January 30, 2024
Diversified Energy Company
PLC
("Diversified," "DEC" or the "Group")
Trading Statement and Annual
Results Call Details
Diversified Energy Company PLC (LSE:
DEC; NYSE: DEC) is pleased to announce it is trading in line with
expectations and provides the following update on its business
activity for the year ended December 31, 2023.
Delivering Reliable Results
• 2023
average net daily production: 821 MMcfepd
(136.8 Mboepd)
◦
4Q 2023 average production
of 777 MMcfepd (129.5 Mboepd)
◦
December 2023 exit rate
production of 775 MMcfepd (129.2 Mboepd)
◦
Maintained peer-leading consolidated corporate
production decline rate of ~10%(a)
◦
Marketed 100% of our produced natural gas with our
internal marketing team, utilizing industry delivery, settlement,
compliance, and confirmation standards while providing improved
margins
• Estimated
Adjusted EBITDA(b) of $540 to
$545 million
◦
Adjusted Operating Cost per Unit of $1.69/Mcfe ($10.14/Boe)(c) down 3% versus FY22
◦
Adjusted EBITDA Margin(d) of
51%
• Free Cash
Flow Yield of ~21%(e), including
the impact of working capital changes
• Declared
Q3 2023 dividend of $0.875 per share (adjusted for 20 for 1 share
consolidation), payment date of March 28, 2024
Executing Strategic Objectives
• Completed
~$240 million in liquidity and
value-enhancing divestitures at accretive
multiples(f)
•
Reduced debt outstanding by ~15% (~$233 million)
versus 2023 Interim (Q2) results
• Fall
borrowing base redetermination resulted in $50 million increase to
$435 million
◦
100% approval from 14-bank lending
syndicate
◦
$305 million adjusted borrowing base to reflect
recently announced $200 million asset
sale
•
Maintained leverage ratio
of 2.4x(g)
• Current
Liquidity of ~$135 million
◦
Increase of 31% ($32 million) versus 2023 Interim
(Q2) results
• Commenced trading on the New York Stock Exchange, expanding
access to US investors and improving trading liquidity
•
Affirmation by Fitch of all five ABS rated notes as BBB or higher
(Investment Grade)
Creating Value Through Stewardship
• Won ESG
Report of the Year from ESG Awards 2023
•
Awarded Oil & Gas Methane Partnership 2.0
(OGMP) Gold rating for the second year
•
Increased MSCI sustainability rating to AA
leadership status
• Conducted
over 246,000 leak detection surveys using industry-leading and
proven detection equipment, attaining a zero emissions rate of
97.75%, proving the positive impacts of our commitment to eliminate
methane leaks
◦ Completed
leak detection surveys for 100% of Central Region upstream assets
and continued leak detection surveys for all Appalachian upstream
assets
•
Continued proactive, voluntary leak detection
program for Appalachian midstream assets using industry-leading and
proven aerial LiDAR from Bridger Photonics
•
Retired a total of 384
wells through the Company's Next LVL asset retirement
business
◦
Achieved goal of retiring 200 Diversified wells in 2023; significantly exceeding
state agreements
◦ Retired
184 wells for outside
parties, including 148 for state and
federal orphan well programs
◦
Generated revenues from third-party well
retirement projects to offset the Company's internal well
retirement costs
Commenting on the results, CEO Rusty Hutson, Jr.
said:
"I
am pleased to report our strategic progress and solid financial
performance for Diversified, highlighting, once again, the
consistency and resilience of our strategy and business model. This
resilience has allowed us to maintain our peer-leading production
decline rate, and our continued focus on operational efficiencies
delivered 51% margins, resulting in meaningful cash flow
generation. Despite a challenging commodity price environment, we
generated strong full year results, including growing EBITDA to a
record level that exceeded consensus
expectations.
"Throughout the year, we have continued to focus our strategic
initiatives on cash flow generation, capital discipline, and
balance sheet management. Continued investment in our asset base
resulted in substantial emissions reduction and operational
efficiency gains. We continue to evaluate opportunities to
successfully execute our growth and return of capital strategies
moving forward, as highlighted by our successful listing on the New
York Stock Exchange - a key milestone that will deliver future
value.
"Next LVL Energy, our asset retirement team, completed its
first full year of operations and successfully delivered on its
strategic and financial objectives. I am very proud of the
significant investments we have made to lower our methane
intensity, and I am confident that we will deliver continued
improvements that we will highlight in our formal year-end
reports.
"Our dedicated employees are key to the Company's success, and
I would like to thank all our teams, subcontractors, lenders, and
other partners for their continued work and dedication to benefit
our communities and our shareholders. We remain confident in our
business strategy and are proud of our position within the energy
industry and the important part we are playing in responsibly
providing the energy demands for our communities, our country, and
the world. Diversified continues to grow as a solutions-based
business, making it the Right
Company at the Right Time."
