August 15, 2024
Diversified Energy Company
PLC
("Diversified," "DEC" or the "Group")
Diversified Reports Solid
2024 Interim Financial Results and Robust Cash Flow from
Operations
Delivering Reliable
Production with Low Capital Intensity, Sequential Cost Improvement
and Consistent Cash Margins
Diversified Energy Company PLC (LSE:
DEC) is pleased to announce it is trading in line with expectations
and provides its Interim Results for the six
months ended June 30, 2024 and other
recent highlights.
Delivering Reliable Results
• Average
net daily production: 746 MMcfepd (124 Mboepd);
◦ Reflects
effectively flat production volumes since 4Q2023, on a normalized
basis(a)
◦ June 2024
exit rate of 855 MMcfepd (143 Mboepd), including the impact of the
Oaktree Acquisition
• Net Income
of $16 million, inclusive of approximately $98 million in tax
benefits
• 1H24
Adjusted EBITDA(b) of $218 million
◦ 1H24
Adjusted EBITDA Margin(c) of 50%
◦ 1H24
Adjusted Cost per Unit(d) of $1.68/Mcfe
($10.08/Boe)
• Free Cash
Flow of $121 million, excluding the impact of working
capital(e)
◦ Annualized
Free Cash Flow Yield (excl. working capital) of
38%(e)
• Leverage
ratio of ~2.8x(f), excluding Oaktree transaction,
leverage ratio of 2.6x(g)
•
Undrawn credit facility capacity and unrestricted
cash of ~$120 million
Executing Strategic Objectives and Achieving
Milestones
•
Accretive
Acquisitions:
◦ Announced
$516 million (gross) of high-margin, low-decline asset and working
interest acquisitions
◦ Includes
the $410 million acquisition of Oaktree working interests and $106
million for assets to be acquired from Crescent Pass
•
Sustainable Capital
Return:
◦ Declared
2Q24 interim dividend of $0.29 per share
◦ Paid $55
million of dividends 1H24 and returned a total of $65 million,
including share repurchases of ~2% of shares
outstanding(i)
•
Systematic Debt
Reduction:
◦ Reduced
amortizing debt principal by $108 million
•
Recent
Milestones:
◦ Included
in the US Russell 2000 Index, adding to daily trading liquidity and
US shareholder base
◦
Permanently retired 169 wells in Appalachia, including 135
Diversified wells (70% of 2024 goal)
◦
Realized ~$15 million of
upside value through the divestiture of non-core assets and
leasehold sales(h)
Commenting on the results, CEO Rusty Hutson, Jr. said:
"Building a portfolio of high-performing assets with dedicated
teams of experienced professionals has been part of our strategic
vision since the Company went public, and we have continued our
track record of delivering on that vision with two recent
announcements: the closing of our Oaktree acquisition and the
pending Crescent Pass acquisition. The outstanding results
presented, both operationally and financially, reinforce the
success of this strategy. Our ability to drive the 3% cost
structure improvement during the first half of 2024 is enhanced by
further scale and vertical integration, allowing us to once again
deliver approximately 50% Adjusted EBITDA margins and consistent
free cash flow generation. This strategic vision has proven highly
successful, but it's our employees' commitment to operational
excellence in the field and the corporate office that has helped
Diversified achieve these results. We remain committed to our
balanced capital allocation framework, with the diversity and
strength of our asset base providing a solid foundation for
accretive growth and value creation for our shareholders, while
maintaining our position as the Right Company at the Right Time to
responsibly manage long-life, mature producing
assets."
Posting of 2024 Interim Results Report and
Presentation
Diversified has published the
Company's 2024 Interim Report on its
website at https://ir.div.energy/financial-info
and has also made available a supplementary
2024 Interim Results Presentation at
https://ir.div.energy/presentations.
