Big Sky Industrial Inc. (BSIN) Earnings Call Transcript

Greetings and welcome to Big Sky Industrial Inc.'s third quarter 2026 earnings call. I will now turn the conference over to the operator.

Good morning and welcome to Big Sky Industrial Inc. third quarter 2026 earnings conference call. [Operator Instructions] Today's call is being recorded and a replay will be available on the investor relations section of the company's website at bigskyindustrialinc.com. Before we begin, I would like to remind everyone that today's discussion will include forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to materially differ. Please refer to the company's most recent SEC filings, including the Form 10-Q and Form 10-K, for a discussion of these risks. Statements made on this call speak only as of today, and the company undertakes no obligation to update them. Joining us this morning are Ryan Smith, President and Chief Executive Officer, and Mark Zajac, Chief Financial Officer. I will now turn the call over to Mr. Smith.

Thanks, Mason, and good morning, everyone. The third quarter was about execution. When we spoke in August, I said every structural piece of Phase 1 was in place: engineering, permitting, EPC, funding, and offtake, and that what was left between here and first revenue was execution. That is where this team has spent the last 90 days in Houston and in Montana, and we're pleased with where the project stands. The field side of Phase 1 is now built. Our infield gathering and injection lines are complete. Our long-lead equipment has been procured, including the power generation that will power the plant. Fabrication of the processing facility is underway and construction remains on schedule. We're targeting first production in spring 2027 and our helium is sold from day one. Here's how I'll walk through the call this morning: construction and operations first, then a direct update on our MRV application, then our commercial position and the market we're selling into. Mark will take you through the quarter and the capital structure, and I'll come back at the end with what's ahead. I'm going to start in the field because that's where the progress this quarter is most visible. Our infield gathering and injection lines are complete. Those are the lines that bring gas from our production wells to the processing facility and carry CO2 from the plant to the Big Rose sequestration asset. The production wells are drilled, completed, and ready to tie in, and our Class 2 injection wells are operational. In other words, the field side of Phase 1—gas in, helium purified and sold, and CO2 captured—is in place and ready for the plant. On the plant, our long-lead equipment has been procured, including company-owned power generation. In August, we identified the generators as the longest lead-time item on the project. They are purchased and on-site, and owning our generation puts plant uptime in our own hands from day one while significantly improving our operational costs going forward. Fabrication of the modular processing facility is underway with our EPC partner. The modular design is a big reason we remain comfortable and on schedule. Most of the build happens in a controlled fabrication environment rather than in the field, and far less can go sideways on-site. On-site civil work begins in the coming weeks and equipment installation runs from late in the fourth quarter into the first quarter of next year. We're targeting first production in spring 2027, and I want to be clear why we framed it as a window. It leaves sensible room for commissioning and for a Montana winter, and I'd rather give a window than a specific date. At initial operations, the plan is designed to produce greater than 14 million cubic feet of high-purity helium and to capture approximately 125,000 metric tons of CO2 a year. Now to the MRV, as I know it's on the front of the mind of many of you who have dialed in today. Our Big Rose MRV is in the final stage of the EPA's approval process. Big Rose is where we will sequester the CO2 captured in Phase 1 and in future phases. We submitted the plan on October 9, 2025, and because of the federal government shutdown, the agency accepted it on November 12, 2025. We have addressed the EPA's comments and are awaiting final agency action, and nothing in the agency's feedback has changed our expectation of approval. While the process has taken longer than we optimistically hoped, historically, EPA approvals of comparable plans have generally taken 12 months or longer, so our timing is in line with precedent, even if we had hoped for a quicker outcome. The review is detailed by design. It covers how CO2 will be monitored, measured, and accounted for, including leak detection and verification of long-term sequestration, and the timing of the final decision rests with the agency. Our responsibility to this point has been to respond promptly and keep the project moving forward, and that's exactly what we have done. The MRV approval is not a condition to starting the Phase 1 plant or to selling helium. Our injection wells are permitted and operational, so we can sequester CO2 from the first day the plant runs. The approval timing does not change our resource base, our plant sequestration capacity, or our helium offtake terms. Its impact is when we start generating and monetizing 45Q credits, not on the underlying economics of the project. We're advancing our credit monetization work in parallel with the EPA review so that we're positioned to move forward once approval is received. Our second plan for Cut Bank was submitted on December 17, 2025. It supports CO2-enhanced oil recovery at our Cut Bank oil field over the longer term as we move through future phases, and it continues to move positively through the EPA process. Now to the commercial side of the platform. Our helium is sold from day one. The offtake we signed in April is a five-year, 100% take-or-pay contract with an investment-grade global industrial gas company: 1.2 million cubic feet a month at a fixed plant-gate price of $285 per MCF with CPI escalation beginning March 1, 2028, and a pricing redetermination in year three. The buyer handles all transportation, logistics, and delivery, so we realize the full $285 with no deductions. Volume risk and demand risk sit with an investment-grade counterparty, not with us. The market we're selling into continues to make our case for us. On October 23, the Department of Energy designated helium a critical material under the Energy Act of 2020, citing its essential role in semiconductor manufacturing and growing supply chain risk. We have said for some time that an American producer of a strategically important industrial natural gas matters a great deal right now, and that designation puts it in writing. There is no substitute for helium in semiconductors, medical imaging, fiber optics, or aerospace. Domestic supply remains thin, and our tier-three redetermination gives us a way to participate in a stronger market. Cut Bank oil field keeps doing its job by providing low-decline oil production that supports the platform while we build and the captive CO2 outlet for enhanced oil recovery in future phases. With that, let me hand it to Mark to walk through the third quarter results and the capital structure.

