Diversified Energy Company · NYSE:DEC
Diversified Energy — Diversified Gas & Oil — FY2020 Earnings Presentation
52 slides from Diversified Energy's earnings presentation, Mar 8, 2021
Slide 1: Final Results
Final Results Rusty Hutson, Jr. | Co-Founder & CEO Brad Gray | Executive Vice President & COO Eric Williams | Executive Vice President & CFO 8 March 2021
Slide 2: Disclaimer
DISCLAIMER The information contained in this document (the "Presentation") has been prepared by Diversified Gas & Oil PLC (the "Company”). This Presentation is not to be copied, published, reproduced, distributed or passed in whole or in part to any other person or used for any other purpose. This P
Slide 3: Company Information
COMPANY INFORMATION For the latest news and financial information, please visit www.dgoc.com About Diversified Gas & Oil PLC Diversified Gas & Oil (“DGO”) is a leading, independent energy company Market and Trading Summary (as of 3 March 2021) engaged in the production, marketing and transportation
Slide 4: Executive Summary
Executive Summary Rusty Hutson, Jr. | Co-Founder & CEO “A relentless focus on operational excellence across our portfolio continues to serve as the bedrock of our stable performance.” Rusty Hutson, Jr. 8 March 2021 Final Year End Results RNS
Slide 5: 2020 Highlights
2020 HIGHLIGHTS Milestones Full-year average daily net production of ~100 Mboepd, up 18% • December 2020 consolidated exit rate of 103 Mboepd (617 MMcfepd), 8% increase YOY • Exit rate of 105 Mboepd (628 MMcfepd) adjusting for temporary downtime(a) • Smarter Asset Management held average production
Slide 6: Track Record of Success Since 2017 IPO
TRACK RECORD OF SUCCESS SINCE 2017 IPO Low Decline Assets = Hedge Strategy = Low Leverage + Liquidity = Stable Production High Cash Margins & Reliable Dividend Strong Balance Sheet ~7% Corporate Production Decline ~70% Compounded annual dividend growth Dividends per Share(c) (1H20 exit to 2H20 exit,
Slide 7: Executing Strategy of Delivering Returns
EXECUTING STRATEGY OF DELIVERING RETURNS Hedge to Limit Downside Risk Distribute Shareholder Returns Protect realised price with dynamic, long-term and Provide dividend distributions at ~40% of Free Cash Flows(a) opportunistic strategy Generate Strong Free Cash Flow Safeguard the Balance Sheet Produ
Slide 8: Business Model Naturally Aligns with ESG
BUSINESS MODEL NATURALLY ALIGNS WITH ESG Culture & Strategy Focused On Stewardship Focus on low-cost, low-decline, lower carbon DGO diligences natural gas, synergistic upstream and environmental, emissions, Acquire complementary midstream assets at accretive and social considerations valuations of a
Slide 9: Good ESG Is Good Business
GOOD ESG IS GOOD BUSINESS DNA of Diversified Smarter Asset Hedge Safe & Systematic Management Programme Well Retirement Optimised Operations Protected Cash Flows Responsible Retirement • Improved production and • Reliable dividends for • Regulatory compliance and expense efficiency shareholders enga
Slide 10: Operations Highlights
Operations Highlights Brad Gray | Executive Vice President & COO Small Gains add up to BIG WINS
