Base Carbon Inc. ($BCBN)

All right. Good morning, and welcome to Base Carbon's Investor Town Hall. We want to thank you for joining us today. And it is my pleasure to introduce Michael Costa, the CEO of Base Carbon, who'll begin today's call with his opening remarks.

Thank you, Lindsay. Good morning, everybody. As always, grateful for people cutting out the time for us and for this update. It's been a bit since we've talked to you live like this, but I know everybody saw on most people probably saw the investor letter as of the end of the year, which we will make an annual tradition within Base. Before I begin speaking about the company in the quarter, our lawyers want to continue to be employed. And they remind me that there are very, very small forward-looking disclaimers that everybody should read and be aware that there are forward-looking statements here. So now that I've kept the lawyers happy, let's jump into it. Before I get into numbers and talking about carbon market, and carbon credits and our business, I want to in my very unique personal way, but I want to give people an analogy to think about because I really think that this is what's going on in our market. Imagine that somebody and this somebody is the airlines, by the way, but imagine that somebody's homeowner and you got 2 problems. Number one, the roof is on fire. And number two, your hot water heater is on its last leg and needs to be replaced. What do you do first? Do you worry about the roof that's on fire and put that fire out? Or do you do the hot water heater? It's very clear. You deal with the roof and the hot water heater needs to be dealt with, but it's much smaller cost, it's way less existential and it doesn't -- the house doesn't burn down if you defer it. That's what's happening in CORSIA markets right now. That's what's happening because of the war for airlines. Airlines are the buyers, of course, our credit and it's a global airline emission offsetting scheme. They know their water heaters going. That's CORSIA. They're committed to it. It's a reasonably small cost relative to their businesses. And there's no date. They have to retire, CORSIA Phase 1 credits by January of 2028 at the latest. Can procure prior to that. But the roof is on fire right now because of the warranty on. Oil prices are up massively. We'll get into some of those numbers, volatilities all over the place, and it's existential to businesses that run with very high leverage and very, very low margins. That's the backdrop of what's happening, and I'll keep harkening back to this analogy over the course of my comments, but I really think it's an important and appropriate simplified way of thinking about all of the dynamic that's going on within the CORSIA markets right now. The war is front and center in financial markets, in people personal lives in so many aspects. But as it pertains to the airlines, I think some numbers will sort of sharpen what the impact really is. Brent crude, pre-conflict is about is about $70. It's spiked to above $110 and some specific cargoes even traded at prices in and around the absolute peaks that were experienced in the 2028 crisis. And right now, we're a couple of hairs below $100. That's a big move. That's a very, very big move. On the back end of that, jet fuel doubled. [indiscernible] jet fuel price index ran from nearly $100 a barrel entering 2026, and it was over $200 by April. In the U.S. Argus jet fuel went for about $2.50 a gallon to be from before the conflict to peaking right below $5, almost a double. Like again, these are huge moves and huge volatility. And as I said, it's the volatility, not just the level. There was a couple of weeks where crude swung nearly 50%. Jet fuel move faster as the crack spreads widened and deliveries became an issue. A lot of the U.S. air carriers no longer hedged. Southwest was one of the last major holdouts. They stopped doing that last year. So there's a lot of airlines, U.S. airlines even mobile eyes that continue to absorb these swings directly and it's immediate. To put it in context, U.S. airline has been about 50% more on jet fuel in March than in February. That's $5 billion versus $3 billion for the prior month. It's a $2 billion delta for just the U.S. carriers in 1 single month. To put that in context of an order of magnitude and to start thinking about it in the context of our business. And to be clear, I'm not giving price guidance here. This is just framing for magnitude at a modest $13 a ton the entire 150 million tonne CP1 CORSIA market, the low end of the IATA range would be about that $2 billion delta. So 1 month's worth of jet fuel increase for the U.S. carriers alone is the size of the entire CP1 market. That's how small CORSIA is against this jet fuel move and how big the jet fuel move is relative to the airlines and their businesses. The airlines were ramping up their purchases for CORSIA, prework. Within the airline industry, they were -- they participated in a number of auctions. The comments we continue to hear was Q4 airlines were going to "dip their toe" and they start really participating in meaningful purchases for procurement programs for CORSIA heading into 2026. They did that. The auction prior to the war traded at, I believe, 22 in three quarters for a reasonable volume. The volumes weren't published. We've heard some indications in the marketplace. We're certainly not going to repeat them here, but for reasonable volumes. Then the war happen. The airlines needed to focus on the roof being on fire. It's intentional. It's not a retreat. It's not a throwing CORSIA out the window. It's focusing on the roof on fire. We do believe that airlines will, of course, be the answer. One global standard beats a patchwork for them. They fly into, especially the large ones, flying to gates in multiple jurisdictions, being