Diversified Energy Company · NYSE:DEC
Diversified Energy — FY2022 Earnings Presentation
54 slides from Diversified Energy's earnings presentation, March 2023
Slide 1: 2022 Final Results
2022 Final Results March 2023 DIV.energy
Slide 2: Disclaimer and Forward-Looking Statements
DISCLAIMER AND FORWARD-LOOKING STATEMENTS The information contained in this document (the "Presentation") has been prepared by Diversified Energy In furnishing this Presentation, the Company does not undertake or agree to any obligation to provide the recipient with Company PLC (“Diversified” or the
Slide 3: Who Are We: Operator of U.S. Onshore Developed Assets
WHO ARE WE: OPERATOR OF U.S. ONSHORE DEVELOPED ASSETS Appalachian Region: Appalachian Basin A differentiated business model Pennsylvania, West Virginia, Ohio, Kentucky, Virginia, Tennessee focused on: ~65% of Production PA Optimising long-life, low-decline producing assets OH Central Region: Str
Slide 4: Executing on Strategic Objectives in 2022
EXECUTING ON STRATEGIC OBJECTIVES IN 2022 Completed $566 million(a) in complementary acquisitions Expanded scale and capacity of Appalachian asset retirement Creating Long-Term Value From Enhanced operating scale, vertical integration in Central Region Acquired Production Advanced emissions redu
Slide 5: Hedging Strategy Mitigates Commodity Price Volatility
HEDGING STRATEGY MITIGATES COMMODITY PRICE VOLATILITY De-Risk Commodity Revenues Generate Robust Margins Sustain Shareholder Returns Differentiated hedging strategy mitigates Scale, asset density & vertical integration Shareholder returns are independent of commodity price risk by strategically redu
Slide 6: Enhancing Operating Scale and Efficiencies Through Acquisitions
ENHANCING OPERATING SCALE AND EFFICIENCIES THROUGH ACQUISITIONS $322 Million $566 Million of Complementary Acquisitions in 2022 Including Tanos Energy II (2023) East Texas Bolt-On ConocoPhillips Midstream Systems Asset Retirement Allocate value to PDP assets with Proximity to existing assets builds
Slide 7: Tanos Energy Acquisition Highlights
TANOS ENERGY ACQUISITION HIGHLIGHTS Acquisition Valuations Acquisition Highlights Purchase Price ($MM)(d) $250 ~PV17 2.3x ~PV28 20% 19% Estimated NTM EBITDA ($MM)(e) $107 Equivalent PDP PDP Purchase PDP+ Accretive to Accretive to Acquired PDP Reserves (MMBoe and Bcfe)(f) 25 / 152 Purchase Price Pric
Slide 8: Extracting Value on Undeveloped Acreage (Illustrative Example)
EXTRACTING VALUE ON UNDEVELOPED ACREAGE (ILLUSTRATIVE EXAMPLE) Monetization of economic locations Advantageous Joint Venture ~$25 million (50/50 split to Oaktree) and $8-$12 million carry on future development Accretive opportunity to add upside Realization of value for undeveloped acreage Substanti
Slide 9: 2022: Generating Cash Flow and Shareholder Returns
2022: GENERATING CASH FLOW AND SHAREHOLDER RETURNS $503 $178 $232 ~50% 18% 15% million million million Adjusted EBITDA Shareholder Returns Amortising Cash Margins FCF Yield(b) Current Debt Repayments(a) Dividend Yield(c) Peer-Leading 204% TSR Since 2017 IPO(d) Differentiated strategy sustains cash m
Slide 10: Natural Gas Macro
Natural Gas Macro DIV.energy
Slide 11: Growing Natural Gas Export Capacity
GROWING NATURAL GAS EXPORT CAPACITY Clean U.S. natural gas provides energy security to other nations and allows for a global reduction of emissions U.S. LNG Projects Under Construction Once completed, the three highlighted export projects will add ~6 billion cubic feet of export capacity by 2025 Cap
Slide 12: Renewables Buildout Requires Natural Gas Backstop
RENEWABLES BUILDOUT REQUIRES NATURAL GAS BACKSTOP Texas Hourly Power Generation (December 23, 2022) RELIABILITY OF BASE LOAD Natural Gas supported peak demand needs in Texas during Winter Storm Elliot Stepped up to fill ~70% of demand during hours when the sun wasn’t shining & wind power collapsed D
Slide 13: Increased Natural Gas Usage Drives Lower Emissions
INCREASED NATURAL GAS USAGE DRIVES LOWER EMISSIONS U.S. CO2 emissions declined ~35% with increased natural gas power generation U.S. Electric Power Generation CO2 Emissions vs. Natural Gas Market Share Coal to Natural Gas Switching 2.4 (metric tons CO2) Natural gas generation increased from 18% to 3