Slide 11: DGO Commitment: Identify, Improve, Monitor
DGO COMMITMENT: IDENTIFY, IMPROVE, MONITOR Progress by the Numbers Environmental Social Governance Total CO2e GHG Emissions Total Recordable Preventable Motor Board Diversity Executive Comp Reported(a) Intensity(b) Incident Rate Vehicle Accidents % Female tied to ESG/EHS 27% 37% 34% 1.0 per million
Slide 12: Smarter Asset Management Works
SMARTER ASSET MANAGEMENT WORKS The Evolution of an Operating Philosophy Upstream SAM Contribution Same Philosophy, Expanded Asset Base Smarter Smarter Wells & 70.0 (a) Well Asset Midstream 69.0 70.0 Management Management $58 “Na Cumulative tura l” P Incremental r odu (b) c tion Million Adj Revenue D
Slide 13: Smarter Asset Management in Action
SMARTER ASSET MANAGEMENT IN ACTION Smarter Asset Management Tangible Examples Pennsylvania Pipeline Acquired Shut-In Wells Pennsylvania Pump Jack Creative Sustainability Proactively engage with midstream Turn in line previously inactive wells Pump jack installation increased Vinegar solution replaci
Slide 14: Accretive Acquisitions and SAM Drive Results
ACCRETIVE ACQUISITIONS AND “SAM” DRIVE RESULTS Annual Average Dec Exit Rate(a) Current(b) Production Mix +18% +10% Oil 105 NGLs 100 28 95 Natural 26 Gas ~99% 25 85 15 Unconventional Low Carbon Daily Production (Mboepd) 74 77 Natural Gas and NGLs Conventional 70 70 Year-End PDP Reserves 607 $1.9B 31
Slide 15: Highly Transferable Business Model
HIGHLY TRANSFERABLE BUSINESS MODEL PEOPLE PROCESS SYSTEMS Retain a skilled workforce Promote knowledge sharing Consolidate and modernise Foster a culture of excellence Smarter Asset Management Invest in cloud architecture and digitial automation $1.7 BILLION IN ACQUISITIONS DEMONSTRATES DGO’S ROLE A
Slide 16: Enhancing Operations with Big Data
ENHANCING OPERATIONS WITH BIG DATA cy Consistent Business Efficient Acquisition en D ev st si el Processes Integration on op C Sc y, a nc la ie bl fic e Consolidate Applications, ,F Ef le Enterprise Systems l xi na bl tio e ra IT pe Pl O at fo e nc m r ha En Invest in Cloud Based Enhance Cybersecuri
Slide 17: Safely & Systematically Retiring Wells
SAFELY & SYSTEMATICALLY RETIRING WELLS Numbers Reflect A Commitment to Stewardship, Partnership Plugging Minimally Impactful to Cash Flow West Virginia Kentucky Ohio Pennsylvania $2.4MM 80 Required 20 20 20 20 Annual Plugs Cash Impact of Plugging Costs <1% of 2020 Adj. EBITDA(a) 20 20 22 26 4 92 Com
Slide 18: Financial Highlights
Financial Highlights Eric Williams | Executive Vice President & CFO Resilient Cash Flow Underpins Shareholder Returns
Slide 19: Exceptional Results in a Challenging Environment
EXCEPTIONAL RESULTS IN A CHALLENGING ENVIRONMENT Model Proven Successful in Efficiencies and Scale Low Capital Intensity = Low Price Environment Produce Strong Margins Higher Distributions $600 $553 $(253) $8.00 $400 $MM $/MMBtu $6.00 $301 $200 $4.00 2020 NYMEX Avg: $2.13/MMBtu 1998 NYMEX Avg: $2.16
Slide 20: Delivering Cash Flow
