Diversified Energy Company PLC (LSE: DEC, NYSE: DEC) is pleased to announce the following operations and trading update for the quarter ended September 30, 2024.
Delivering Reliable Results
• Recorded average 3Q24 production of 829 MMcfepd (138 Mboepd)
◦ September 2024 exit rate of 851 MMcfepd (142 Mboepd)
• Operating Cash Flow of $102 million, and Net loss of $1 million inclusive of non-cash unsettled derivative adjustments, and non-cash depreciation, depletion and amortization
• Achieved 3Q24 Adjusted EBITDA(a) of $115 million and Free Cash Flow(b) of $47 million
• Realized 49% 3Q24 Adjusted EBITDA Margin(a) and TTM Free Cash Flow Yield(b) of 32%
◦ 3Q24 Total Revenue, Inclusive of Settled Hedges per Unit(c) of $3.23/Mcfe ($19.38/Boe)
◦ 3Q24 Adjusted Operating Cost per Unit(d) of $1.71/Mcfe ($10.23/Boe)
• Reaffirmed credit facility borrowing base at $385 million with $102 million of undrawn capacity and unrestricted cash
Revenue Growth Initiatives
• Announced fixed-price contract for gas delivery to a major Gulf Coast LNG export facility
• Generated ~ $23 million year-to-date in cash flow through divestiture of undeveloped leasehold
• Expansion into adjacent market of Coal Mine Methane (“CMM”) capture and environmental credit sales generating $8 to $10 million of EBITDA in 2024
Executing Strategic Objectives
• Retired $154 million debt principal through amortizing debt payments, year-to-date
• Declared 3Q24 dividend of $0.29 cents per share
• Repurchased ~1.4 million shares in 2024, representing ~$20 million of share buybacks(e)
• Completed previously announced acquisitions of Crescent Pass Energy and East Texas assets
◦ Combined with Oaktree Working Interest Acquisition, offsets ~2 years of declines(f)
Next LVL Milestones
• The Company has retired a total of 165 operated wells, year-to-date and is on track to meet or exceed Diversified’s stated goal of retiring 200 wells within its Appalachian footprint in 2024
◦ Next LVL Energy completed 233 well retirements through September 2024, including 68 wells associated with orphan wells and third-party operators
Rusty Hutson, Jr., CEO of Diversified Energy, commented:
“Our results this quarter demonstrate the underlying strength of our business to deliver consistent cash flow and our commitment to operational excellence. Year-to-date, we have announced $85 million in dividend payments, retired $154 million in outstanding debt principal, and executed over $20 million in share repurchases. We continue to remain on-track with the integration of the three acquisitions we have made this year and believe we have put in place an operational infrastructure platform that has the ability to significantly expand our business within our core operating areas without any meaningful increase in corporate G&A expense. This scalable and capable platform is a valuable advantage for our growth strategy.
Strong financial and operational performance during the third quarter, supported by our strategic hedging program positions which provided hedge protection of $53 million in the quarter and $130 million, year-to-date, and acquisition-related synergies, provide momentum heading into the remainder of the year. Looking ahead, we expect continued strong performance across our operations and we are well positioned for additional opportunities to add to the diversity of revenue generation streams, including robust undeveloped land sales, additional LNG agreements, and our expansion into adjacent markets of non-traditional operations, notably, Coal Mine Methane capture and sale of environmental credits.
We continue to execute on our long-term strategic plan – investing in the growth of our core business, driving operational excellence, and maintaining a disciplined approach to allocating capital to foster the strengthening of the balance sheet and create shareholder value. As we continue to scale our company, we remain focused on operating safely, reliably and in an environmentally responsible manner, and that as the Right Company at the Right Time we can help provide the essential energy to our communities, country, and the world that is needed today and into the future.”