Slide 14: Meaningful Global Energy Demand from Fossil Fuels
MEANINGFUL GLOBAL ENERGY DEMAND FROM FOSSIL FUELS Natural Gas will be the most utilized fuel by 2043 and be a 26% share of energy demand in 2050 Global natural gas demand to increase by 36% Global Primary Energy Power Demand Trends by Fuel Type Driven by electricity demand, clean air policies, and c
Slide 15: We Share a Common Environment
WE SHARE A COMMON ENVIRONMENT 2020 CO2 Emissions (Gt) Need to address International Emissions: 2017 2020 • China’s emissions have grown meaningfully since 1990 including 7% since 2017 +7% 11.7 • U.S. represents only 18% of the five top emitting 10.9 counties/regions China’s coal power generation was
Slide 16: The Future of DEC
THE FUTURE OF DEC Resilient core business and seasoned management that leverages competencies into attractive opportunities with a track record of turning liabilities into assets and delivering returns Be the consolidator of Own the value chain through mature natural gas producing vertical integrati
Slide 17: Operational Updates
Operational Updates DIV.energy
Slide 18: Entering 2023 with Record Production and Reserves
ENTERING 2023 WITH RECORD PRODUCTION AND RESERVES Central Region Growth Drives Record Production PV10 Value of PDP Reserves per Share(c) 278% Premium to Current Share Price ~13 Mboepd added in 2022, ~60 Mboepd added since 2021 PDP PV10 per $3.29 ~35% production in 2022 from Central Region assets
Slide 19: Demonstrating Our Commitment to Sustainable Operations
DEMONSTRATING OUR COMMITMENT TO SUSTAINABLE OPERATIONS 2022 ESG and Sustainability Highlights Achieved OGMP 2.0 "Gold Standard “ for Emissions Reporting 2023 Emissions Reduction Initiatives 1 of 5 US operators to receive designation in 2022 Conducted ~174,000 Handheld Inspections for Fugitive Em
Slide 20: Executing Proven Acquisition Strategy to Drive Value
EXECUTING PROVEN ACQUISITION STRATEGY TO DRIVE VALUE Upstream Midstream Acquisitions Acquisitions Improving operating scale and density in the Central Region Enhancing margins and increasing control over product flow Added ~13 Mboepd of production and 49 MMboe of reserves 95% of system volumes f
Slide 21: Smarter Asset Management Provides Ongoing Value
SMARTER ASSET MANAGEMENT PROVIDES ONGOING VALUE Turn acquired idle wells back into production and cash flows RTP Wells ~340 wells RTP’d in Central Region during 2022 Value Added Workovers Return to Production Typically low-cost, high return RTP is accretive to deal economics Low Cost Average ~
Slide 22: Creating Value Across Operating Regions
CREATING VALUE ACROSS OPERATING REGIONS West Virginia Well (Hz) Multiple Operating Regions = Multiple Resource Pools Mcf/d Avg. Production Expansion to the Central Region increased the potential for 3,200 Prior Production After Optimisation knowledge-sharing and transfer of available inventory 2,700
Slide 23: Operational Insights Driven by Technology Investments
OPERATIONAL INSIGHTS DRIVEN BY TECHNOLOGY INVESTMENTS Well-Level Data Capture Cloud-Based Infrastructure Real-Time Monitoring Emissions Detection Data + Human interaction of Enables remote access to data, Leverage data visualization and Invest in connected emissions wellhead LTE connectivity, elimin
Slide 24: Next LVL Energy: Setting a New Standard for Retirement
NEXT LVL ENERGY: SETTING A NEW STANDARD FOR RETIREMENT Differentiated Outlook on Asset Retirement Stewardship from acquisition to retirement ensures sustainable operations for the lifetime of assets Positioned to Lead in Appalachian Asset Retirement Efficiencies Obtained through Operating Scale Full
Slide 25: Financial Highlights
Financial Highlights DIV.energy
Slide 26: 2022 Summary Financial Information
2022 SUMMARY FINANCIAL INFORMATION $1.9 Billion $(621) Million $1.4 Billion Total Revenue Net Loss Adj. EBITDA (Unhedged) 2021: $1.0 Billion 2021: $(325) Million 2021: $664 Million $1.0 Billion ~50% $503 Million Adj. Total Revenue Cash Margin Adjusted EBITDA 2021: $687 Million 2020: 50% 2021: $43 Mi
Slide 27: Built to Deliver Stable Margins Through Volatile Commodity Cycles