DELIVERING CASH FLOW Capital Allocation Strategy 2020 Since IPO (b) Distributions Dividend 25%40% FCF Dividend Payout $115 MM Benefiting $287 MM Ratio target distinguishes Shareholders Distributions(a) DGO in the E&P space $99 $218 Equity Share Opportunistically combine with dividends to deliver $69
Slide 21: Scale & SAM Drive Down Per-Unit Cash Costs
SCALE & “SAM” DRIVE DOWN PER-UNIT CASH COSTS $8.55 ($1.43/Mcfe) 10% $7.71 Efficiencies of scale and added $/Boe ($1.28/Mcfe) 10% $6.92 1 unconventional production lowers $1.34 ($1.15/Mcfe) Base LOE by 47% since 2018 $1.17 $1.00 $1.33 $0.68 $1.42 3 Gathering and transportation, $0.80 $1.45 2 producti
Slide 22: Scale & Price Strategy Protects Margins
SCALE & PRICE STRATEGY PROTECTS MARGINS Despite ~30% Decrease in NYMEX Prices, $3.07 we’ve maintained High Margins Forward Price Recovery Enhances Cash Flow Prospects & Hedging Opportunities $2.53 $2.13 Current futures prices for REM21 and 2022 higher We’ve increased Adjusted Total Revenue(a) than o
Slide 23: Midstream Delivers Additional Value
MIDSTREAM DELIVERS ADDITIONAL VALUE 51% Lower Cost(a) Vertical Integration Enhances Margins $0.75 Transporting ($/Mcfe) $0.37 ~50% $0.14 Predictable 3rd-Party DGO Volumes Access Better Markets and Additional End Users Midstream Revenue $0.23 3rd-Party Rate Net Owned Midstream Cost(a) Revenue Pricing
Slide 24: Low Capital Intensity Production Replacement
LOW CAPITAL INTENSITY PRODUCTION REPLACEMENT Low decline assets and disciplined acquisition valuation minimise capital investment intensity and contribute to shareholder distribution strategy ILLUSTRATIVE EXAMPLE: Net Daily Production Corporate Declines Acquisition Capital Hedged Adj. Revenue(b) $ 2
Slide 25: Commitment to Debt Reduction
COMMITMENT TO DEBT REDUCTION Highlights Consolidated Financial Position 31 Dec 2020 (dollars in $ millions) Credit Facility $ 213 >70% of debt in fully amortising instruments Amortising Debt 528 Other Debt 5 Amortising debt instruments eliminate bullet maturities Total Long-Term Debt $ 746 Average i
Slide 26: Hedging to Protect Cash Flows
HEDGING TO PROTECT CASH FLOWS Natural Gas Hedge Positions(a) CY2021 ($/Mcf) ~90% Always Protecting Robust Hedge Portfolio Hedged our Downside Protects Cash Flows $2.94 Avg Floor Hedges Provide Visibility Clarity Facilitates Dividend Into Future Cash Flows & Capital Planning CY2022 ($/Mcf) ~60% And I
Slide 27: Closing and Outlook
Closing and Outlook Rusty Hutson, Jr. | Co-Founder & CEO Uniquely Placed to Capitalise On Generational Growth Opportunites
Slide 28: Partnering with Oaktree Capital Management
PARTNERING WITH OAKTREE CAPITAL MANAGEMENT Participation Agreement Highlights M&A Market Ripe with Acquisition Opportunities Oaktree Working Interest Commitment $1 Billion(a) STRATEGIC Commitment Term 3 years Active, healthy M&A environments lead to Funding Allocation DGO: 50.0% divestiture of non-c
Slide 29: Strategic Priorities
STRATEGIC PRIORITIES Protect Future Cash Flows Opportunistically increase hedge protection for 2022-23 Maintain Disciplined Growth Strategy Uphold commitment to a strong Balance Sheet Progress Sustainability Initiatives Reduce GHG emissions and expand TCFD disclosures 29 8 March 2021 29 2020 Final R
Slide 30: Why Invest in Diversified?