Operations and Finance Update
Production
The Company delivered 2023 average
net daily production of 821 MMcfepd
(136.8 Mboepd), a record for average annual
production and 1% greater than the 2022
average (811 MMcfepd; 135.2 Mboepd). In 2023, Diversified maintained a
peer-leading, consistent and resilient production decline profile
of ~10%(a), as measured from 4Q22 to 4Q23, adjusted to
exclude the effect of intraperiod acquisitions or divestitures.
Legacy Appalachia assets continue to produce at a reliable level,
with natural declines in this region of approximately 5%
annually. Across our operating footprint, the Smarter Asset
Management ("SAM") approach continues to provide opportunities to
improve current production profiles, drive efficiency gains, and
extend well life. The Company exited the year with December 2023
average daily production of 775 MMcfepd
(129.2 Mboepd).
Margin and Total Cash Expenses per Unit
Adjusted EBITDA
Margins(d) of 51% (41% unhedged) represent Diversified's 6th consecutive
annual period with margins of ~50% or more, again demonstrating
Diversified's resilient cash flow profile throughout commodity
price cycles. During the year, Adjusted EBITDA Margins benefited
from the continued strategic application of the Company's robust
hedging strategy, combined with the impact of diligent expense
control measures and price-linked reductions in certain third-party
gathering and transportation costs and production taxes.
|
|
FY23
|
|
FY22
|
|
|
|
|
$/Mcfe
|
|
$/Boe
|
|
$/Mcfe
|
|
$/Boe
|
|
%
|
Average Realized Price1
|
|
$ 3.48
|
|
$ 20.87
|
|
$ 3.43
|
|
$
20.60
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Cost per
Unit(c)
|
|
FY23
|
|
FY22
|
|
|
|
|
$/Mcfe
|
|
$/Boe
|
|
$/Mcfe
|
|
$/Boe
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Lease Operating
Expense2
|
|
$ 0.64
|
|
$ 3.84
|
|
$ 0.59
|
|
$ 3.51
|
|
9%
|
Midstream Expense
|
|
0.23
|
|
1.40
|
|
0.24
|
|
1.44
|
|
(3)%
|
Gathering and
Transportation
|
|
0.32
|
|
1.93
|
|
0.40
|
|
2.39
|
|
(19%
|
Production Taxes
|
|
0.21
|
|
1.23
|
|
0.25
|
|
1.50
|
|
(18)%
|
Total Operating Expense2
|
|
$ 1.40
|
|
$ 8.40
|
|
$
1.47
|
|
$
8.84
|
|
(5)%
|
Employees, Administrative Costs and
Professional Fees(h)
|
|
0.29
|
|
1.74
|
|
0.26
|
|
1.56
|
|
12%
|
Adjusted Operating Cost per Unit2
|
|
$ 1.69
|
|
$
10.14
|
|
$
1.73
|
|
$ 10.40
|
|
(3)%
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Margin(d)
|
|
51%
|
|
49%
|
|
|
1 FY23 excludes $0.09/Mcfe ($0.57/Boe) and FY22
excludes $0.03/Mcfe ($0.19/Boe) of other revenues generated by Next LVL
Energy; includes the impact of other revenue and gain on land sales
during the respective periods
2 FY23 excludes $0.07/Mcfe ($0.43/Boe) and FY22
excludes $0.03/Mcfe ($0.20/Boe) of expenses attributable to Next LVL
Energy
Values may not sum due to rounding
Results of Hedging and Current Financial Derivatives
Portfolio
Diversified ended 2023 with an
annual average realized price of $3.48/Mcf,
27% higher than the average settled price
for NYMEX Henry Hub during the year(i), demonstrating
the benefit of the Company's hedging strategy in mitigating the
impact of the commodity price environment during the year. Having
proactively established its 2024 hedge portfolio with a weighted
average floor price of ~10% higher
($3.09/MMBtu) than the current
strip(j), Diversified continues to focus on layering
additional hedges to 2025 and beyond, where forward natural gas
prices remain strong.
2023 Annual Results and Conference Call
Details
Diversified will release its 2023
full-year results on Tuesday, March 19, 2024 and will host a conference call that day at 8:00a.m. BST (3:00a.m.
EDT) to discuss the Annual Results and will make an audio replay of
the event available shortly thereafter.
Date
|
March 19,
2024
|
Time
|
8:00a.m.