BUILT TO DELIVER STABLE MARGINS THROUGH VOLATILE COMMODITY CYCLES Realizing Consistent ~50% Margins Regional Cost Differences; Same Margins Increases to realized pricing generate stable margins amidst commodity price-driven cost inflation Central Region assets provide similar margins to Appalachia w
Slide 28: Hedging Strategy Underpins Full-Cycle Profitability, Cash Generation
HEDGING STRATEGY UNDERPINS FULL-CYCLE PROFITABILITY, CASH GENERATION Mitigating Price-Cycle Volatility Supporting Low-Cost Deleveraging Ensuring Shareholder Returns Hedging strategy has produced robust Selectively optimize portfolio to align with Enhance line-of-sight for long-term value Cash Margin
Slide 29: Strategically Layering Commodity Price Protection
STRATEGICALLY LAYERING COMMODITY PRICE PROTECTION Summary Natural Gas Hedging Position Rolling Hedge Coverage Targets(c) Average Hedge Floors in $/Mcf(a) % of Annual Production Hedged Open Production Volume 70-90% 1-12 Months 100% Hedged Maintain robust margins by reducing commodity price risk 90% 8
Slide 30: Simple, Low-Cost, Highly-Amortizing Structure
SIMPLE, LOW-COST, HIGHLY-AMORTIZING STRUCTURE Low, ~5% fixed rates provide Liquidity-enhancing long-term ESG-linked Financing(a) reflect cost of capital advantage financing alternative to RBL commitment to sustainability Leverage(b) 2.1x 2.0x 2.0x 2.2x 2.1x 2.2x Adj. EBITDA(b) $27 $246 $319 $334 $49
Slide 31: Outlook & Closing Remarks
Outlook & Closing Remarks DIV.energy
Slide 32: The Future of DEC
THE FUTURE OF DEC Resilient core business and seasoned management that leverages competencies into attractive opportunities with a track record of turning liabilities into assets and delivering returns Be the consolidator of Own the value chain through mature natural gas producing vertical integrati
Slide 33: Diversified Brokers
DIVERSIFIED BROKERS Corporate Tennyson Stifel Peel Hunt PO Box 381087 Tennyson Securities Stifel Nicolaus Europe Ltd Peel Hunt LLP Birmingham, Alabama 65 Petty France 150 Cheapside 100 Liverpool Street 35238-1087 (USA) London SW1H 9EU London EC2V 6ET London EC2M 2AT div.energy chton@peelhunt.com Dou
Slide 34: Appendix
Appendix DIV.energy
Slide 35: Diversified Energy Profile
DIVERSIFIED ENERGY PROFILE LSE: DEC (FTSE250) Hedge strategy reduces sensitivity to $6.64 Average Henry Hub Price ($/MMBtu) Market and Trading Summary | 10 March 2023 commodity price volatility (in millions, except share price) 54% Cash Margins (Hedged) 53% 53% 50% ~50% Share Price £0.98 / $1.18 40%
Slide 36: Historical Operating Expenses by Nature
HISTORICAL OPERATING EXPENSES BY NATURE Appalachia Partially Includes Fully Includes Only Central Region Central Region $10.41 Runway to Replicate Efficiencies of Scale ($1.73/Mcfe) $/Boe Central Region consolidation creates opportunity to $1.56 reduce unit costs, replicate success in Appalachia $7.
Slide 37: Amortising Debt Structures Drive Disciplined Repayment
AMORTISING DEBT STRUCTURES DRIVE DISCIPLINED REPAYMENT Key Attributes for Diversified Ability to scale financing through additional ABS issuances $232 Long-term hedging provides cash flow stability for consistent repayment Diversified retains 100% operational control of assets $270 ESG-linke
Slide 38: Commodity Derivatives Portfolio (as of 10 March 2023)
COMMODITY DERIVATIVES PORTFOLIO (AS OF 10 MARCH 2023) Natural Gas $3.83/Mcf $3.32/Mcf $3.23/Mcf 2023 2024 2025 Annual Summary(a) ~85% Hedged ~80% Hedged ~70% Hedged Natural Gas Financial Derivatives Contracts Natural Gas (MMBtu, $/MMBtu) 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 FY23 FY24 FY25 FY26 NY
Slide 39: Commodity Derivatives Portfolio (as of 10 March 2023)
COMMODITY DERIVATIVES PORTFOLIO (AS OF 10 MARCH 2023) NGLs $37.37/bbl $38.25/bbl $30.22/bbl 2023 2024 2025 Annual Summary(a) ~ 70% Hedged ~ 50% Hedged ~35% Hedged Oil $69.31/bbl $62.54/bbl $59.01/bbl 2023 2024 2025 Annual Summary(a) ~ 70% Hedged ~ 40% Hedged ~35% Hedged Natural Gas Physical Contract
Slide 40: Illustrative: 50 Year Complete Portfolio Retirement Scenario
ILLUSTRATIVE: 50 YEAR COMPLETE PORTFOLIO RETIREMENT SCENARIO $8.0 billion in Free Cash Flows provide ~$4.8 billion in dividend potential while also repaying all debt outstanding Dividend potential is a ~4x and generating sufficient Free Cash Flows to retire all wells without the use of a sinking fun