WHY INVEST IN DIVERSIFIED? Stable Cash Flows Support Reliable Dividend Integrated Operations Provide Low Cost Structure Strong Balance Sheet Underpinned by Low Leverage Low Average Corporate Decline of ~7% 30 Low Capital Intensity of Owned Assets 8 March 2021 30 2020 Final Results
Slide 31: Diversified Brokers
DIVERSIFIED BROKERS Corporate Tennyson Stifel PO Box 381087 Tennyson Securities Stifel Nicolaus Europe Ltd Birmingham, Alabama 65 Petty France 150 Cheapside 35238-1087 (USA) London SW1H 9EU London EC2V 6ET www.dgoc.com Teresa Odom Peter Krens Ashton Clanfield VP Investor Relations peter.krens@tennys
Slide 32: Appendix
APPENDIX 32 8 March 2021 32 2020 Final Results
Slide 33: Glossary of Terms
GLOSSARY OF TERMS $/Boe: dollars per barrel of oil equivalent $/Mcfe: dollars per thousand cubic feet equivalent Adjusted G&A: total administrative expenses less non-recurring and/or non-cash acquisition and integration costs plus recurring allowances for expected credit losses; refer also to the ‘A
Slide 34: Glossary of Terms
GLOSSARY OF TERMS LOE: lease operating expense, including base LOE, production taxes and gathering & transportation expense Legacy: upstream assets (wells) owned at 31 December 2018; production from these assets is primarily from conventional sources such that “conventional production” and “Legacy p
Slide 35: Commodity Derivatives Portfolio (Consolidated)
COMMODITY DERIVATIVES PORTFOLIO (CONSOLIDATED) AS OF 04 MARCH 2021 (NATURAL GAS AMOUNTS PRESENTED IN MMBTU(c)) Natural Gas Financial Derivatives Contracts Natural Gas (MMBtu, $/MMBtu) 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 FY21 FY22 FY23 FY24 NYMEX NG Swaps(a) Volume 49,706,549 49,521,000 48,432,00
Slide 36: Built to Deliver Strong Margins
BUILT TO DELIVER STRONG MARGINS Illustrative All-In DGO Cash Costs(a) Net Realised Cash Fully-Loaded Free Cash ($/Mcfe) Price per Mcfe Margin(b) Cash Margin Flow Yield(e) OpEx + G&A … + CapEx + Interest Operating Expense $0.93 Recurring G&A $0.22 $2.00 43% 31% 15% $0.85 $0.62 (b) Total Cash Costs $1
Slide 37: Reserves Rollforward
RESERVES ROLLFORWARD PDP Reserve Increases: 44MMBoe and PV10 $78MM $1.86B $1.94B Net 1P Developed Reserves Consolidated Conventional Unconventional PV10 Gas, Bcf 3,248 2,349 900 121 NGL, MMbbl 60 60 0 1 607 563 (1) Oil, MMbbl 5 5 0 (41) Total 1P Reserves, MMBOE 607 457 150 (37) Total 1P Reserves, Bc
Slide 38: Valuing the Asset Retirement Programme
VALUING THE ASSET RETIREMENT PROGRAMME PV Analysis Bridging to the Balance Sheet ARO Rollforward Net Cash Flow (Field Level) $112 Asset Retirement Obligation ~ 4:1 $ MM $42 $286 $(8) $346 $346 $5,728 $200 $2,118 $1,569 $60 $60 ARO 3.7% Net ARO @ ARO @ Retirements Additions & Revisions ARO @ Undiscou
Slide 39: Year History of Successful Growth
20 YEAR HISTORY OF SUCCESSFUL GROWTH LSE Premium Listing Pre-IPO represents <3% of current operations Net ~105,000(a) Boepd Net ~95,000 Boepd IPO on AIM Home to 98% of DGO wells Net ~70,000 Boepd Other Net Headquarters ~10,400 Boepd Assets in Net 3,000 Boepd OH, PA Gross Eclipse 1,800 Boepd Gross Re
Slide 40: Understanding Our Unconventional Assets
UNDERSTANDING OUR UNCONVENTIONAL ASSETS Developer / Seller Produces DGO Purchases + Efficiently Produces Hyperbolic (“Steep”) Declines Exponential (“Terminal”) Declines Mcfpd = Volatile Production = Stable Production 50+ years remaining life 0 12 24 36 48 60 72 84 96 108 120 Months Unconventional Co
Slide 41: The DGO Difference