Conference Call
Diversified Energy will host a
conference call today to discuss the Company's Interim Results at
2:00pm BST (9:00am EDT) along with these results. The conference
call details are as follows:
Footnotes:
a)
|
Reflects adjusted production of 734
MMcfepd (4Q23), 723 MMcfepd (1Q24) and 727 MMcfepd (2Q24),
adjusting for the effect of the previously announced divestiture of
50 MMcfepd (gross) associated with the ABSVII transaction and the
previously announced acquisition of 122 MMcfepd (net) associated
with the Oaktree Working Interest acquired by the Company in
certain assets operated by the Company in the Central
Region
|
b)
|
As used herein, Adjusted EBITDA
represents earnings before interest, taxes, depletion, depreciation
and amortization, and includes adjusting items that are 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, Adjusted EBITDA
Margin is measured by reducing Adjusted Total Revenue for operating
expenses and Adjusted G&A, expressed as a percentage of
Adjusted Total Revenue; Adjusted Total Revenue is calculated as
Total Revenue and the applicable gain (loss) on settled derivative
instruments during the period
|
d)
|
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 ( 1H24:
$0.06/Mcfe; $0.36/Boe)
|
e)
|
As used herein, Annualized Free Cash
Flow Yield represents Free Cash Flow for the six months ended 30
June 2024 as a percentage of Diversified's average total market
capitalization for the six months ended 30 June 2024, annualized;
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 the impact of
working capital
|
f)
|
Calculated as Net Debt at 30 June
2024 divided by Pro Forma Adjusted EBITDA; Pro Forma Adjusted
EBITDA as reported for the twelve months ended 30 June 2024,
including the unrealized impact of estimated NTM Adjusted EBITDA
for previously announced acquisitions for the twelve months ended
30 June 2024
|
g)
|
Excludes $266 million of net
consideration for the Oaktree transaction and the assumption of
Oaktree's proportionate ABS debt, as well as the pro forma impact
of the unrealized impact of estimated NTM adjusted EBITDA for the
Oaktree transaction
|
h)
|
Includes combined value of the sale
of certain leaseholds, acreage positions and non-operated interests
in producing properties; value presented is 2024 year-to-date, as
of the date of this announcement
|
i)
|
Includes the value of shares
purchased by Diversified's Employee Benefit Trust, which was
established in 2022 to purchase shares already in the market and is
operated through a third-party trustee. The objective of the EBT is
to benefit the employees of the Company and its wholly owned
subsidiaries and in particular, to provide a mechanism to satisfy
rights to shares arising on the exercise or vesting of awards under
share based incentive plans and reduce dilution for
shareholders.
|
For Company-specific items, refer to the Glossary of Terms
and/or Alternative Performance Measures found in the Company's 2024
Interim Report
For further information, please
contact:
Diversified Energy Company PLC
|
+1
973 856 2757
|
Doug Kris
|
dkris@dgoc.com
|
Senior Vice President, Investor
Relations
& Corporate
Communications
|
www.div.energy
|
|
|
FTI
Consulting
|
dec@fticonsulting.com
|
U.S. & UK Financial Public
Relations
|
|
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 contains
forward-looking statements (within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995) concerning the financial
condition, results of operations and business of the Company and
its wholly owned subsidiaries (the "Group"), the Assets, and the Group following the Oaktree
acquisition. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements. These
forward-looking statements, which contain the words "anticipate",
"believe", "intend", "estimate", "expect", "may", "will", "seek",
"continue", "aim", "target", "projected", "plan", "goal", "achieve"
and words of similar meaning, reflect the Company's beliefs and
expectations and are based on numerous assumptions regarding the
Company's present and future business strategies and the
environment the Company and the Group will operate in and are
subject to risks and uncertainties that may cause actual results to
differ materially. No representation is made that any of these
statements or forecasts will come to pass or that any forecast
results will be achieved. Forward-looking statements involve
inherent known and unknown risks, uncertainties and contingencies
because they relate to events and depend on circumstances that may
or may not occur in the future and may cause the actual results,
performance or achievements of the Company or the Group to be
materially different from those expressed or implied by such
forward looking statements. Many of these risks and uncertainties
relate to factors that are beyond the Company's or the Group's
ability to control or estimate precisely, such as future market
conditions, currency fluctuations, the behavior of other market
participants, the actions of regulators and other factors such as
the Company's or the Group's ability to continue to obtain
financing to meet its liquidity needs, changes in the political,
social and regulatory framework in which the Company or the Group
operate or in economic or technological trends or conditions. The
list above is not exhaustive and there are other factors that may
cause the Company's or the Group's actual results to differ
materially from the forward-looking statements contained in this
announcement, Including the risk factors described in the "Risk
Factors" section 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.
Forward-looking statements speak
only as of their date and neither the Company nor the Group nor any
of its respective directors, officers, employees, agents,
affiliates or advisers expressly disclaim any obligation to
supplement, amend, update or revise any of the forward-looking
statements made herein, except where it would be required to do so
under applicable law. In light of these risks, uncertainties and
assumptions, the events described in the forward-looking statements
in this announcement, such as the timing, if at all, of completion
of the Oaktree acquisition, may not occur. As a result, you are
cautioned not to place undue reliance on such forward-looking
statements. Past performance of the Company cannot be relied on as
a guide to future performance. No statement in this announcement is
intended as a profit forecast or a profit estimate and no statement
in this announcement should be interpreted to mean that the
financial performance of the Company for the current or future
financial years would necessarily match or exceed the historical
published for the Company.