regulated in one place is way easier for them from a compliance standpoint, no ability, a bureaucracy standpoint than having multiple different patchworks of regulation. Additionally, there's a political and sovereign overlay to this. U.S. carriers regulated in the U.S. largely don't want to answer the European rules, Asian carriers to American rules. CORSIA solves that. And no international carrier wants to comply jurisdiction by jurisdiction. At the end of the day as well, CORSIA is a marginal cost that we believe the airlines will eventually pass on to airline customers, buyers in the same way when if you actually look at your bill of fair for an airline, the actual ticket is pretty small. It's all the gate fees and all the regulation that's passed through to you as the customer that's on there. We believe, CORSIA, will be the same way. So the punch line. We do continue to believe the airlines are rooting for and on CORSIA, and they're headed towards there. They're sort of taking a long way around. The buyers are moving now. We took a pause for probably 3 months, but we're starting to see some real green shoots within the market. So here's some anecdotes. Japan Airlines in March, they retired also know as JL. Shell 180,000 cookstove credits on behalf of JL, which was the first large-scale airline CORSIA retirement. What we're seeing is all of the first moving is, in our opinion, move seeing from Asian airlines who are well capitalized and are leading the charge on the resurgence and the move back in the CORSIA markets. In the last couple of weeks, we've seen 2 up-screen trades within CORSIA. The first one is it is within the -- is within a trading group that retires credits for a Japanese airline. Analyst estimates, tag those at roughly you invest $9 million. And then secondly, a Climate Impact X, which is based out of Singapore, disclosed USD 5.5 million deal for CORSIA-eligible units delivered in the current window. So to put those together, it's $15 million of fresh forward commitments in both the Asian markets as we believe, while the Western market waits on the EU. Where we stand is the -- additionally, the bellwether in our opinion, has turned. When you look at EETS pricing, prior to war, EV TS peaked at about EUR 95 per tonne. It dropped right before the war, but interestingly, from where we see right now, the ETS is starting to make resurgence. We know this from other markets where you see the bellwethers move first. You see it within credit markets. You see it within large equity markets, where you see the ETFs and the large liquid names move first. We're starting to see despite the war continuing to drag on, even though most of all us hope that for many reasons, it ends very soon. But commercially, we're seeing that increase in EV TS pricing, which is, again, indicative of the green shoot. We've talked a lot about the airlines. There's also a significant EU overhang to this marketplace and why the market is not transacting right now. So effectively, what happened is the EV TS. So the people that aren't aware of it, it's the largest carbon market in the world. It clears right now in the high 70s in terms of euros per tonne. And it just extended its carbon price regulation imports through CBAM, which is the first official price in and around and in the 70s in April. And this is a regulator that keeps widening its reach of carbon pricing in international aviation is firmly on sites. The play that the EU is making is that they've announced by 2026, the European Commission isn't going to assess CORSIA So the court has strengthened how much is international, how much of international aviation actually ever. Judges long it discretion ports insufficient. It can propose pulling all flights departing from EA into UTS. Now CORSIA. Remember, PAUSE a lot of vacation in how they would do this, but the EV TS is being priced near, as I said in and around 80 year to now a different CORSIA and even a multiple higher than the highest function as of the 22. So what's happening, in fact, is the largest in is the freeze bin a lot of what people are seeing on screen, whether you look at Abacus or some of the other exchanges out there that have public marks on screen, those are forward contracts. And the old contracts allow the seller to deliver sunny CORSIA-eligible credit locking a CP1 contract now, but you don't know what actually the obligation. [Technical Difficulty] So a who's made some very strong ones about certain jet types. Some of the more protective and less lower touch nature of some of the nature-based projects. Those may not get included and likely don't get included. So how can you [indiscernible] for yourself or for whoever you're fiduciary to sign up to that contract when you don't know what you're going to buy actually deliverable or actually going to offset what you need because you don't know if the full or it's going to be CORSIA or if the mark is going to be bifurcate between CORSIA and ETS. At the end of the day, you could be holding paper from the way into our instrument, and that doesn't necessarily work. So until July, which is again measured in weeks from here said, not even months, certainly in the quarters. The market is really waiting for that decision to have certain on what that looks like. If that happens, it's in our strong opinion, get included in that in the EGS. They've made public comments around there. And they're still a lot of ready how this mechanism for ourselves of having to wait PAUSE and having to see where the market shakes out as opposed to having to necessarily pivot what we're doing. In addition, the likely demand or the likely supply shrinks given dynamic. There are certain project types that will follow. And there are certain projects that may kind of crediting refunds, a significantly here probably [Technical Difficulty]

