we're going to want to bring our plants to your states. We're going to have the opportunity to fully decarbonize your grid systems and sequester tens of millions of tons of CO2 per year we are going to be the ones walking hand-in-hand with these states to go through that privacy process because our technology is really going to be the one that really unlocks the sequestration potential within their boundary. So more to come there, but we are really encouraged to see both states want to take over privacy. But also, the EPA really encouraging the states to do so to make sense for them.

Thanks. That's it for me.

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

Yes. Thanks, guys. Wanted to focus a little bit on some of the numbers here. Just wanted to kind of get a sense of when you guys think you will start to see a little bit more, meaningful revenue. I am guessing that it's kind of a number of years out. I don't know if that needs to coincide, with the startup of the first plan at Project Permian, or there might be revenues and the year or two leading up to that. I just kind of wanted to get a little bit of a sense of kind of revenue projection, knowing that it's a handful of years out.

No. Great. Great question, Leo. I think for budgeting purposes, and this is really for us people to go in with running, like, the most conservative forecast and the most conservative just budget plan possible. But really just for capital allocation purposes. We are in good all the way through 2027 with revenue coming in. And that was really a function of why we upsized the pipe the way we did to $670. And so that doesn't -- that obviously does not mean that we are not going to be bringing in revenue before then. But I think what it really means is, it gives us a ton of runway, on building the right backlog of projects. And I think, like, that's the most important thing for me is one of the pitfalls you really see some of these other early-stage energy technology companies is, they're kind of forced to commit to doing projects that would otherwise derail them from their long-term vision of where they want their company to be and where they think their projects need to go. We are not going to have that problem at all because we do have such a long runway. But I think, like, as I look out in time as we get close to commercialization of serial number 1, as it really starts to build this commercial backlog, over the next couple of years, and a lot of that, as I mentioned in the prepared remarks, is really going to come from the origination angle. Where we are the ones actually going out there and catalyzing development, that's where you are going to start to see us, a certain line of partners, and more likely than not begin to see some revenue coming in. But there is main focus for us is really less on revenue near-term and more on building the right backlog of projects. So, when serial number 1 does come online, we have a really healthy pipeline of deployments to get us through the end of the decade. And so, if that means, revenue coming in '25 or '26, that's great. But I think our real focus is on finding the right areas where these projects make the most economic sense because if that's really what we are focused on, that will inevitably lead to really healthy revenue growth in the future years.

Okay. That's helpful. Obviously, you guys have your site, located for plant number 1. Can you maybe just talk about kind of where you guys are, in discussions for sort of plant number 2 or plant number 3? I realized that you are doing, a fair bit of testing on some of the new Baker Hughes equipment in 2024, but just kind of wanted to get a sense of the kind of where you guys are in the commercial discussion other than the first one here.

Yeah, the only one we're really talking about publicly is what serial number one's going to be. Or going to West Texas to that Oxy-hosted site, I think we kind of have a ton of flexibility with where, where serial number two's going to be. We're working on some early-stage things that we're not willing to share with folks yet just because it's still early at this point. But those projects are going to have a real shot at being the next plant after serial number one. And in addition to that, I think as people saw from the December pipe presentation, we have other early adopter projects that are interested in getting into that queue. But ultimately, these first dozen or so projects are going to be the most important ones for our company because it's really going to put a spotlight on what this technology can do, right? And so, we're going to be very selective about what project ends up as the second plant. What project ends up as that third plant? I think like what our real, what we really want to get to, and again, I kind of mentioned this, the top of the call, we don't want to be in a place where we're just doing one-off projects for the next 30 years. And it's both because I think it's just not a great use of our resources and it's really just not a great use of just the potential of this technology like this. This really is sort of a grid skill technology. And so, what we're really focused on are those opportunities where we can lay out a master plan for like, let's just call it a state. We identify where we want to put the first plant and we really have it all mapped out with where the next 20 plants or 30 plants are going to go from there. Just to give some context to it. You know, the average state in the United States has around 30 to 40 equivalent power plants is what the potential could be. So, we're really talking about laying out plans where we have a pathway to broad commercialization in the deployment of these NET power plants within these areas. And so, if I had to wave my magic wand and pick out the ideal scenario, serial number two is going to be a plant where we have a pathway to delivering 20 plants to 30 plants in that given area where the consortium of strategic stakeholders is.