Operations and Finance Update
Production
The Company recorded exit rate production in September 2024 of 851 MMcfepd (142 Mboepd) and delivered 3Q24 average net daily production of 829 MMcfepd (138 Mboepd). Net daily production for the quarter continued to benefit from Diversified’s peer-leading, shallow decline profile and the addition of the recently closed Crescent Pass Energy acquisition.
The production for the quarter reflects contributions from two of the three acquisitions announced during 2024, and average production for the period represents an approximate 14% increase in volumes compared to the adjusted 4Q23 average of 725 MMcfepd (121 Mboepd), inclusive the impact of the ABSVII Asset Sale transaction(f).
Consistent with previous announcements, Diversified expects the recently completed acquisition of the East Texas assets to contribute additional production volumes of approximately 21 MMcfepd (4 Mboepd).
Margin and Total Cash Expenses per Unit
Diversified’s delivered 3Q24 per unit revenues of $3.23/Mcfe ($19.38/Boe) that substantially benefited from the Company’s disciplined hedging strategy, with settled natural gas hedge floors of $3.34/MMBtu exceeding the average NYMEX settlements by 55% during the quarter.
Divestitures of undeveloped leasehold acreage continued to supplement Diversified’s organic cash generation, with ~$9 million of cash proceeds during the quarter and year-to-date cash proceeds of ~$23 million.
Adjusted EBITDA Margins(a) of 49% (33% unhedged) incorporate the Company’s per unit revenues and reflect ongoing decreases in commodity-price linked expenses that are offset by production-related changes to per-unit Lease Operating Expense and Midstream Expense. General and Administrative expenses remained relatively consistent with prior period levels.
| 3Q24 | 3Q23 | |||||||||
| $/Mcfe | $/Boe | $/Mcfe | $/Boe | % | ||||||
| Average Realized Price1 | $ 3.23 | $ 19.38 | $ 3.46 | $ 20.75 | (7) % | |||||
| Adjusted Operating Cost per Unit(d) | 3Q24 | 3Q23 | ||||||||
| $/Mcfe | $/Boe | $/Mcfe | $/Boe | % | ||||||
| Lease Operating Expense2 | $ 0.77 | $ 4.61 | $ 0.62 | $ 3.72 | 24% | |||||
| Midstream Expense | 0.23 | 1.40 | 0.24 | 1.44 | (3)% | |||||
| Gathering and Transportation | 0.32 | 1.91 | 0.29 | 1.75 | 9% | |||||
| Production Taxes | 0.10 | 0.61 | 0.22 | 1.33 | (54)% | |||||
| Total Operating Expense2 | $ 1.42 | $ 8.53 | $ 1.37 | $ 8.24 | 4% | |||||
| Employees, Administrative Costs and Professional Fees(g) | 0.28 | 1.70 | 0.26 | 1.56 | 9% | |||||
| Adjusted Operating Cost per Unit2 | $ 1.71 | $ 10.23 | $ 1.63 | $ 9.81 | 4% | |||||
| Adjusted EBITDA Margin(a) | 49% | 56% | ||||||||
1 3Q24 excludes $0.05/Mcfe ($0.31/Boe) and 3Q23 excludes $0.15/Mcfe ($0.88/Boe) of other revenues generated by Next LVL Energy
Values may not sum due to rounding
2 3Q24 excludes $(0.07)/Mcfe ($(0.41)/Boe) and 3Q23 excludes $(0.08)/Mcfe ($(0.48)/Boe) of expenses attributable to Next LVL Energy
Values may not sum due to rounding
Results of Hedging and Current Financial Derivatives Portfolio
Diversified continues to be advantaged in the current commodity price environment with a 4Q24 natural gas hedge floor of $3.30/MMBtu, which is currently at a 27% premium to NYMEX settlements and the remaining NYMEX strip(h) for the quarter. The impact of commodity hedges settled in cash during the quarter contributed $53 million to hedged revenues during the quarter and $130 million, year-to-date. The table below reflects the consistency of the Company’s full-year hedge positions through calendar year 2027 at September 30, 2024:
| GAS (Mcf) | NGL (Bbl) | OIL (Bbl) | |||||||||
| Wtd. Avg. Hedge Price(i)(j) | ~ % of Production Hedged(k) | Wtd. Avg. Hedge Price(i) | ~ % of Production Hedged(k) | Wtd. Avg. Hedge Price(i) | ~ % of Production Hedged(k) | ||||||
| FY25 | $3.30 | 85% | $34.39 | 55% | $64.22 | 85% | |||||
| FY26 | $3.24 | 75% | $32.47 | 55% | $62.36 | 50% | |||||
| FY27 | $3.26 | 70% | $32.29 | 45% | $62.58 | 45% | |||||
Opportunistic Layering of Additional Hedges at Premium Contract Prices
Diversified has strategically taken advantage of the recent strength of the natural gas price curve to add to the Company’s 2025-2027 hedge portfolio and layering additional NYMEX volumes at an average floor price of ~$3.45/MMBtu, which is reflected in the financial derivatives positions as at September 30, 2024.