Hey, Michael, can I just interrupt for one second. Your audio is pretty choppy.

That's not good?

Moving away from your phone.

There is -- there is a massive thunderstorm, I don't know if you heard me pause a couple of times there, guys. There's an absolutely massive thunderstorm rolling through where I am. Let me just little bit closer to mic.

It's loud and clear right now.

Great. I moved to the other half of my office away from the windows. So I'll be over here, everybody. Thanks for the patience, Wes, I'll let you jump in again if the telephony looks bad.

Sure.

But in any event, the punchline is the decision point is this July review. We don't see the market really doing much before them, but everybody here is in markets, certainty and understandability, allow markets to trade where there's uncertainty, especially around things like deliverability into a contract. And that becomes really, really hard. So -- and again, put that in context of airlines who have really thin margins to reverse on fire right now, fuels 20% to 40% of their operating costs, that's where they're focused. So I think that, that the constraint is really the focus. It's not the cash. CORSIA is a rounding error for the airline's cost base, but they have to have certainty. They're not going to even feel it next fuel places in our opinion. They're not conserving cash against it. They're conserving management focus while they put out the roof fire. The other thing, I think, that's really important just for everybody here to understand is the incentives of who's actually making the buying decisions, okay? There's 2 parties, right? There's either financial counterparties that are speculating, developers are largely sellers because they have businesses and they need to fund them. The buyers are airlines because they're the ones that have long-term obligations. And [indiscernible] related to our financial intermediaries. There's a lot of games that get played, all know that, that's the nature of that. When you look at the airlines themselves, there's sort of 2 in our opinion, 2 types of buyers. They're happening at hydrocarbon desk who are again focused on the roof or it's happening on their procurement more of a business development or corporate deliverable. And that doesn't necessarily have an incentive to stick the neck and even work in a business that has -- so they're going to do the let's do [Technical Difficulty] and that's prior to the , they are all. And we anticipate that to be moving that back again. So we really view delay in terms of a month not quarters, years. And again, we're less than confront airline lastly retire their CP1 obligations for the ones that participate with sovereigns that have made those commitments. And there's going to be a point period. One of the things we want to talk about as well before we get into the dollars in the quarter, is that is not what called [indiscernible]. We've made very clear focus on the CORSIA market. We focus on the jurisdictions we participated in, we focus on the that supply dynamic of the market [Technical Difficulty] and we have only to...

Hey, Michael. It started to...

And believe -- it might go PAUSE or up the PAUSE volume issue. Full compliance within CORSIA. But CORSIA is not our only avenue to monetize credits. And I think that, that's sort of missed by the marketplace. We believe it to be the right value at the right time for the bulk of the inventories, as I said, because it's not the only place. The article [Technical Difficulty] place that we book, but we have optionality of working dollar credits in our business. So for those that are sort of fully up to speed on it. It moves our internationally transfer mitigation outcomes, which is a fact of the ornament. [Technical Difficulty]

Can I interrupt.

[Technical Difficulty]

[indiscernible] Is the time...

The quality of the audio challenge...

Is that better?

Yes.

Okay. I'll spend in this one very specific spot. I thank even more fun to do this. So we -- so I was talking about to and I was talking about our market. And the outcome -- the marketplace where we sell these to be CORSIA. That's where it's, as I said, right venue, right time for the bulk of our inventories, but we do have the opportunity and the optionality to sell pursuant to the AMO market. Internationally transfer mitigation outcome pursuant to one country having a corresponding adjustment so it can sell and count toward another country's Paris target. So our wander credits pursuant to our October 2023 LOA and our Vietnam credits pursuant to the recent 2026 degree, carry exactly that authorization. There are real premiums and they're really priced in that market. They're still coming together. And some of the markets are undersupplied and they're -- as again, we keep talking about these markets are commoditizing. They have not commoditized yet. So the live regulated living proof is the Singapore market. They have current carbon tax of $45 per ton rising to $50 by 2030 in less participating firms offset 5% of their taxable admissions with authorized international credits. It's not the biggest market in the world. Yes, I want to be crystal clear about that, but it's super supply short today because the supply is constrained because of quality LOAs, that Singapore is letting in. So for us we have the opportunity to sell there. Singapore has a significant imo market with advanced and attractive pricing. We're exploring those. But again, we're continually reunderwrite CORSIA, and we believe that CORSIA is the right place for us to sell our credits. But the point is that this authorized inventories gives us multiple roads to monetize, and we're not captive to a single buyer marker or a single quarter. So at the end of the day, the Q1 softness that we've seen in the indicative price and I don't even think that, that's the ultimate price, of course, what we're seeing on screen is not where airlines are participating because airlines aren't buying right now because the roofs being on fire. What we're seeing is that's a bunch of trading firms hunting amongst themselves. God bless them, we're happy for them, but we just don't believe it to be full price discovery of where the market actually clears because the real market participant isn't there. At the risk of making another analogy. It's like walking into the hockey rink, going to the Air Canada center to see beliefs and you walk in at 5 and judging what the crowd is going to be like a pop drop from the people that you see in the seats are not a 5. It's just -- it's not a material data point. That's our opinion. We see structural demand in front of us. Nothing's changed. Once the roof is not on fire, the airlines will turn to their water heater. And Phase 1 demand, I add a number of roughly 150 million to 225 million tonnes. For CORSIA Phase 1. And CORSIA Phase 2, mandatory from 2027 on, including China, India, Brazil, which are forced in. And so larger tons need supply needs to meet that and full on compliance with countries that are not included in CORSIA Phase 1. And we sit within a small pool of eligible credits within CORSIA, our Vietnam credits. We are working closely with our project partners in Vietnam pursuant to the recent decree of getting those CORSIA eligible, and we think that the timing of that will match up well when this market starts to really trade again and the airlines start to really participate with the big Albatros in the room, of course, being when there were in. But we think we're very, very well positioned for this market. We -- and so for us, I think the punchline I really want to get across the people is the dynamic of why we're seeing on screen, what we're seeing, where the end market buying is. And this isn't a change in the market. This isn't a change in demand. This is an airlines trying to get out, of course, yes. The CORSIA impact to them is so small relative its drop in the bucket. Relative to their oil price or their labor price or the financing price of the metal that they play in the sky. This is small. It's a known quantity to them. It's wanted by them. And so it's really -- it's not a question of if, but when. And that when is measured in small periods of time, this isn't years because we know we have an outdate. So with that, why don't I pause there and pass it over to Wes to talk about the quarter in detail, and then we'll circle back and talk about the market and then open it to questions.