THE DGO DIFFERENCE PERCEPTION REALITY Cash wise Cash deficient Cash used to paydown LIBOR+ revolving credit facility rather with a limited cash position on the balance sheet than generating minimal earnings at <1% An Appalachian Basin pure-play Basin agnostic A basin-focused company with geographica
Slide 42: Appendix: Supplemental Schedules
APPENDIX Supplemental Schedules for the Year Ended 31 December 2020 42 8 March 2021 42 2020 Final Results
Slide 43: Audited Financial Statements
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Audited for the Year Ended 31 December 2020 31 December 2019 Revenue $ 408,693 $ 462,256 Operating expense (203,963) (202,385) Depreciation, depletion and amortisation (117,290) (98,139) Gross profi
Slide 44: Audited Financial Statements
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Audited as at Audited as at 31 December 2020 31 December 2019 31 December 2020 31 December 2019 ASSETS EQUITY AND LIABILITIES Non-current assets: Shareholders' equity: Natural gas and oil properties, net $ 1,755,085 $ 1,496,0
Slide 45: Audited Financial Statements
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOW Audited for the Year Ended Audited for the Year Ended 31 December 2020 31 December 2019 31 December 2020 31 December 2019 Cash flows from operating activities: Cash flows from investing activities: Income (loss) after taxation $ (23,4
Slide 46: Non-IFRS & Other Reconciliations: Revenue
NON-IFRS & OTHER REVENUE RECONCILIATION RECONCILIATIONS Per Unit FY19 1Q20 2Q20 1H20 3Q20 4Q20 FY20 Unit FY19 1Q20 2Q20 1H20 3Q20 4Q20 FY20 Production: Natural gas (MMcf) 166,377 45,391 48,652 94,043 53,935 51,689 199,667 Oil (MBbls) 407 98 92 190 115 112 417 NGL (MBbls) 2,807 707 746 1,453 708 682
Slide 47: Non-IFRS & Other Reconciliation: Expense
NON-IFRS & OTHER EXPENSE RECONCILIATION RECONCILIATION Per Unit FY19 1Q20 2Q20 1H20 3Q20 4Q20 FY20 Unit FY19 1Q20 2Q20 1H20 3Q20 4Q20 FY20 Production: Natural gas (MMcf) 166,377 45,391 48,652 94,043 53,935 51,689 199,667 Oil (MBbls) 407 98 92 190 115 112 417 NGL (MBbls) 2,807 707 746 1,453 708 682 2
Slide 48: Adjusted EBITDA Reconciliation
NON-IFRS & OTHER RECONCILIATION ADJUSTED EBITDA RECONCILIATION 2019 2020 FY19 1Q20 2Q20 1H20 3Q20 4Q20 FY20 Adjusted EBITDA (hedged) $ 273,266 $ 78,311 $ 67,993 $ 146,304 $ 75,123 $ 79,163 $ 300,590 Depreciation and depletion (98,139) (26,961) (28,875) (55,837) (30,199) (30,542) (116,578) Amortizati
Slide 49: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) DGO uses APMs to improve the comparability of information between reporting periods and to more accurately evaluate cash flows, either by adjusting for uncontrollable or non-recurring factors or, by aggregating measures, to aid the users of this investor p
Slide 50: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Hedged Adjusted EBITDA and As used herein, EBITDA represents earnings before interest, taxes, depletion, depreciation and amortisation. Hedged Adjusted EBITDA includes adjustments for non-recurring and non-cash items such as Unhedged Adjusted EBITDA gain o
Slide 51: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Net Debt, Net Debt-to-Hedged As used herein, Net Debt represents total debt as recognised on the balance sheet less cash and restricted cash. Total debt includes DGO’s current portion of debt, Credit Facility borrowings and term Adjusted EBITDA loan borrow
Slide 52: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Free Cash Flow and As used herein, Free Cash Flow represents Hedged Adjusted EBITDA less recurring capital expenditures, asset retirement costs and cash interest expense. The Directors believe that Free Cash Flow is a Free Cash Flow Yield useful indicator