REG - Diversified Energy - Interim Results for the 6 Months Ended 30 June '24
15/08/2024 07:15
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RNS Number : 5202A Diversified Energy Company PLC 15 August 2024
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 (https://ir.div.energy/financial-info)
and has also made available a supplementary 2024 Interim Results Presentation
at https://ir.div.energy/presentations (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:
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
(https://www.div.energy/news-events/ir-calendarevents)
Replay Information https://ir.div.energy/financial-info (https://ir.dgoc.com/financial-info)
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 www.div.energy (//www.div.energy)
& Corporate Communications
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
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