REG - Diversified Energy - Close of Acquisition and Securitized Financing

Diversified EnergyAnnouncement

28/02/2025 07:15

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RNS Number : 7971Y  Diversified Energy Company PLC  28 February 2025

 

February 28, 2025

 

 

 Diversified Energy Company PLC

("Diversified" or the "Company")

 

 Diversified Closes Summit Natural Resources Acquisition and Tenth Asset
Backed Securitization Issuance

 

Bolt-on Acquisition Increases Coal Mine Methane Environmental Credit Cash
Flow, Expands Midstream Infrastructure, and Enhances Southern Appalachia
Prices

 

Strategic Refinance Incorporates 40% Improvement in Cash Flow from New Hedges
and an Innovative Master Trust Structure

 

Solidifies Diversified as the Leading Issuer of Oil & Gas Securitizations

 

Diversified Energy Company PLC (LSE:DEC; NYSE:DEC) ("Diversified" or the
"Company") announces the close of its previously announced acquisition of
operated natural gas properties and related midstream pipeline infrastructure
located within Virginia, West Virginia, and Alabama (the "Assets") from Summit
Natural Resources (the "Seller") (together with the assets, the
"Acquisition").

 

Additionally, the Company closed on an asset backed securitization ("ABS")
refinancing, creating the ABS X note. Diversified will use the proceeds from
the ABS transaction to consolidate and repay the outstanding principal of the
previously issued ABS I, ABS II and Term Loan I, utilizing those assets plus
additional Summit Natural Resources assets as collateral in the new structure.
The ABS transaction will also benefit from an improved hedging profile,
creating enhanced margins and cash flows. Additional proceeds from this
refinancing will be used to reduce outstanding borrowings and for general
corporate purposes.

 

Acquisition Highlights

•     Acquisition net purchase price of ~$42 million

•     Current net production of ~12 MMcfepd (2 Mboepd)((a))

•     PDP Reserves of 65 Bcfe (11 MMBoe) with PV-10 of ~$55 million((b))

◦     Purchase price equivalent of ~PV-16((b))

•     Estimated 2025 Adjusted EBITDA of ~$12 million((b)(c))

•     Existing Coal Mine Methane ("CMM") volumes with opportunities to
extend future production and additional environmental credits

•     Appalachian assets overlap existing operations providing synergies
for increased cash margins

•     Strategic midstream pipeline assets facilitate capability to
enhance commodity realizations

•     Recent improvements to commodity prices have further-enhanced the
transaction economics

 

ABS Issuance Highlights

•     $530 million ABS X note structured as a master trust

•     Strategic hedges expected to add ~40% ($38 million) to EBITDA((c))
of refinanced assets

•     Significantly oversubscribed (6.5x) with orders from 20 unique
investors, reflecting the cash flow quality of our assets and Diversified's
reputation as a responsible issuer

•     Investment grade rated notes with blended fixed coupon of
approximately 6.4% in A tranche

•     Improved amortization expected to generate increased cash flows

 

Sustainability-Linked

 

Sustainable Fitch has again-provided a Second Party Opinion that the
instrument's Key Performance Indicators (the "KPIs") align with the
International Capital Markets Association (ICMA) framework for
sustainability-linked bond principles, highlighting Diversified's commitment
to aligning its financing with the Company's overall sustainability strategy.

( )

*ratings established by Fitch Ratings,Inc.

 

Commenting on the Acquisition and ABS transaction, CEO Rusty Hutson, Jr. said:

 

"We are excited to announce the completion of another acquisition of
high-quality, bolt-on assets that are uniquely positioned to benefit from the
operational expertise of our field teams, capture higher prices with exposure
to premium Transco Zone 5 pricing, and are poised to provide additional
revenues from the sale of incremental environmental credits with our growth in
the production of coal mine methane. We continue to believe there is a
sizeable backlog of organic Coal Mine Methane cash flow growth within our
current Appalachian portfolio, and this acquisition highlights our ability to
leverage existing capabilities, assets, and intellectual capital to grow this
segment of our revenue stream.