(BST) / 3:00a.m. (EDT)
|
US (Toll-Free)
|
+1
877 836 0271
|
UK (Toll-Free)
|
+44
(0) 800 756 3429
|
Audio Webcast
|
div.energy/news-events/events
|
Footnotes:
a)
|
Corporate decline rate of ~10%
calculated as the change in production from Q4 2022 to Q4 2023;
excluding any intraperiod acquisitions or divestitures. Q4 2022
reported production of ~134 Mboepd vs. Adjusted Q4 2023 production
of ~122 Mboepd (reported Q4 2023 production of 129.5 Mboepd less
~10 Mboepd of production for Tanos acquisition & adding ~3
Mboepd of non-op production divested)
|
b)
|
As used herein, Adjusted EBITDA
represents earnings before interest, taxes, depletion, depreciation
and amortization, and includes adjusting items that are not
comparable period-over-period, non-cash items such as gains on the
sale of assets, acquisition related expenses and integration costs,
mark-to-market adjustments related to Diversified's hedge
portfolio, non-cash equity compensation charges and items of a
similar nature
|
c)
|
As used herein, includes operating
expense; employees, administrative costs and professional services
and recurring allowance for credit losses, which include fixed and
variable cost components; for the purpose of comparability, amounts
from Operating Expense relating to Diversified's wholly-owned
plugging subsidiary, Next Level Energy, have been excluded
(FY23: $0.07/Mcfe)
|
d)
|
As used herein, Adjusted EBITDA
Margin is measured as Adjusted EBITDA, as a percentage of Total
Revenue, inclusive of settled hedges; Total Revenue, inclusive of
settled hedges is calculated as Total Revenue and the applicable
gain (loss) on settled derivative instruments during the
period
|
e)
|
As used herein, Free Cash Flow Yield
represents Free Cash Flow for the 12 months ended December 31, 2023
as a percentage of Diversified's average market capitalization for
the twelve months ended December 31, 2023; Free Cash Flow is
calculated as net cash provided by operating activities less
expenditures on natural gas and oil properties and equipment and
cash paid for interest; excludes amortization payments and includes
the impact of working capital changes
|
f)
|
As previously announced via RNS,
includes combined value of the sale of certain leaseholds, acreage
positions, non-operated interests in producing properties and asset
divestitures during FY2023
|
g)
|
Calculated as Net Debt (total debt
less cash and restricted cash) at December 31, 2023 divided by Pro
Forma Adjusted EBITDA; Pro Forma Adjusted EBITDA as reported for
the twelve months ended December 31, 2023, including the unrealized
impact of estimated NTM Adjusted EBITDA for previously announced
acquisitions and divestitures for the twelve months ended December
31, 2023
|
h)
|
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.
|
i)
|
Source: NRG; Calculated as the
settled contract price for January 2023 - December 2023
|
j)
|
Source: Factset; calculated using
Diversified's weighted average floor price for Natural Gas
contracts in 2024 and January 19, 2024 strip pricing for Henry Hub
in 2024, including the January settled price
|
For Company-specific items, refer to the Glossary of Terms
and/or Alternative Performance Measures found in the Company's 2023
Interim Report
For further information, please
contact:
About Diversified Energy Company PLC
Diversified is a leading publicly
traded energy company focused on natural gas and liquids
production, transport, marketing, and well retirement. Through our
differentiated strategy, we acquire existing, long-life assets and
invest in them to improve environmental and operational performance
until retiring those assets in a safe and environmentally secure
manner. Recognized by ratings agencies and organizations for our
sustainability leadership, this solutions-oriented, stewardship
approach makes Diversified the Right Company at the Right Time to
responsibly produce energy, deliver reliable free cash flow, and
generate shareholder value.
Forward-Looking Statements
This announcement includes
forward-looking statements. These forward-looking statements
involve known and unknown risks and uncertainties, many of which
are beyond the Company's control and all of which are based on
management's current beliefs and expectations about future events.
Forward-looking statements are sometimes identified by the use of
forward-looking terminology such as "believe", "expects",
"targets", "may", "will", "could", "should", "shall", "risk",
"intends", "estimates", "aims", "plans", "predicts", "continues",
"assumes", "positioned" or "anticipates" or the negative thereof,
other variations thereon or comparable terminology. These
forward-looking statements include all matters that are not
historical facts. They appear in a number of places throughout this
announcement and include statements regarding the intentions,
beliefs or current expectations of management or the Company
concerning, among other things, the results of operations,
financial condition, prospects, growth, strategies and dividend
policy of the Company and the industry in which it
operates.
Use
of Non-IFRS Measures
Certain key operating metrics that
are not defined under IFRS (alternative performance measures) are
included in this announcement. These non-IFRS measures are used by
us to monitor the underlying business performance of the Company
from period to period and to facilitate comparison with our peers.
Since not all companies calculate these or other non-IFRS metrics
in the same way, the manner in which we have chosen to calculate
the non-IFRS metrics presented herein may not be compatible with
similarly defined terms used by other companies. The non-IFRS
metrics should not be considered in isolation of, or viewed as
substitutes for, the financial information prepared in accordance
with IFRS. Certain of the key operating metrics are based on
information derived from our regularly maintained records and
accounting and operating systems. We have not presented
reconciliations of the non-IFRS measures included in this
announcement because the comparable IFRS measures will not be
accessible until the Company's audited financial results for the
year ended December 31, 2023 are complete. The Company will
include the comparable IFRS measures and reconciliations of the
non-IFRS measures in its release of full-year results, which we
expect to publish on Tuesday, March 19, 2024.