A Texas-based energy company is preparing to capitalize on the significant shift towards supplying power to large-scale AI data centers.

“I went to a very large institutional investor and explained our gas-to-power strategy in our business, and I got berated for like 30 minutes about how it was such a foolish thing for me to go into power,” BKV founder and CEO Chris Kalnin told Coins2Day.

Fast forward to the present, and BKV's shares have surged 50% since their September 2024 debut—escalating from a small-cap to a mid-market valuation of $2.5 billion. Analysts suggest BKV is close to finalizing an agreement with a hyperscaler to supply immediate gas-fired electricity to an Crypto Correspondent, prior to acquiring and constructing additional power facilities.

“It was a pretty controversial decision for us to buy power. It’s been, honestly, one of our best investments ever,” Kalnin said. “Hyperscalers need more generation. They used to talk about hundreds of megawatts. Now the conversations start with gigawatts. Can you give me gigawatts?”

“We’re going to have to build power plants. If they want gigawatt power, we’re going to have to add more power,” he said.

BKV was established ten years prior in collaboration with Thailand’s Banpu Power, with BKV being an abbreviation for Banpu Kalnin Ventures, thus possessing inherent power industry knowledge. Following an initial concentration on natural gas extraction, BKV commenced acquiring two power facilities in Temple, Texas—situated between Austin and Dallas—four years ago. These facilities currently offer a combined electricity generation capability of 1.5 gigawatts, sufficient to supply over 1.1 million residences or a substantial data center complex. Expansion possibilities exist.

BKV is currently working to raise its shareholding in the joint venture with Banpu from 50% to 75%. This move, scheduled to finalize in the first quarter, is intended to reinforce its commitment to the power sector and improve financial reporting transparency for investors, especially since BKV has become a publicly traded entity, according to Kalnin.

Tim Rezvan, an energy analyst with KeyBanc Capital Markets, stated that the emerging AI data center sector is organically gravitating towards BKV and its power generation facilities, rather than BKV attempting to catch up to a burgeoning trend.

“It’s a lot of skill and a little bit of luck on top of that to take that power plant when they did,” Rezvan said. “They’re really in the catbird seat because they control these merchant power plants that can redirect power, in theory, the next day. The market is eagerly waiting to hear what’s going to happen with a potential, behind-the-meter deal with a hyperscaler.”

Although BKV has kept expanding its gas output, Rezvan stated that the energy sector now represents the largest portion of the stock's worth and is the primary focus for 90% of investor discussions.

BKV also boasts one of the energy industry's most sophisticated carbon capture and storage initiatives for generating power with reduced emissions, a feature that could particularly appeal to major technology firms.

“The ability to deliver almost an carbon-neutral natural gas molecule—and then they can tie that in with the big hyperscaler—is a unique suite of services they can offer carbon-conscious consumers of power,” Rezvan said.

Birthplace of shale

A graduate of McKinsey, Kalnin initially made contact with Banpu via that association. Banpu sought to put capital into U.S. Shale gas following observation of the U.S. Exporting affordable natural gas to Asia during the initial period of the shale surge.

Pioneering modern drilling and hydraulic fracturing, or fracking, methods occurred in the Barnett Shale close to Dallas. However, those firms rapidly departed the more developed Barnett for Louisiana's Haynesville Shale, Pennsylvania's Marcellus Shale, and ultimately, the oil-rich Permian Basin in West Texas.

As everyone was moving out of the Barnett, BKV bought in cheaply and, over time, became the dominant player there. “The Barnett was heavily undervalued relative to its risk,” Kalnin said. “The only way you find deep value is you see something that other people don’t see in the fundamental value. And so that’s the origin story of BKV.”

“Basically, all the players left the Barnett in that 2010 timeframe and went to other plays. Those plays have evolved how you fracked, and how you drill, and how you do directional drilling, and how you target [gas] zones. None of that technology was reapplied back to the Barnett,” he said. Now, BKV is taking those advanced drilling and fracking techniques and getting much more value from the Barnett than was believed possible, he said.

A lot of gas goes toward power generation, so Kalnin saw that as a natural extension. Borrowing on his McKinsey background, Kalnin said he sought to identify “mega trends” and take advantage. “It’s the idea of a glacier moving in a direction, and you can’t stop it. The idea is you want to get into that path or get the benefit from that trend. You’re not going to figure out all the nuances, but you’re going to get the direction correct if you think through it deeply.”

That mega trend Kalnin identified was the anticipated growth of U.S. Power demand and the underinvestment in the sector after more than two decades of flat demand.

“Natural gas is the baseload of U.S. Power, and not just as a bridging fuel, but actually as a core fuel for the future,” Kalnin said. “Most of the research at the time was showing that it was going to be all renewables. I called absolutely BS on that, and I said I’m going to double down on gas.”

Kalnin conceded he hadn't anticipated the surge in AI data centers, yet he recognized the demand for increased electricity driven by expanding populations, broader electrification, and industrial development.

“We saw the trend,” he said. “And then, of course, the AI train has kicked things into high gear.”

What’s next?

BKV just expanded in the Barnett through a $370 million acquisition from Bedrock Energy Partners, and the company is launching another carbon capture project next year as part of its “Barnett Zero” emissions effort.

However, the primary concern revolves around influence and drawing in a major cloud provider. The proposal centers on “closed-loop, net-zero power”, spanning from the extraction sites and transport infrastructure to energy generation facilities and carbon sequestration.

“Not only do we have the power side, we can do the pipelines, we can do the gas, we can do the grid connection, we can do the whole thing soup-to-nuts in one company, and, by the way, we can decarbonize it with carbon capture,” Kalnin said.

“I can give somebody a fixed power price for 20 years because we can produce and sell the gas to ourselves and fix the gas price. Think about the ability to do that with a hyperscaler.”

Rezvan concurs. However, should BKV fail to secure a significant energy agreement within approximately six months, stakeholders might begin to feel uneasy.

“There will be some pressure to deliver,” Rezvan said. “The question is, why would a mega-cap tech company partner with a small energy company? The answer is because they have power right now. It’s not a greenfield project that would take many years. They could literally turn around and deliver that power in short order.

“This is a power-starved market. The ability to deliver on short notice is what gets them a deal I believe.”