Slide 41: Emissions Reporting Focused on a Higher Global Standard - OGMP 2.0
EMISSIONS REPORTING FOCUSED ON A HIGHER GLOBAL STANDARD- OGMP 2.0 What is OGMP 2.0? Differentiated Natural Gas Voluntary framework of collaborative parties Systematically reduce Scope 1 emissions from the “The Gold Standard” gas & oil value chain Awarded November 2022 Includes both operated an
Slide 42: Driving Value Through Accretive Acquisitions
DRIVING VALUE THROUGH ACCRETIVE ACQUISITIONS Apply industry leading Smart Asset Management (SAM) on larger PDP base without balance sheet stress Appalachia OK Central PA OH WV ~$2.5 Billion TX LA 21 acquisitions since VA 2017 IPO KY TN Central Region Midstream East Texas Upstream NGO 2001 2016 2017
Slide 43: Growth via Acquisition with Low-Risk Upside
GROWTH VIA ACQUISITION WITH LOW-RISK UPSIDE Market Volatility & Dislocation = Opportunity Set Utilise track record of underwriting, More economic to buy reserves which yields low capital buying and managing undervalued expenses, ability to return cash to shareholders and assets as a competitive adva
Slide 44: Offsetting Costs with Margin on Third Party Retirement Services
OFFSETTING COSTS WITH MARGIN ON THIRD PARTY RETIREMENT SERVICES Multi-stream revenue generation creates potential to significantly offset future retirement cash costs Supplementary Revenue Streams Maximizing utilisation and building plugging experience by providing third party services Illustrative
Slide 45: Supplemental Information
Supplemental Information DIV.energy
Slide 46: Audited Financial Statements
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Year-Ended 31 December 2022 31 December 2021 Revenue $ 1,919,349 $ 1,007,561 Operating expense (445,893) (291,213) Depreciation, depletion and amortization (222,257) (167,644) Gross profit 1,251,199
Slide 47: Audited Financial Statements
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 31 December 2022 31 December 2021 31 December 2022 31 December 2021 ASSETS EQUITY AND LIABILITIES Shareholders' equity: Non-current assets: Share capital $ 11,503 $ 11,571 Natural gas and oil properties, net $ 2,555,808 $ 2,5
Slide 48: Audited Financial Statements
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOW Year Ended Year Ended 31 December 2022 31 December 2021 31 December 2022 31 December 2021 Cash flows from investing activities: Cash flows from operating activities: Income (loss) after taxation $ (620,598) $ (325,206) Consideration f
Slide 49: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Adjusted EBITDA and Adjusted EBITDA per Share As used herein, EBITDA represents earnings before interest, taxes, depletion, depreciation and amortisation. Adjusted EBITDA includes adjusting for items that are not comparable period-over-period, namely, accr
Slide 50: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Net Debt and Net Debt-to-Adjusted EBITDA As used herein, Net Debt represents total debt as recognised 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
Slide 51: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Total Revenue, Inclusive of Hedges and Adjusted EBITDA Margin As used herein, Total Revenue, Inclusive of Hedges, includes the impact of derivatives settled in cash. We believe that Total Revenue, Inclusive of Hedges is a useful because it enables investor
Slide 52: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) 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 abi
Slide 53: Revenue Reconciliation (Non-IFRS)(Unaudited)
REVENUE RECONCILIATION (NON-IFRS)(UNAUDITED) Per Unit FY21 1Q22 2Q22 3Q22 4Q22 FY22 Units FY21 1Q22 2Q22 3Q22 4Q22 FY22 Production: Natural gas (MMcf) 234,643 62,419 64,979 64,344 63,854 255,597 Oil (MBbls) 592 385 401 378 390 1,554 NGL (MBbls) 3,558 1,258 1,343 1,283 1,317 5,200 Total MBOE 43,257 1
Slide 54: Expense Reconciliation (Non-IFRS)(Unaudited)
EXPENSE RECONCILIATION (NON-IFRS)(UNAUDITED) Per Unit FY21 1Q22 2Q22 3Q22 4Q22 FY22 Units FY21 1Q22 2Q22 1H22 3Q22 Q4 FY22 Production: Natural gas (MMcf) 234,643 62,419 64,979 64,344 63,854 255,597 Oil (MBbls) 592 385 401 378 390 1,554 NGL (MBbls) Total MBOE 3,558 43,257 1,258 12,046 1,343 12,574 1,
Diversified Energy Company — FY2022 Earnings Presentation on 6ix