Thanks, Ryan, and good morning, everyone. I'll cover three things this morning: the quarter's results, including the remediation item and lease operating expense; our liquidity; and the financing work Ryan referenced. The full detail is in yesterday's press release and Form 10-Q. Starting with the quarter, revenue was $2.0 million, up 12% from $1.7 million a year ago, as a 30% increase in our average realized price to $63.83 per BOE more than offset lower volumes following our 2025 divestiture. Production was 30,628 BOE, 76% oil. Lease operating expense was $2.1 million compared to $1.0 million a year ago. The increase reflects approximately $1.2 million of remediation and related costs from the previously disclosed release of produced fluids from a gathering line in our legacy oil operations, which was identified and remediated during the quarter. We submitted a claim under our general liability policy, which provides $1.0 million of coverage for pollution cleanup costs after a $100,000 deductible, and we expect to recover up to $1.0 million of these costs. Because the claim is pending approval, no receivable has been recorded at quarter-end. Excluding these costs, lease operating expense was $0.9 million or $29.71 per BOE, essentially flat with the $29.58 a year ago. Cash general and administrative expense was $1.6 million, down from $1.7 million a year ago and $1.8 million in the second quarter, primarily on lower accounting and tax professional fees. Adjusted EBITDA, which excludes the $1.2 million of remediation costs, was negative $0.8 million compared to negative $1.3 million a year ago. Net loss was $3.5 million, or $0.07 per share. On liquidity, we ended the quarter with $2.9 million of cash and $14.4 million of total liquidity, including $11.5 million of undrawn capacity under our senior secured credit facility. That facility carries a $20 million borrowing base, no financial covenant testing through the quarter ending March 31, 2027, and a May 20, 2029 maturity. On financing, we are running two complementary processes. The first is a new, larger senior secured credit facility. Our existing facility was sized for the start of construction. As we approach first production with contracted helium revenue, we believe the asset supports more borrowing capacity, and a larger facility would expand that capacity and our financial flexibility. Those discussions are underway. The second is monetization of the Phase 1 Section 45Q credits. Under tax law, 45Q credits are transferable, which makes the Phase 1 credit stream a financeable asset in its own right and a potential source of non-dilutive capital. Those discussions are progressing, and we will update the market as each process advances. With that, back to you, Ryan.