Okay, that’s helpful guys. And then just on the cost side wanted to see if maybe you could help out a little bit there, kind of looking at second-quarter financials. I'm seeing around $11 million of R&D for the second quarter on the SG&A. Looks like I'm seeing something around just over $30 million bucks. Just wanted to get a sense, are those kinds of the right kind of run rate quarterly numbers? Going forward here, I imagine there might be some one-time costs in the SG&A for the SPAC transaction and all of that, but just any help you can kind of give on thinking about some of these key costs.

I'll take that. You're right. There is a lot of noise in Q2 as it relates to the transaction. And so, what I'd point you to is if you look at the year-to-date predecessor cash burn, that's -- year-to-date through June 7th the cash burn from operations was roughly $11 million. And so, you, annualized, that's roughly $25 million. And then we also had about $2 million in CapEx, which reflected La Porte modifications and the started speed. And we do expect both the cash income operations and the investing activities to ramp up in the second half of the year. But there's a lot of noise in Q2, and there are a lot of non-cash items in there, so just keep that in mind. But one other point I'd make is we again did size the capital raises to ensure we had all the capital we needed from the corporate perspective to get through 2027. And so, we feel pretty good about where we are here. And I do note that we're sitting on $650 million in cash on the balance sheet and in the current interest rate environment, our talent our balance sheet cash is being put to work and is in the near term, materially offsetting the corporate spend. And so, that's also a pretty great tool we have in our toolkit right now.

Thank you, guys.

Yes, Leo, just put numbers to it. When we're sitting here with $650 in cash and interest rates are 5.5%, 5%, I mean, we're talking about $30 million or more coming in an interest income. So, I mean, that's offsetting the majority, if not all of our SG&A right now. And that obviously changes this time as we're spending this money on serial number 1 on the Baker Hugs JDA, but it puts us in a much more unique position. Having this much liquidity on our balance sheet today just gives us additional runway than others.

Yeah, thank you, guys.

Our next questions come from the line of Ryan Levine with Citi. Please proceed with your question.

Good morning. A couple of questions in terms maybe to follow up on that last point. So, with your cash generation from interest currently exceeding your cash burn, are you going to be providing guidance around what your burn rate will be in future time periods? And does the incremental interest allow you to accelerate any development efforts or build out more of a team to pursue additional customer opportunities?

Yes, I think just kind of given our conservative nature all around -- we're really not banking in the -- we're not betting on this yield curve continuing to just snowplow and stay at 2.5%, 2%. I mean, we are expecting it to go back to 2.5%, 2% on the 10-year. So, we're really just we're obviously taking advantage of this money and putting it on the balance sheet, but we're not banking on that money being available as we've seen about just capital allocation longer term. And then Ryan, to your question on the SG&A piece, we are still growing. This time last year, NET power had six or seven full-time employees. We're now at 36 and on pace to get to 39 by the end of September. And these are all supercritical folks, especially on the engineering side, really in advance of supporting the development of the utility-scale plant. And so that had kind of the course of the next 12 months, we'll continue to go up. And certainly, as we come up publishing a 2024 budget in a forecast, we'll certainly update everybody then with what our ongoing cash trends going to be.

Thank you. And then in terms of the Texas Power Plan, where are you in the ERCOT interconnect application process, and how long do you expect it to be? And are there any other changes that you anticipate with the recently passed Texas legislation regarding generation in the state?

Yes, I mean, we've made the interconnect application and we are following that legislation. So, all I can say is we're in the process and waiting to receive feedback on the next month or two from the state.

Do you state any [indiscernible]?

No, this is Danny. I was just going to say, I think when you look at like the two biggest permitting items for a NET Power plant, it's the permits to sequester in the permit to send your power into the grid. And we don't need permits for sequestration because we're going to be tapping into a very extensive CO2 network with Class 2 wells already in hand at Oxy. So, that that takes that risk off the table is a really unique place for us to be in a really isolated just to the plan at that point in terms of really the commercial risk. And then as far as just the interconnect, we are talking about at least being three years ahead of when we would actually want to connect into the grid. So, because we have we already have the site picked, that's what allowed us to get into the next queue at the time we did. So, I think when you pass forward to -- when you just look ahead, the CO2 permitting, the power permitting on the interconnect are not going to be the long lead items for us here.

Thanks for the color.

Our next questions come from the line of Wade Suki with Capital One. Please proceed with your questions.

Good morning, everyone. Thank you for taking my questions. Just first on, the Baker equipment, if I could. I just want to make sure, I'm understanding this right. Are these going to be scaled-down versions of the equipment that you will see on a full-scale utility project?