Natural Gas Supply Contract with LNG Exporter Provides Incremental Price Surety
Recently, Diversified announced the execution of a supply agreement with a major Gulf Coast LNG facility to provide ~40 Bcf of natural gas for export over the course of November 2024 through October 2027. Under the terms of the agreement, the Company will benefit from a fixed pricing construct indexed to Gulf Coast markets for duration of the agreement. This inaugural export facility agreement for Diversified represents an innovative, additional opportunity set for securing commodity prices and insulating cash margins from future market volatility.
Borrowing Base Redetermination
Diversified recently completed the Company’s Fall 2024, regularly scheduled semi-annual Borrowing Base Redetermination. The Company received 100% approval from its 12-bank lending syndicate of the facility’s $385 million borrowing base (unchanged from the previous redetermination in June 2024), which is structured as a Sustainability-Linked Loan, and aligned with the Company’s sustainability commitments. Inclusive of the redetermination, Diversified ended the quarter with $102 million of undrawn credit facility capacity and unrestricted cash.
Environmental Update
Asset Retirement Progress and Next LVL Energy Update
Year-to-date, the Company has retired a combined 233 wells consisting of assets operated, state well retirements, and contracted retirement activity for third party operators. Diversified is well-positioned to meet or exceed it’s 2024 retirement goal of 200 wells per year with 165 operated wells retired as of September 30, 2024 and the Company continues to drive stakeholder value via the realization of contractual partnerships to retire assets that eliminate orphaned or abandoned wells in our region and provide revenue to offset the cash costs associated with the retirement of Diversified Energy’s wells.
Conference Call Details
The Company will host a conference call today, November 12, 2024, at 1:00 PM GMT (8:00 AM EST) to discuss the 3Q24 Trading Statement and will make an audio replay of the event available shortly thereafter.
| US (toll-free) | +1 877 836 0271 | |
| UK (toll-free) | +44 (0)800 756 3429 | |
| Web Audio | https://www.div.energy/news-events/ir-calendarevents | |
| Replay Information | https://ir.div.energy/financial-info | |
Shareholder Engagement
In accordance with the requirements of Provision 4 of the UK Corporate Governance Code, the Company provides this update following the votes against the below resolution at the Company’s Annual General Meeting held on 10 May 2024 (the “AGM”).
While shareholders approved most of the resolutions with majorities in excess of 99%, Resolution 19 (Amendment to 2017 Equity Incentive Plan to increase the number of shares available under the Plan), while receiving 74% of the vote “FOR”, did not meet the 75% threshold to pass. The UK Corporate Governance Code requires that companies provide an update to the market within six months of an AGM where more than 20% of shareholders have voted against a resolution. This statement provides an update on the actions that the Company has taken.