Thanks, Mark. Let me close with what's ahead because the next several months are full. Over the coming months, we have a sequence of milestones, each of which further de-risks the project. On-site civil work starts in the coming weeks. Equipment installation runs from late in the fourth quarter into the first quarter, followed by commissioning. Our Big Rose MRV plan is in the final stage of the EPA's process, and our credit facility and 45Q monetization processes are advancing in parallel. First production comes in spring 2027 with our helium sold from day one. Behind Phase 1 is Phase 2. Engineering and planning are underway for a second, larger plant on the same footprint using the same infrastructure, same permits, and same field operations we're putting in place for Phase 1. Our acreage, our permitted wells, and our geology already support two to three times Phase 1 capacity with no new land required. We expect to make a final investment decision in the coming months following completion of financing and final plant sizing. Once Phase 1 is operating, Big Sky Industrial is no longer a small-cap E&P. We are an industrial gas producer with contracted offtake, a carbon management business with policy-backed revenue, and a low-decline oil business integrated as a captive CO2 outlet. Small-cap E&P companies trade at roughly 3x EBITDA, midstream and gas processing at roughly 8x, and blue-chip industrial gas companies at roughly 17x or higher. Those aren't our forecasts; they're public market multiples that anyone can verify. Our job is to keep executing the milestones and let the market award it. To put a fine point on the quarter, the field side of Phase 1 is complete, the long-lead equipment is in hand, plant fabrication is underway, and construction remains on schedule. Our helium is contracted from day one, and the federal government has now formally recognized it as a critical material. In August, I said the countdown to commercial operation was measured in months, not years, and there are fewer of them now. I want to thank our team in both Houston and Montana for their execution this quarter, and thank you to our shareholders for the continued support as we move from the build phase into the cash flow phase. The path to first production is clear, and we're executing against our plan. Operator, with that, please open the line for questions.

Thank you. We will now begin the question and answer session. [Operator Instructions] Our first question comes from Charles Meade with Johnson Rice. Please proceed with your question.

Good morning, Ryan and Mark, and to the rest of the Big Sky team there. Ryan, thank you for the detail, really, in the context of that 12-month context for the EPA approval. I think I was aware of that, but I hadn't really heard it really focused on it. But I wondered if you could just add a little bit more color and tell us how many rounds of comments you've had from the EPA that you've responded to, and when did your last round of comments come? How long ago?

Yes, good question. Good morning. You know, some of this I probably can't get too granular on, but from a high level, I think the expectation going into this was very similar—I'll appeal to the finance crowd a little bit—very similar to an S-1 with the SEC, where you submit your proposal on the front end, the review starts, and then over the allotted expected time period going forward, you get questions and comments that you respond to. And in an ideal scenario, those questions and comments get less and less as you move forward. Our process has mimicked that 100%, where the first round we got, I believe, at the very end of last year or maybe early this year, was the most thorough. And then a few back-and-forth turns, in the four-to-five comment range, got materially less as we moved forward, which is the blueprint that we expected and that occurred with us. So our last round of comments—again, this is a ballpark timeline—was around Labor Day, which internally, our opinion was, those comments were extremely light. And we instantly responded to those. And since then, in the company's opinion, our review has been complete and nothing in the feedback that we've gotten has reflected otherwise. So to answer your question, it's been, call it, six plus weeks since that last turn occurred.

Got it. That's good detail, Ryan. Thank you for that. And then, on the construction of your plant, I wonder if you could share a few of the items on the critical path to start up that you and the board are the most focused on.

Yes, I mean, I think at a high level—I'll give you a layup answer—it's really everything, just because everything ties into it coming online when we want it to come online. A lot of the long lead-time items, and I would say the riskiest items, were us getting in the queue for generators, membranes, pumps, and pipe materials, which we've gotten ahead of. So right now, fabrication of the plant is beginning off-site, civil work is beginning on-site, and while that's complicated, on the risk spectrum, this is a very old, proven type of processing technology, and clearing a site is pretty simple. So a lot of the riskiest items are behind us. Going forward, it's making sure that all this fabrication and assembling the pieces off-site and moving them on-site—unfortunately, weather does play a part in moving it on-site—leads to this spring date. The gathering system was a very important thing for us, obviously, so we can move this gas. You want to have that gathering system done by the end of November just because you don't want to be operating up there in the winter for installing a gathering system; that has been completed. So again, every single part we're extremely focused on, but right now it's really just the execution of putting the materials together and making sure that's being done on a timely basis going forward.