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.
Adjusted EBITDA
As used herein, EBITDA represents
earnings before interest, taxes, depletion, depreciation and
amortization. adjusted EBITDA includes adjusting for items that are
not comparable period-over-period, namely, accretion of asset
retirement obligation, other (income) expense, loss on joint and
working interest owners receivable, (gain) loss on bargain
purchases, (gain) loss on fair value adjustments of unsettled
financial instruments, (gain) loss on natural gas and oil property
and equipment, costs associated with acquisitions, other adjusting
costs, non-cash equity compensation, (gain) loss on foreign
currency hedge, net (gain) loss on interest rate swaps and items of
a similar nature.
Adjusted EBITDA should not be
considered in isolation or as a substitute for operating profit or
loss, net income or loss, or cash flows provided by operating,
investing, and financing activities. However, we believe such a
measure is useful to an investor in evaluating our financial
performance because it (1) is widely used by investors in the
natural gas and oil industry as an indicator of underlying
business performance; (2) helps investors to more
meaningfully evaluate and compare the results of our operations
from period to period by removing the often-volatile revenue impact
of changes in the fair value of derivative instruments prior to
settlement; (3) is used in the calculation of a key metric in one
of our Credit Facility financial covenants; and (4) is used by us
as a performance measure in determining executive compensation.
When evaluating this measure, we believe investors also commonly
find it useful to evaluate this metric as a percentage of our total
revenue, inclusive of settled hedges, producing what we refer to as
our adjusted EBITDA margin.
The following table presents a
reconciliation of the IFRS Financial measure of Net Income (Loss)
to Adjusted EBITDA for each of the periods
listed:
|
Six Months
Ended
|
(In thousands)
|
June 30,
2024
|
June 30,
2023
|
December 31,
2023
|
Net
income (loss)
|
$
15,745
|
$
630,932
|
$
128,769
|
Finance costs
|
60,581
|
67,736
|
66,430
|
Accretion of asset retirement
obligations
|
14,667
|
13,991
|
12,935
|
Other (income)
expense(a)
|
(755)
|
(327)
|
(58)
|
Income tax (benefit)
expense
|
(97,997)
|
197,324
|
43,319
|
Depreciation, depletion and
amortization
|
119,220
|
115,036
|
109,510
|
(Gain) loss on fair value
adjustments of unsettled financial instruments
|
80,117
|
(760,933)
|
(144,762)
|
(Gain) loss on natural gas and oil
property and equipment(b)
|
249
|
(899)
|
919
|
(Gain) loss on sale of equity
interest
|
-
|
-
|
(18,440)
|
Unrealized (gain) loss on
investment
|
(2,433)
|
-
|
(4,610)
|
Impairment of proved
properties(c)
|
-
|
-
|
41,616
|
Costs associated with
acquisitions
|
3,724
|
8,866
|
7,909
|
Other adjusting
costs(d)
|
10,451
|
3,376
|
14,418
|
Loss on early retirement of
debt
|
10,649
|
-
|
-
|
Non-cash equity
compensation
|
3,669
|
4,417
|
2,077
|
(Gain) loss on foreign currency
hedge
|
-
|
521
|
-
|
(Gain) loss on interest rate
swap
|
(100)
|
2,824
|
(102)
|
Total adjustments
|
$
202,042
|
$
(348,068)
|
$
131,161
|
Adjusted EBITDA
|
$
217,787
|
$
282,864
|
$
259,930
|
(a) Excludes $0.5
million in dividend distributions received for our investment in DP
Lion Equity Holdco during the six months ended June 30, 2024.
(b) Excludes
$7.5 million, $6.8
million and $17.3 million in
proceeds received for leasehold sales during the six months ended June 30, 2024,
June 30, 2023 and December
31, 2023.
(c) For the year
ended December 31, 2023, the Group determined the carrying amounts
of certain proved properties within two fields were not recoverable
from future cash flows, and therefore, were impaired.
(d)
Other adjusting costs for the six
months ended June 30, 2024 primarily
consisted of expenses associated with an unused firm transportation
agreement and legal and professional fees. Other adjusting costs
for the six months ended June 30, 2023 primarily consisted of expenses
associated with an unused firm transportation agreement and legal
and professional fees related to internal audit and financial
reporting. Other adjusting costs for the six
months ended December 31, 2023
primarily consisted of legal and professional fees related to the
U.S. listing, legal fees for certain litigation, and expenses
associated with unused firm transportation agreements.