Sure. Thanks, Michael, and good morning, everyone. Just the -- your audio was great the last 5 minutes, so continuing to stand where you're standing for the tail end of the call. Today, I wanted to cover a few things, our project updates and a summary of our Q1 financials and current liquidity. On the project front, I'll start with our Rwanda cookstoves project. Q1 marked a significant commercial milestone for us with our first ever CORSIA-eligible carbon credit sales. By the way of background, in September 25 Verra approved a transition from the old MR 0006 methodology to the new beyond the 50 methodology, the new higher integrity cookstoves methodology that's recognized under CORSIA. That transition was completed in February of 2026. When Verra CORSIA-eligible tag to approximately 2/3 of the credits currently held by base as well as the credits held by our project partner. In Q1, 2026, our partner, DelAgua, sold approximately 200,000 of those CORSIA-eligible credits at a sizable premium to the quarter-end futures benchmark, CORSIA, the Phase 1 price. After DelAgua's revenue share and insurance premiums paid on all of CORSIA tagged credits and inventory base term receiving our proceeds of approximately USD 700,000. And I want to be clear on this point. The insurance coverage is related to the government delivering a corresponding adjustment and honoring the signed letter of authorization on the project. Earlier this year, we funded 100% of the insurance premiums on all credits tagged CORSIA-eligible not just the insurance applicable to the $200,000 credit sale and the insurance cost in aggregate was netted against the amount of payable to Base Carbon under the revenue sharing range. This was the first monetization of Rwanda credits under the new methodology. And importantly, it was done at a premium, which, in our view, validates both the quality of the project and our commercial strategy. In March 2026, we completed the fourth issuance from the project, over 600,000 new credit issued under VM-50 bringing the total quarter in inventories across all parties to approximately 1.8 million credits. Subsequent to quarter end, the Rwanda project received a BBB rating from BeZero carbon, which, in our view, is the leading independent carbon credit rating agency. The BBB rating places this project in the top 7% of the 95 cookstove projects they've rated globally, which is another strong dependent endorsement of the credit quality from this project. And in addition, within the past several weeks, the government want to Rwanda, through Rwanda environmental management authority as well the BTR amendment. Continuing to advance its first biannual transparency report in line with UNFCCC standards. And this document outlines and governs the corresponding adjustment process for a carbon credit effectively blessing the export and sale of those credits internationally. We anticipate a near-term resolution to this process. And completed CORSIA-eligible tagged credits held in inventory, which are currently tagged. And importantly, carbon credits included within a government's BTR do not require insurance coverage as they have now been correspondingly adjusted, which will allow us to retain a greater share of the sales proceeds upon monetization of those credits. Going forward, the Rwanda project is expected to generate approximately 2.6 million additional credits on a regular 6-month cadence providing a city pipeline of both CORSIA and our 6 eligible supplier. Moving on to Vietnam, our largest project by potential credit volume, there were 2 important developments in the quarter, one structural and one regulatory. First, the structural update. As you all know, Phase 1 of the project is now complete. During Phase 1, we generated 7.4 million credits sold and delivered that to city under the off-group uptake agreement at inception that project has returned cumulative cash proceeds of over USD 36 million. And a $15 million cash gain above our -- or in excess of our invested capital. The project is now entered Phase 2 under the -- under which Base Carbon holds the option to purchase all future credits generated from the project at a fixed price of $5 per credit. We estimate approximately 11 million credits will be generated in 2 plus an additional 5.1 million credits through our expansion option, so total future production of over 16 million credits. This is an overall 3.8 million parent credit increase in the production forecast versus year-end 2025. And this increase is driven by our recent decision to maintain production using VMR 0006 methodology until the mandatory update required for 2027 vintages going forward. And I'm happy to answer your questions about this during the Q&A session. Now the regulatory catalysts, this is the big one for Vietnam. Subsequent to quarter end, as Michael mentioned, the government of Vietnam issued a decree, which formerly establishes Vietnam process for international carbon credit transfers under Article 6.2 of the Paris agreement, sets a maximum international transfer ratio of up to 90% for qualifying projects. With the remainder going into Vietnam's domestic trade scheme. And why does this matter? Because a lever of authorization or this decree would position our Vietnam credits for potential compliance market eligibility including CORSIA and Singapore's carbon tax regime essentially replicate the same compliance pathway. We've already established in Rwanda, eliminating the double claiming risk by a government under their NDC, which is extremely important for buyers. And in-country project partner has already submitted a perimeter application with the decree formalized last week. And we believe the project is very well positioned to be one of the first approved within Vietnam's porters for LOA. Vietnam is our low-cost, high-volume pipeline of article or -- pipeline in the Article 6.2 framework is generally meaningful potential catalyst for our portfolio. And also note that, once this process is finalized, the project is anticipated to resume a regular 6-month issuance cadence with a noteworthy sizable next issuance including full year 2025 carbon abatement activities, given the vintages for our last issuances only included up to December 31, 2024. And again, I'm happy to answer your questions during the formal Q&A component. Moving on to India. The headline here is steady execution. All 6.5 million trees have been planted with survival rates tracking in line with project expectations. During Q1, we made approximately $1.2 million in milestone-based capital payments covering ongoing validation verification and project maintenance. The project registration is progressing under Verra's new VM0047 methodology, the latest and most rigorous standard for afforestation, reforestation and revegetation there are projects -- we're also targeting the Abacus label. The Abacus label was developed by an Amazon-led working group and has been adopted as the procurement standard by the symbiosis collisions members included Google, Meta and Microsoft sales force. We've talked about that before. The coalition has pledged to contract up to 20 million tonnes of high-quality by 2030. So having the Abacus label directly connects our project to that buyer base. As we get closer to first carbon part issuance expected in early 2027. We are increasing the frequency of discussions with potential offtakers, which includes high credit quality Fortune 500 counterparty that is consistently being active in both spot and long-term carbon credit purchases. Project due diligence with this group has been underway for several months. And things continue to progress with open discussions as anticipated. We're noting the project carries a 20 million true expansion option as per -- as we've announced in our press releases, providing a further capital efficient growth, optionality beyond the initial planting and in our view, increasing its attractiveness to the hyperscalers and larger market participants at scale. Turning to the financials. Base Carbon ended Q1 with total assets of $106.1 million. The key components of this were $2.9 million in cash, $16.4 million in carbon credit industry inventories USD 16.9 million as current investments in carbon credit projects, which is the credit production and net cash flow as the base anticipated in the next 12 months? 3.3 million as our carbon credit revenue participation asset. That's about full. This is a new line item reflected in our year-end financial reporting as well as Q1 and represents our share of credits of the credits held by DelAgua and subject to the revenue sharing arrangement. In addition, $64.8 million of noncurrent investments in current credit projects, i.e. discounted net cash flows to base carbon anticipated 1 year or greater in the future. We've discussed, in our view, our conservative discounting practices of those cash flows at like on previous calls, and you can find this detail in our filings. On the carbon credit inventory front, we finished Q1 with 1.076 million carbon credits held by base carbon and almost $700,000 held by our project partner, DelAgua. The credits held by our project partner, are reflected in that $3.3 million revenue participation asset on our balance sheet. Being subject to that revenue sharing arrangement with them. With a Q1 cash balance of $2.9 million, our focus is on managing our maximizing the value of credit monetizations going forward and as well as extending the duration in our book. We believe current cash, our significant inventory position and other tools available to us are more than adequate to continue executing our business plan, and most importantly, allowing us to be patient as we wait for a resolution of the war or a reduction of that airline purchasing activity. Noting that airlines historically have been most active during Q3 and Q4 with the FP&A and budgeting exercise behind them, which is typically in April, may exercise each year. And as heading into year-end, as Michael mentioned, if airlines are waiting until November, December of this year to begin their procurement efforts trying to secure credits and meet their CORSIA Phase 1 demands. It's only 13 to 14 months away from the January 2020 retirement deadline. So in our view, that is very last minute, very much a scrambled effort. And we -- as soon as airlines are willing to able, we'll start to see liquidity and purchasing ramp in this sector. On the capital front, there is really minimal capital commitments remaining within our projects. With Vietnam and we're 100% funded and ongoing capital equipment or limited only in India where we plan to deploy approximately $1.2 million by year-end, after which the remaining CapEx here is considered maintenance capital, another roughly $3 million over the project life, which we plan to fund through sales of annual credit issuances with versus expected in Q1 next year. Also worth noting is that we anticipate receipt of 2 onetime near-term cash inflows, not related to carbon credit sales. Which are expected within the next 60 to 120 days and amount to in excess of around USD 1 million. These cash inflows will essentially cover the remaining India project payments this year. On the capital front, we had our capital allocation front. We had a very active quarter in Q1 2026, repurchasing over 1.7 million shares under the normal course issuer bid. Since inception, we have repurchased and canceled approximately 27 million shares in total, representing over 20% of the shares outstanding since our public listing review in March of 2022. Share count is now just shy of 101 million shares outstanding as noted in our Q1 MD&A filing. And again, I'm happy to answer any questions on the portfolio with the balance sheet in our Q&A session. I'll now turn the call back over to Michael for closing comments.