Following the AGM, the Company consulted and engaged with a number of shareholders who voted against the resolutions to better understand their concerns. The Directors are thankful to the shareholders for sharing their views. They understand that the negative vote was principally related to the disconnect between traditional equity compensation plans in the United States, the Company’s primary operating market, in relation to traditional compensation practices in the United Kingdom and the mechanics of recalibrating the Equity Incentive Plan after approximately seven years of existence. The dialogue with the shareholders has highlighted that there remains strong support for the Company’s equity incentive arrangements.
The Board has discussed the feedback received in detail and continues to actively dialogue with shareholders on the equity incentive and compensation arrangements.
Footnotes:
| (a) | Adjusted EBITDA represents earnings before interest, taxes, depletion, and amortization, and includes adjustments for items that are not comparable period-over-period; Adjusted EBITDA Margin represents Adjusted EBITDA as a percent of Total Revenue, Inclusive of Settled Hedges; For purposes of comparability, Adjusted EBITDA Margin excludes Other Revenue of $4 million in 1Q24 and $11 million in 4Q23, and Lease Operating Expense of $5 million in 1Q24 and $6 million in 4Q23 associated with Diversified’s wholly owned plugging subsidiary, Next LVL Energy; For more information, please refer to the Non-IFRS reconciliations as set out below. |
| (b) | Free Cash flow represents net cash provided by operating activities less expenditures on natural gas and oil properties and equipment and cash paid for interest; TTM Free Cash Flow Yield is calculated using the trailing twelve Free Cash Flow per share, divided by the trailing twelve month average share price of £11.29 / $14.27; Trailing twelve month Free Cash Flow per Share calculated as Free Cash Flow of $220 million divided by average shares outstanding of 47,818,307 during the twelve month period. For more information, please refer to the Non-IFRS reconciliations as set out below. |
| (c) | Includes the impact of derivatives settled in cash; For purposes of comparability, excludes certain amounts related to Diversified’s wholly owned plugging subsidiary, Next LVL Energy. |
| (d) | Adjusted Operating Cost represent total lease operating costs plus recurring administrative costs. Total lease operating costs include base lease operating expense, owned gathering and compression (midstream) expense, third-party gathering and transportation expense, and production taxes. Recurring administrative expenses (Adjusted G&A) is a Non-IFRS financial measure defined as total administrative expenses excluding non-recurring acquisition & integration costs and non-cash equity compensation; For purposes of comparability, excludes certain amounts related to Diversified’s wholly owned plugging subsidiary, Next LVL Energy. |
| (e) | Includes the total value of dividends paid and declared, and share repurchases (including Employee Benefit Trust) year-to-date, through November 12th, 2024. |
| (f) | 4Q23 Adjusted production calculated as the reported average production of 777Mcfepd, less the approximate impact of the divestiture of assets associated with the ABS VII transaction of 52 MMcfepd; Impact of aggregate acquired production as an offset to declines assumes an annual corporate decline rate of 10% |
| (g) | As used herein, employees, administrative costs and professional services represents total administrative expenses excluding cost associated with acquisitions, other adjusting costs and non-cash expenses. We use employees, administrative costs and professional services because this measure excludes items that affect the comparability of results or that are not indicative of trends in the ongoing business. |
| (h) | Using NYMEX strip at October 24, 2024, inclusive of all settled/expired contracts as applicable. |
| (i) | Weighted average price reflects the weighted average of the swap price and floor price for collar contracts as applicable. |
| (j) | MMBtu prices have been converted to Mcf using a richness factor of 1Mcf=1.0250 MMBtu. |
| (k) | Illustrative percent hedged, calculated using September 2024 average production and assuming a consolidated annual corporate decline rate of 10%; Calculation assumes constant product mix over the illustrative decline period |
For Company-specific items, refer also to the Glossary of Terms and/or Alternative Performance Measures found in the Company’s Annual Report and Form 20-F for the year ended December 31, 2023 filed with the United States Securities and Exchange Commission and available on Diversified Energy’s website.