Net Debt and Net Debt-to-Adjusted
EBITDA
As used herein, net debt represents
total debt as recognized on the balance sheet less cash and
restricted cash. Total debt includes our borrowings under the
Credit Facility and borrowings under or issuances of, as
applicable, our subsidiaries' securitization facilities. We believe
net debt is a useful indicator of our leverage and capital
structure.
As used herein, net debt-to-adjusted
EBITDA, or "leverage" or "leverage ratio," is measured as net debt
divided by adjusted trailing twelve-month EBITDA. We believe that
this metric is a key measure of our financial liquidity and
flexibility and is used in the calculation of a key metric in one
of our Credit Facility financial covenants.
The following table presents a
reconciliation of the IFRS Financial measure of Total Borrowings to
the Non-IFRS measure of Net Debt and a calculation of Net
Debt-to-Adjusted EBITDA and Net Debt-to-Pro Forma Adjusted EBITDA
for each of the periods listed:
|
As of
|
(In thousands)
|
June 30,
2024
|
June 30,
2023
|
December 31,
2023
|
Credit Facility
|
$
268,000
|
$
265,000
|
$
159,000
|
ABS I Notes
|
90,847
|
111,007
|
100,898
|
ABS II Notes
|
114,945
|
136,550
|
125,922
|
ABS III Notes
|
-
|
295,151
|
274,710
|
ABS IV Notes
|
88,418
|
113,609
|
99,951
|
ABS V Notes
|
-
|
329,381
|
290,913
|
ABS VI
Notes(a)
|
273,805
|
183,758
|
159,357
|
ABS VIII Notes
|
607,740
|
-
|
-
|
ABS Warehouse Facility
|
71,000
|
-
|
-
|
Term Loan I
|
98,023
|
112,433
|
106,470
|
Deferred consideration and
miscellaneous(b)
|
90,717
|
8,319
|
7,627
|
Total debt
|
$
1,703,495
|
$
1,555,208
|
$
1,324,848
|
LESS: Cash and cash
equivalents
|
3,483
|
4,208
|
3,753
|
LESS: Restricted
cash(c)
|
54,976
|
41,188
|
36,252
|
Net
debt
|
$
1,645,036
|
$
1,509,812
|
$
1,284,843
|
Adjusted EBITDA
|
$
217,787
|
$
282,864
|
$
259,930
|
Pro
forma TTM adjusted EBITDA(d)
|
$
584,261
|
$
633,875
|
$
549,258
|
Net
debt-to-pro forma TTM adjusted
EBITDA(e)
|
2.8x
|
2.4x
|
2.3x
|
|
|
|
|
Net
debt, excluding Oaktree(f)
|
$
1,245,556
|
|
|
Pro
forma TTM Adjusted EBITDA, excluding
Oaktree(f)
|
$
474,561
|
|
|
Net
debt-to-pro forma TTM adjusted EBITDA, excluding
Oaktree(f)
|
2.6x
|
|
|
(a)
Includes $133 million for the
assumption of Oaktree's proportionate share of the ABS VI debt as
part of the Oaktree transaction as of June 30, 2024. Refer to Note
4 in the Notes to the Interim Condensed
Consolidated Financial Statements for additional information
regarding the Oaktree transaction.
(b) Includes $83
million in notes payable issued as part of the consideration in the
Oaktree transaction as of June 30, 2024. Refer to Note 4
in the Notes to the Interim
Condensed Consolidated Financial Statements for additional
information regarding the Oaktree transaction.
(c) Includes
$28 million and $3
million in restricted cash attributable to the ABS VIII
Notes and ABS Warehouse Facility, respectively, offset by
$7 million and $8
million attributable to the retirement of the ABS III Notes
and ABS V Notes, respectively.
(d) Pro forma TTM
adjusted EBITDA includes adjustments for the trailing twelve months
ended June 30, 2024 for the Oaktree
transaction to pro forma its results for a full
twelve months of operations. Similar adjustments were made for the
trailing twelve months ended June 30, 2023 for the Tanos II and
ConocoPhillips acquisitions as well as in the trailing twelve
months ended December 31, 2023 for the Tanos II
Acquisition.
(e) Does not
include adjustments for working capital which are often customary
in the market.