Thanks, Wes. Thanks, Wes. And again, I apologize to everybody about the telephony as I don't know if you heard, I literally had a thunderstorm rolling through as I was in the middle of my remarks. So if there are parts that people didn't get, my apologies and I'm happy to go over those. But -- we want to jump into questions, but the 3 punch lines I make is, number one, the Q1 softness that we've seen in the CORSIA price and the CORSIA volumes is fuel-driven, airline-driven and it's a focus-driven pause. It's an issue of focus, not a verdict on whether they want CORSIA or not or what prices they'll pay. CORSIA, it's such a small cost within their overall business. And the obligations are set in stone for the airlines of participating states and to Wes' point, it will settle by January of 2028, the latest, but you'd have to procure that there's so -- we're dealing with a very short window. Number two, we have the overlay of the EU and the July decision and people and counterparties just the airlines aren't going to do much before then. And it makes sense, and buyers of CP1 because of the deliverability unless you're sort of covering there's really not much they're going to do. Again, measured in weeks, not months, not quarters. Point two, structural demand continues to be in front of us. Phase 1 is still 150 million to 225 million credits. IATA numbers. Phase 2 is mandatory from 2027 on, including nation states that are not part of CP1, China, India, Brazil. And that's a significant increase of tonnage. That is the meat and potatoes CORSIA. And I think people both relative to the market overall and relative to Base Carbon are missing the forest through the trees on what that really looks like and us moving to having multiple projects that in our -- we believe will be CORSIA-eligible with as we work through Vietnam and the CA and all of that process. We think we're incredibly well positioned in our book and the duration in our book is incredibly well positioned. And then three, we have -- we sit within multiple monetization pathways. CORSIA, Article 6 at most we talked about. And then obviously, India is a little bit of a different animal with VM0047 and being the high end -- in our opinion, totally an elastic part of the VCM we believe we're very well positioned across our book. And the -- we feel very good about our book right now, to be quite honest. We don't like what's happening in the market right now. We don't like what's happening with the stock. It's very frustrating to us, but we also realize we're running a multiyear duration PV of a business and nothing fundamentally in our opinion, has changed around the business, which changed is the airline's ability to focus on in the absolute short term. So to us, I would say, we're trying to figure out how to turn this into -- and we've got some ideas on how to turn this into a big opportunity for ourselves, our stakeholders, our partners, our shareholders. So with that, why don't we end that there and open it up to questions and happy to do go over anything in my commentary that was missed because of the telephony.