 

Brad Gray, CFO further commented:

 

Supported by a growing base of loyal credit investors, we are now a seasoned
programmatic issuer, and this ABS transaction achieved record demand with a
significant amount of interest from a large group of new participants.  This
strategic refinance improves asset level cash flow with higher hedge prices
and a  more refined amortization schedule. Our increasing operational scale,
track record of stable asset performance, and strength of our business enable
us to attract reliable sources of capital and achieve a lower overall cost of
capital. This outcome is a testament to how the financial markets value
Diversified's reliable production and consistent cash flows."

 

On the Securitization: Barclays Capital, Inc. acted as Sole Structuring
Advisor and Placement Agent, Mizuho Securities USA LLC, KeyBanc Capital
Markets Inc., and Legado Capital Advisors, LLC acted as Co-Placement Agents.

 

Detring Energy Advisors acted as the sell side advisor to Summit Natural
Resources.

 

Footnotes:

 (a)  Current production based on estimated average daily production for January

    2025; Estimate based on historical performance and engineered type curves for
      the Assets.
 (b)  Based on engineering reserves assumptions using historical cost assumptions
      and NYMEX strip as of October 28, 2024 for the twelve months ended December
      31, 2025.
 (c)  Adjusted EBITDA is a Non-IFRS measure. As presented for the ABS transaction,
      represents the twelve months ended February 28, 2026.  for more information,
      see "Use of Non-IFRS Measures".

For Company-specific items, refer also to the Glossary of Terms and/or
Alternative Performance Measures found in the Company's  2024 Interim Report
dated June 30, 2024 and Form 20-F for the year ended December 31, 2023 filed
with the United States Securities and Exchange Commission.

 

 

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
unique and 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). These
forward-looking statements, which contain the words "anticipate", "believe",
"intend", "estimate", "expect", "may", "will", "seek", "continue", "aim",
"target", "projected", "plan", "goal", "achieve", "opportunity" 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 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. Expected benefits of the
Acquisition and the ABS transaction, including the impact of the Acquisition
and the ABS transaction on the company's cash flows and cash margins, and the
Company's production of coal mine methane, may not be realized.
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 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
ability to control or estimate precisely, 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 and the risk factors described in Exhibit
99.2 to the Company's Form 6-K furnished with the SEC on January 27, 2025, in
each case filed with the United States Securities and Exchange Commission.
Forward-looking statements speak only as of their date and neither the Company
nor any of its 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. As a result, you are cautioned not to
place undue reliance on such forward-looking statements.

 

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.

 

EBITDA and 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 measures are is useful to an investor in evaluating our financial
performance because they (1) are widely used by investors in the natural gas
and oil industry as an indicator of underlying business  performance; (2)
help 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) with respect to Adjusted EBITDA, is used in the calculation of a key
metric in one of our Credit Facility financial covenants; and (4) are used by
us as a performance measure in determining executive compensation. We are
unable to provide a quantitative reconciliation of forward-looking EBITDA and
Adjusted EBITDA to the most directly comparable forward-looking IFRS measures
because the items necessary to estimate such forward-looking IFRS measures are
not accessible or estimable at this time without unreasonable efforts. The
reconciling items in future periods could be significant.

 

PV-10

 

PV-10 is a non-IFRS financial measure and generally differs from Standardized
Measure, the most directly comparable IFRS measure, because it does not
include the effects of income taxes on future net cash flows. While the
Standardized Measure is free cash dependent on the unique tax situation of
each company, PV-10 is based on a pricing methodology and discount factors
that are consistent for all companies. In this announcement, PV-10 is
calculated using NYMEX pricing. It is not practicable to reconcile PV-10 using
NYMEX pricing to standardized measure in accordance with IFRS at this time.
Investors should be cautioned that neither PV-10 nor the Standardized Measure
represents an estimate of the fair market value of proved reserves.

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