Diversified Energy Company PLC (LSE:DEC) is pleased to announce it is trading in line with expectations and provided the following operations and trading update for the quarter ended 30 September 2022.
Recent Strategic Highlights
• Declared 3Q22 dividend of 4.375¢ per share, an annualised increase of ~3%
• Announced share repurchase program for up to 10% of outstanding shares
◦ Purchased ~8 million shares since announcement
◦ Acquired shares at attractive value given the strength of the US dollar
• Closed $210 million acquisition of ConocoPhillips assets, increasing Central Region operational scale
• Closed $215 million net ABS securitisation, Diversified’s fourth securitization in 2022
• Converted the revolving Credit Facility to a Sustainability-Linked Loan (“SLL”)
◦ Completed its semi-annual redetermination with a borrowing base of $250 million
• Published an updated Asset Retirement Supplement with an illustrative 50-year model
◦ Generates significant cash flow to cover current plugging liabilities
◦ Illustrates potential ~$5 billion of dividends (base and excess) equal to ~4x current market capitalisation
3Q22 Operating and Financial Highlights
• Average production rate of 135 Mboepd (808 MMcfepd)
◦ Pro Forma exit rate of 144 Mboepd (862 MMcfepd) including ConocoPhillips assets
• Realised 50% Cash Margin(a) (76% Unhedged Cash Margin); >20% free cash flow yield
• Recent hedging has increased 2023 and 2024 average natural gas hedge price by 8% and 4%, respectively
• Substantially all borrowings are fully amortising in fixed-rate notes with a weighted average coupon of 5.7%
• 2.2x Net Debt / Adjusted EBITDA leverage ratio(c) as of 30 September 2022, pro forma for recent acquisitions
• ~$400 million of current liquidity(d) after ABS issuance and Fall redetermination
Recent ESG Highlights
• Awarded Gold Standard from United Nations Oil and Gas Methane Partnership (“OGMP 2.0”)
• Next LVL Energy becoming a regional leader in asset retirement and on track to exceed goals
◦ Retired 150 wells through 3Q22, exceeding full-year 2021 retirements by 10%
◦ Performing third-party work with independent operators and state agencies
• Completed handheld emissions surveys of >99% of operated Appalachian assets, ahead of original commitment timetable of mid-2023
◦ Conducted ~60,300 unique emissions surveys of Appalachian assets, including repeat surveys on approximately 75% of sites surveyed
◦ Achieved consistent rate of no detectable emissions after survey completion on ~90% of assets, with repairs being prioritised based on emissions rates
• Completed LiDAR aerial surveillance over 9,000 miles of midstream, repairing ~75% of verified leaks and progressing additional repairs
◦ Aerial surveillance included 850 miles of repeat flyovers to support asset inspections following extreme flooding in the state of Kentucky
Rusty Hutson, Jr., CEO of Diversified, commented:
“I am pleased to announce an increase to our quarterly dividend reflective of strong asset performance, higher commodity prices and consistent cash margins. Our unique, yet simple, business model continues to deliver tangible and sustainable returns amidst volatile capital markets. In addition to our dividend and to capitalize on the strength of the US dollar, we also acquired approximately eight million shares under our recently announced share repurchase program that enhance shareholder returns.
Having closed our fourth ABS transaction this year and completed our semi-annual borrowing base redetermination, we have nearly $400 million of liquidity available for accretive acquisitions as we remain nimble in dynamic market conditions.
In addition to our success integrating and optimising our new Central Region assets, I am pleased with the progress we are making as we integrate of our Next LVL asset retirement business. Our commitment to vertical integration will allow us efficiently retire our own wells while also generating third party revenues that can effectively offset the cash impact of asset retirement activities. Importantly, our Next LVL team will become a leader focused on process optimisation, innovation and application technology to drive cost efficiencies and safe, effective results.”
Operations and Finance Update
Production
The Company recorded 3Q22 average net daily production of 135 Mboepd (808 MMcfepd), consistent with the Company’s estimated ~8-9% annual decline rate. Diversified exited the quarter producing 144 Mboepd (862 MMcfepd) pro forma for its acquisition of assets from ConocoPhillips.
Cash Margins and Realised Price
3Q22 Cash Margins(a) of 50% (76% unhedged) increased from 2Q22 (48%; 77% unhedged) reflecting higher price realizations, strengthened by its Central Region assets, and efforts to mitigate inflationary pressures. The Company’s 3Q22 average realised price of $21.95/Boe ($44.94 unhedged) increased 16% compared to the 2Q22 average realised price of $18.97/Boe ($43.15 unhedged), offsetting increases to Total Unit Cash Expense of 11% over the same period.
Total Unit Cash Costs
Diversified’s 3Q22 Total Lease Operating Expense per unit of $9.39/Boe (2Q22: $8.48; +11%) largely related to higher commodity price-linked expenses including Production Taxes and Gathering and Transportation Expense. General inflationary pressures led to higher Base Lease Operating Expense and Midstream Expense including elevated fuel and consumables costs. As part of its Smarter Asset Management programmes, the Company is actively pursuing opportunities to improve its unit-level expenses including production-enhancing initiatives, such as well swabbing and workovers along with cost mitigating initiatives like reduction compressor rental and water handling costs.
Adjusted G&A expense(f) increased to $1.57/Boe versus $1.41/Boe and $1.54/Boe in 2Q22 and 1Q22, respectively, reflecting recent investments to support the Company’s expanded operating footprint. The Company will leverage these investments to reduce unit-level expenses as it continues to build scale in the region through additional acquisitions such as the recent purchase from ConocoPhillips and through the previously mentioned production-enhancing initiatives.
The following table provides average realized price and unit-expense information for the periods presented:
For further information please contact:
Diversified Energy Company PLC
+1 973 856 2757
Doug Kris