Thanks, Michael. [Operator Instructions] And I can see that a couple of questions have come in. So I will hand it over to Wes to lead the discussion.

Sure. Yes, we'll start with Jim's question around the IATA expenses deferred payment program. Michael, do you want to talk about this because it's sort of directly related to your CORSIA market update at the beginning.

I switched to my phone from the computer because of the telephony. So I'm -- let me you see if I can get on my. Can you read the question aloud for everybody.

Can you talk about the IATA expensive deferred payment program and how that will factor into the CORSIA market?

Why don't you jump on that one, Wes.

Sure. Got it. Really, it's just, in our view, an initiative by had expansive to continue to allow airlines to source and procure credits for their Phase 1 retirement obligations but allowing them to focus on the roof being on fire and maintaining their business as a going concern in the immediate term. And saving that liquidity on a forward payment basis for the credits through that deferred payment program. So it's just -- typically, the add auctions that have come to market to date have settled spot with games on closing. This is really just a deferred payment program we're allowing credits to continue to trade and transact. But airlines not having to settle those trades with cash until closer to the retirement deadline.

And I would just add, I think it's a great idea. I applaud the idea. I think it's smart. I think it's creative. My view, and I think our view as a firm, is it's a way better step than just a spot trade and they will get people focused more. My big question is that, again, when you're sitting there worrying about the ex special nature of your business, 20% to 40% of your cost base in oil pricing. That's swinging all in jet fuel as a result, of course, that's swinging all around. Is it enough to get the airlines to focus. So I don't want people here to be too focused on that one that if you say, oh, it doesn't trade out. Wow, that was the last ditch effort of the industry. I don't think that's the case. The -- it's just a focus issue. It's -- there's only so much bandwidth. And again, roof on fire versus water heaters. So the punch line -- I'm hopeful, not massively holding my breath, but I'm cautiously hopeful.

Next question, I'll take those. Please describe the methodology used to mark the carbon credits to help underground sheet. Is there any value assigned to the credits based on forward issuances? Are not yet issued but contracted for it? So this is quite simple. All of the credits, the 1.076 million credits held in our inventory as well as the credits subject to a revenue sharing agreement underpinning the revenue sharing assets on our balance sheet are VM-50 -- they've been conformed to the latest methodological standard, their whole credits from the Rwanda project. Not represented on the old methodology 0006 basis. Next question from Henry, most countries participating in Phase 1 have yet to implement penalties for noncompliance, -- how do you way the risk of the airlines that airlines like to simply not comply with Phase 1 offsetting? You want to take this, Michael?

Yes, for sure. We're not airlines ourselves. We're -- it's hard to say. It's hard to give a definitive answer definitive guidance. But again, like think about the cost structure of an airline and think about the bureaucracy of managing it and think about the ability to pass through. right? It's much harder to pass through. You'll eventually pass to jet fuel, but you can just note the consumer. Look at the cost of airline pricing. It hasn't gone up that much, yet you know that again, 20% to 40% of their cost base is swinging around wildly and is up massively in jet fuel, 250 to 490 from peak to trough in the U.S. In terms of those that don't have a solve penalty, the airlines every conversation that we have is the airlines -- and this is not European airlines saying this is they're not going to say bad about their regulator, but they don't necessarily want to get regulated outside of their jurisdictions. That was the whole idea of course. And of course, if you go back to the original part of it, 1 million years ago, this was definitely a pushback to jurisdiction by jurisdiction or EU overlay on top of the airline market. So it's such a small cost. It's a pass durable cost. This isn't the I get the dollars and cents microeconomics of it if you don't have to do it, why do you do it? But there's also a massive game theory embedded in it. And Phase 2 will be mandatory. So you think about that on the chessboard of what the game theory looks like, and it doesn't make a lot of sense to an opinion for an airline not to participate at those levels. Again, I do want to go back to whether it's a participating sovereign for the airline or not at this level, if they put a penalty forward like the U.K. as or a jurisdiction that hasn't. This is a focus issue of what we're having right now. And I think that -- and not because we're a business that produces CORSIA and we're long it as a firm and as individuals that are owners of this firm. But on a balance of probabilities because the cost is low. I think that they largely end up participating because what it means for Phase I and what the alternative is if you don't participate and don't support the CORSIA market of what regulation will be. So I really think you have to think about it more on a gain theory standpoint than a single variable microeconomic analysis.