Yeah. There is a parallel development program. So, we are developing both the utility-scale that will go to the Project Permian at the same time as we are developing a demonstration scale. We already have the La Porte facility built. So, it's just an awesome opportunity to use one of a kind location in the world where you can do R&D and demonstration testing at this scale. So, there is a parallel program to develop both a demonstrator turbo extender and a combustion system. And then as well, we are developing the utility-scale system, to be validated at Project Permian.

And just in terms of timeline, any sense for when the test equipment gets on-site, I know you are going to start testing next year sometime and going into '25. But, just any kind of color you can give us on timing when that equipment gets on-site, start testing, those kinds of things, and whether you will be doing independent testing of the combustor versus the expander and then presumably combine testing?

Yes. That's exactly right. So, some equipment will begin arriving next year. There is separate testing of combustion systems, which is typical for turbine development, component testing, and then the integrated turbo standard with combustion system to follow later. So, to answer your question, first testing starting next year, we're already updating and modifying our site for that specific equipment, and that will take place next year, then all the way through Project Permian, starting up.

Fantastic. Thank you. Just switching gears, it's kind of dovetailing on one of the questions that came up earlier on costs. Not to press y'all too much here. But, in terms of the Project Permian cost, I guess we will get a better sense by what, midyear third quarter when FID is that still a decent timeline to think about?

Yes. That's a decent timeline. Our focus right now is working with

And then just otherwise, in terms of all the – you all were very detailed in your Investor Day, in the spring in terms of timelines, all still feeling pretty good about the timelines for funding and I guess progression along the way and along those lines, just the commercialization you all laid out some pretty good guidance on licensing deployments and things like that, particularly in the late latter part of the decade. And how feeling about that today relative to where you were in the spring?

Yeah, look, I think, we feel great about where we are. I think, when we take a step back and we look at -- when we approach NET power, the thing that was most exciting to us is we knew that this is also going to be a market that comes to us in terms of the market is inevitably going to have to change because there is going to be real value in having that energy trifecta, as we call it. And so, you're seeing new regulations being proposed that quite frankly would be beyond transformative to NET power. You know, really the EPAs propose section one 11 B and D rules on emissions from coal gas-fired power plants. That in and of itself just transforms the opportunity set. And so, yes, focusing on licensing is, is really, really important. Everything that we really said about the origination piece is equally if not, if not more important, because I think we're kind of sitting here in a place where I don't think anybody understands the real value and the real power of NET power better than us. And because we own the IP to this, it gives us a real sense of latitude as to how do we commercialize this, as I mentioned before. So, I feel really good. I think it's really hard to put numbers to it as to what the backlog or the number of licenses that we're going to sell looks like over the next couple of years. We really just today are sitting here today saying, we know it's going to be really big especially once they're on number one online. So, let's make sure we're prepared for that. And I think that's why there's as much of a focus on standing up the supply chain as we can is because we want to make sure that we're able to meet that demand when it shows up. And then I think, like, quite frankly, with EPAs new rules, I think we're going to need to be there with supply chain to be able to meet that sort of demand because I think quite frankly, it's going to be one of the only hopes we have to be able to achieve the 90% CO2 capture that they want to see from all thermal power plants by 2035. So, I mean, we're really in this thing for -- I'm in this thing for the long haul, for the next 20 years, 30 years, and we're really just designing the company accordingly. And we're in a fantastic place financially with liquidity that we don't need to necessarily be so worried about selling licenses tomorrow to keep the lights on. We have more than a four-year runway to really start to hit our stride on the commercialization of this technology. And so, it's just really, really important, and I really just can't stress this enough to everybody that we have a lot of really important work that we're doing on really developing, improving the technology utility scale that is really going to unlock that backlog that we're going to be building over the next couple years and is really going to allow us to take advantage of that supply chain. We're going to be standing up over the next few years. So really, really excited to start talking about orders, start talking about the backlog and there's certainly more to come in the quarters ahead sharing that good news.

Perfect thank you so much. Appreciated.

Thank you.

Thank you. There are no further questions at this time. I would like to hand the call back over to Danny Rice for any closing comments.

Hey, thanks everybody for joining us today. It is not every day that public investors have a front-row seat to see the development and commercialization of a breakthrough technology like this. Most of the time it occurs behind the scenes of a large company or within a private one. But this technology, it's so important to broadcast this one to the world, even at this stage. And we're really looking forward to bringing you all along on this journey as we develop our technology, build the backlog, and build the supply chain to transform natural gas into that energy trifecta. So, thanks again for your support, and we'll see you all again next quarter.