(f)
Excludes $266 million of net consideration for the
Oaktree transaction and the assumption of Oaktree's proportionate
ABS debt, as well as the pro forma impact of the unrealized impact
of estimated NTM adjusted EBITDA for the Oaktree
transaction
Free Cash Flow
As used herein, 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. We believe that free cash flow is a useful
indicator of our ability to generate cash that is available for
activities other than capital expenditures. The Directors believe
that free cash flow provides investors with an important
perspective on the cash available to service debt obligations, make
strategic acquisitions and investments, and pay
dividends.
The following table presents a reconciliation of the IFRS
Financial measure of Net Cash from Operating Activities to the
Non-IFRS measure of Free Cash Flow for each of the periods
listed:
|
Six Months
Ended
|
(In thousands)
|
June 30,
2024
|
June 30,
2023
|
December 31,
2023
|
Net
cash provided by operating activities
|
$
160,810
|
$
172,566
|
$
237,566
|
LESS: Expenditures on natural gas
and oil properties and equipment
|
(20,848)
|
(32,332)
|
(41,920)
|
LESS: Cash paid for
interest
|
(47,632)
|
(60,215)
|
(56,569)
|
Free
cash flow
|
$
92,330
|
$
80,019
|
$
139,077
|
Total Revenue, Inclusive of Settled
Hedges and Adjusted EBITDA Margin
As used herein, total revenue,
inclusive of settled hedges, includes the impact of derivatives
settled in cash. We believe that total revenue, inclusive of
settled hedges, is a useful because it enables investors to discern
our realized revenue after adjusting for the settlement of
derivative contracts.
The following table presents a
reconciliation of the IFRS Financial measure of Total Revenue to
the Non-IFRS measure of Total Revenue, Inclusive of Settled Hedges
and a calculation of Adjusted EBITDA Margin for each of the periods
listed:
|
Six Months
Ended
|
(In thousands)
|
June 30,
2024
|
June 30,
2023
|
December 31,
2023
|
Total revenue
|
$
368,674
|
$
487,305
|
$
380,958
|
Net gain (loss) on commodity
derivative instruments(a)
|
77,749
|
54,525
|
123,539
|
Total revenue, inclusive of settled hedges
|
$
446,423
|
$
541,830
|
$
504,497
|
Adjusted EBITDA
|
$
217,787
|
$
282,864
|
$
259,930
|
Adjusted EBITDA margin
|
49
%
|
52
%
|
52%
|
Adjusted EBITDA Margin, exclusive of the impact of Next LVL
Energy(b)
|
50%
|
53
%
|
52
%
|
(a)
Net gain (loss) on commodity derivative
settlements represents cash (paid) or received on commodity
derivative contracts. This excludes settlements on foreign currency
and interest rate derivatives as well as the gain (loss) on fair
value adjustments for unsettled financial instruments for each of
the periods presented.
(b) As adjusted,
excludes revenues of $8 million and
operating costs of $9 million for the six
months ended June 30, 2024, revenues of $17
million and operating costs of $12 million
for the six months ended December 31, 2023 and revenues of
$12 million and operating costs of
$10 million for the six months ended June
30, 2023.
Adjusted Operating Cost per
Mcfe
Adjusted operating cost per Mcfe is
a metric that allows us to measure the direct operating cost and
the portion of general and administrative cost it takes to produce
each Mcfe. This metric, similar to adjusted EBITDA margin, includes
operating expense employees, administrative costs and professional
services and recurring allowance for credit losses, which include
fixed and variable cost components.
Employees, Administrative Costs
& Professional Services
As used herein, employees,
administrative costs and professional services represents total
administrative expenses excluding costs 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.
The following table presents a reconciliation of the IFRS
Financial measure of Total Operating Expense to the Non-IFRS
measure of Adjusted Operating Cost per Mcfe and Adjusted Cost per
Unit, excluding the impact of Next LVL Energy for each of the
periods listed:
|
Six Months
Ended
|
|
June 30,
2024
|
June 30,
2023
|
December 31,
2023
|
Total production (Mcfe)
|
135,763
|
154,182
|
145,450
|
Total operating expense
|
$
196,112 |
$
227,299 |
$
213,263 |
Employees, administrative costs &
professional services
|
40,482
|
38,497
|
40,162
|
Recurring allowance for credit
losses
|
-
|
-
|
8,478
|
Adjusted operating cost
|
$
236,594 |
$
265,796 |
$
261,903 |
Adjusted operating cost per Mcfe
|
$
1.74 |
$
1.72 |
$
1.80 |
Impact of Next LVL
Energy
|
$
(0.06) |
$
(0.06) |
$
(0.08) |
Adjusted Operating Cost per Unit, Excluding Next LVL
Energy
|
$
1.68 |
$
1.66 |
$
1.72
|