That looks like it's all the questions so far, and I don't think anybody has the ability to ask verbally. So maybe we'll just give it another minute or 2 and we can conclude the call.

[Operator Instructions]

One question just came in from Henry. Do you have any projections regarding the potential high end of the CP1 pricing? Do you want to take the first cut and then I'm going to go?

Could you repeat that question again?

Do you have any projections regarding the potential high end of the core Phase 1 pricing?

Yes. Like it's going to be -- like anything else, it's going to be supply and demand based. Right now, there -- if you just leave it within CORSIA, you just leave the EU nuance out of it. A nuance is probably underselling what it is, but the EU wrinkle out of it. There's only about 30 -- I think it's like 33 million, 34 million tons that have been core attacked versus the low end of the IATA demand range of 150 million tonnes. On our internal numbers, and these are our numbers, this internal work, but we're looking at -- Pardon me, where CAs are going to come. We see a minimum of 50 million tonnes coming into the market. So we still see the market. And that's the -- it's the right way to say that, that's the. But we believe to be the locked and loaded part of it. We see other sovereigns likely bring CA. But we're still talking about a marketplace that's really short. To the question before, maybe there are some countries or airlines that choose not to participate in CP1. Again, you know my views on that around the game theory of it, but it's possible there will be individual decisions. Some of them may even be a spur of the moment depending on what happens or what happens to views on EU, all of that. So the macro, and this doesn't get to the price coming I'll get to the price, but the macro side is we view the market to be short. And when you have commodity markets that are short, you can get these really, really contangle looking charts. And we -- and you can see front month, if you want to think about it that way, of regular rate commodities, go absolutely bananas because there's no physical supply. That's -- we're not selling that as an outcome to people, but that is certainly possible and it makes the pricing hard to look at. When you look at some of the actual price targets, I'm trying to find a range for you guys that IATA. Thank you.

Yes. So within the appendix for our investor presentation, we disclosed the CORSIA Phase 1 pricing range from the MSCI report. This is the old Trov research platform that's been acquired by the S&P. In our view, that report that came out, this is November, almost 1.5 years ago. They did the most of a comprehensive deep dive of the airlines operating businesses. I think they looked at the balance sheets and filings of over 400 airlines trying to anticipate their demand from a CORSIA Phase 1 standpoint in terms of tonnage and overlaying that against the supply known by the market and potentially coming to market. And in our view, we've been very clear on this. The market is structurally short very structure short and will continue to be -- but the range that MSCI is using for CORSIA Phase 1, we have to use an independent third party years $26 at the low end USD to a high this supply-demand scenario plays out the way we anticipated. We do have some this sort of dovetails into the next question. With respect to the marks of the credit PAUSE marks are the credits marked with Level 2 new letters of boots or Level 1. I'm assuming this is or reference to us of our common carrying value and valuation. And the methodology implemented last quarter and prior quarters is price index is a combination of actual physical trades at scale, primarily the auction IATA auctions PAUSE Q1 was referencing the October 2025, I had an auction clearing price which was $22.55 and the combination of that auction as well as the prevailing and posted CP1 futures price between ICE and ABEX primarily. So that is the approach to the accounting methodology and what is represented within our book. A few more questions rolling in here. Could you give us a little more color on the Fortune 500 company? Is it a hyperscaler? I would love to disclose more. But at this stage, in the discussions and due diligence process, no, we're not in a position to give that color well, it will be a material event once as we get closer to executing an offtake as we get closer to first production on this project and something we will certainly press release. But at this time, we cannot disclose. New question. Do you get any indication from the Bs government as to when a potential OA could be issued? Do you want to grab this Michael?

Yes. So the -- as everybody knows, the decree went into law about a week ago, -- and we in discussions with our project partners as well as our in-country advisers. We think that the government will move reasonably quickly. We don't control -- as we've always said, we don't control the government. But with the Vietnamese government, what we've seen from them, and I think we've said this publicly a few times on these calls. These guys are like -- these guys are super, super transparent. They're super duper commercial, and they say what they're going to do. They say what they're going to do again and then they do it. So our reading all of the data points and all of the tea leaves that are coming to us. Our expectation is prior to year-end, but we hope that it's we hope we're massively underpromising and we'll overdeliver on that. So it's novel, there's a novelty in there. What we're hearing is that internally, even the portal to submit isn't fully up and operational, but the -- they're very well aware of it. They're on top of it. And everything we've seen out of the government is that they're no -- we haven't seen any delays. We haven't seen any lack of transparency and quite the opposite. It's been an awesome and absolutely awesome place to operate.

Do you -- when do you expect the room to stop being on fire?

