Diversified Energy announces record results and strategic acquisition of Oaktree interest

LONDON: Diversified Energy Company PLC has reported its final audited results for the year ending December 31, 2023, showcasing a record average net daily production of 821 MMcfepd (137 MBoepd), with a December exit rate of 775 MMcfepd (129.2 MBoepd). The company’s year-end reserves stood at an impressive 3.8 Tcfe (642 MMBoe), with a present value of $3.2 billion.

The financial highlights include a net income of $760 million, bolstered by $688 million in tax-effected, non-cash unsettled derivative fair value adjustments. The Adjusted EBITDA was reported at $543 million, generating a Free Cash Flow of $219 million, and an Adjusted EBITDA Margin of 52%. Total Revenue, inclusive of hedges, saw a 2% growth to $1 billion, supplemented by $178 million in commodity cash hedge receipts.

Furthermore, Diversified Energy has entered into a conditional agreement with Oaktree Capital Management for the acquisition of working interests in assets operated in the Central Region. This acquisition is expected to consolidate the company’s working interest in existing wells, adding approximately 510 Bcfe of PDP reserves valued at a PV17 (PV10 value of $462 million). The estimated gross purchase price stands at $410 million, with a net of approximately $386 million after adjustments.

This strategic move is anticipated to offset natural declines with an additional production of 122 MMcfepd, approximately 80% of which is natural gas, resulting in a 15% increase in overall company production. The acquisition also promises robust cash flow with a 2024 Adjusted EBITDA projection of $126 million, representing a 3.1x 2024 Adjusted EBITDA multiple.

Diversified Energy’s leverage remains stable with a Net Debt-to-Adjusted EBITDA ratio of 2.3x, and the company has commenced trading on the New York Stock Exchange. A final quarterly dividend of $0.29 per share has been recommended, reflecting the company’s commitment to providing sustainable shareholder returns.

The acquisition details reveal a continuation of Diversified’s strategic asset purchases, increasing the company’s average working interest in the assets by approximately 100%. The assets, currently operated by Diversified in the Central Region, are expected to contribute significantly to the company’s production capacity and financial stability.

In conclusion, Diversified Energy Company PLC’s latest financial results and strategic acquisition mark a significant step forward in strengthening its balance sheet and enhancing shareholder value, while positioning the company for continued growth and success in the energy sector.

CEO Rusty Hutson, Jr. commented: “We finished the year with strong financial, operational, and sustainability results, which reflect the continued execution and success of our business strategy and the contributions of our teams. Despite headwinds in the natural gas market, Diversified grew annual adjusted EBITDA by approximately 8%, increased margins by approximately 6%, and generated $219 million in free cash flow.

From a capital allocation perspective, we reduced our outstanding debt by approximately 15% since our interim results while returning $180 million in capital to shareholders in 2023 through dividends and strategic share repurchases. The highly accretive transaction announced today increases our Central Region opportunities and reinforces our commitment to a highly disciplined growth strategy.

“The gas market is sending a clear signal today; there is too much supply in the marketplace. Producers have already started to respond with reduced activity levels and production guidance. We believe Diversified is one of the best-positioned operators to take advantage of this lower commodity price marketplace. We are highly hedged in 2024, and our production base has one of the lowest decline profiles in the gas industry.

As we navigate the path forward in this commodity price environment, we are going on offense to be more opportunistic in our strategic approach with a strengthened balance sheet and to capitalize on any periods of near-term weakness.

These times have historically provided extreme valuation disconnects where disciplined businesses have been afforded the ability to meaningfully grow production. We have initiated our Focus Five objectives, which I believe will help to further differentiate the Company from its peers in unlocking corporate value throughout 2024 and into the future. 

“Upon rigorous assessment, we are recalibrating our fixed dividend payout to align with current equity market dynamics, peer trends, prevailing commodity prices, and expected future capital allocations. We understand the importance of this decision to our shareholders and do not take the decision lightly.

By focusing our capital allocation on a fixed dividend level that is competitive with the industry and the market at large, we are prioritizing the acceleration of our balance sheet de-leveraging, with over $200 million in debt repayments during 2024, creating financial flexibility and a strong foundation to maximize long-term value creation for our shareholder base.

“Diversified’s differentiated stewardship business model will thrive amid the backdrop of rising global energy demand, consolidation in the U.S. energy markets, and enhanced expectations for sustainably produced energy.

Thanks to our approach – focused on acquiring, improving, and retiring existing, long-life U.S. energy assets, honed through two decades of field experience – Diversified is the Right Company at the Right Time to responsibly manage gas and oil production in a manner that’s consistent with environmental stewardship and our focus on being a solutions-based business.”

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