You guys messed up my analogy, Come on. Sorry, I'll blame that I met with the telephony. The room is not on fire, the roof is on fire. And it's analogy like the -- what I'm trying to say is that the airlines have an immediate problem that speaks to like 1 of the 2 largest costs in their operating model. It's an airplane. It burns jet fuel. We don't know that. CORSIA is so small. So I think that the -- I think there's a couple of things that escape the airlines. And also, just to be clear, like PAUSE the -- I had this prepared to my comments. I just was getting long-winded, so I stopped. But everybody saw the Spirit Airlines, ninth largest carrier in the U.S. went bankrupt. JetBlue, the CEO was out there saying, I don't expect to go bankrupt in '26, but maybe in '27. I think that, that is her giving a message to their creditors, airlines are incredibly levered businesses because of the cost of the metal that they fly in the sky. It's all financed. The very small equity in the metal and by metal, I mean airplanes. But the -- I think that there's a couple of things that stop the roof being on fire. Number one, and end to the arena. Number two, moving into a new normal. There is -- we've seen capacity cuts like United cut like 5% of capacity globally in the last -- I think it was in April. I think once they get to a -- even if the word doesn't end, I think as they get to a new normal of their business and they start passing through some of those costs to consumers, I think that there'll be -- the roof may still be smoldering, but it's not on fire, and they can focus. And again, every month that clicks by, you're reducing the window after procure for CORSIA in a market that's structurally short. So it's I'll do another analogy. It's sort of like if you ever get punched in the face, you have to shake it off. They're in the shaking and off phase, and they'll be new normal. So the upside case is the warrants and sort of the volatility comes out of Jet and out of hydrocarbon pricing. I think the base case, just from an expectation standpoint is that there's a new normal lower capacity, probably lower RASM and CASM for the businesses in general. But they know what that operating environment is, and they still know that CORSIA is the best option for them and they will get regulated at the end of the day in terms of carbon emissions. That is to us, that is ultimately clear. And I think that there is a there's a shadow tariff nature of it as well, where you're like, what does -- what is a single sovereign import on carbon look like even if it's an import of a flight to a gate, that's a sort of a shadow tariff, right? So there's an aspect of the politics that will be behind it. But really short answer. It's either the new normal and the upside cases, we wake up to a nice news article that the Trump administration and the Iranian government have come to terms on some kind of definitive ceasefire.

I think just emphasizing that in the time line, the January 2028 Phase 1 retirement obligation. It's so important. I mean the project supplying credits, eligible credits to core CF Phase 1 are not stood up and producing credits overnight between scoping and implementation all the registration work with a gold standard or other. This is years in the making to bring supply online to satisfy the obligations and deliver into the airlines for CORSIA Phase 1. So like if you're in the market, in May of next year, in our view, your tea light. So we do anticipate a ramp in procurement, actually, our activities, RFPs going live amongst the larger global carriers later this year, certainly once the resolutions are water, but historically, airlines run their budgeting process in late Q1, early Q2, by the time they get our guys can come to market looking for credits, it's late Q3 and into Q4, there's a seasonality of the procurement program. And later this year should be -- there should be a step change in what we're seeing in terms of market activity and especially considering the overlay that they're now within 12, 13 months of the retirement deadline. So stay here. And with that, there's no more questions, Mike, do you want to close this off for the 1 hour.

As usual, very grateful for everybody's continued time and focus and support. You want to be clear for us, we view -- we view the risk/reward relative to our book in our business of where the stock is trading now versus the opportunity we see in our business. We view the risk reward to be absolutely incredible. As we say, this is a -- we've seen a kink in the curve and a purpose pause because of the roof issue. On behalf of the airlines, we're the ultimate buyers. We've seen no indication of them coming out of the market. We've got multiple avenues to sell credits we do believe CORSIA is the right place to sell credit as we said forever, but we do have multiple avenues to monetize these credits. And I think that -- and again, where we even look at our Vietnam project, where we attach at $5 and where we detach on 75% of the credits, which we've always said we get -- it's in our disclosures, our financials, we get called away on 75%. We haven't for commercial purposes with our counterparties haven't disclosed that price, but we've always said it's low double digits. I think people are really misunderstanding the impact of some of the price move on our book on that project specifically. So we view the risk reward to be incredible right here and not because we're owners of the business and we're the humble stewards and shepherds of this business, but because that's our God's honest view. And so we like what we have. We like our book. We like our staying ability. And we're very much looking forward to getting out of the waiting game both the immediacy of what happens in July with the ETS and getting CP1 back to a place that people can actually start transacting and then to every month at clicks is 1 month less the airlines have in terms of procurement, as Wes pointed out. So we think it's a big rubber band that's being pulled back. We love the risk reward in our book, and we will continue to very conservatively and reasonably shepherd our business. The final thing I'll say is there's been comments over time of why are you guys not growing more aggressively, get aggressive, get aggressive, get aggressive. And we've told people that we think about underwriting downside case first. and that's what we've done. Our business is set up that way. Our book is set up that way. So I think that these are the times that kind of structuring and underwriting really pays for itself. And so we like our book. We like the structures. We like our purpose, which are our contracts on our projects. And -- and we're pricing a multiyear enterprise here, and that's what a PV is. So we like what we're doing. We're grateful for everybody's time and support. If anybody needs any time one-on-one with us, just reach out. You guys know how to do that. And if anybody had any questions on the telephony, I apologize, and we'll figure out how we can get those comments back over to people, maybe in the transcript or whatever. So have a great day. Thank you for your time, and reach out for you on anything.

Thanks, everyone.