Diversified Energy Company · NYSE:DEC
Diversified Energy — Diversified Gas & Oil — H1 2020 Earnings Presentation
49 slides from Diversified Energy's earnings presentation, Aug 10, 2020
Slide 1: 2020 Interim Results
2020 INTERIM RESULTS 10 August 2020
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: Focused Execution in a Challenging Environment
FOCUSED EXECUTION IN A CHALLENGING ENVIRONMENT 1H20 ACTIVITIES DELIVER STRONG RESULTS 55% Operational efficiency and dynamic hedging strategy Adj. EBITDA • Low cash OpEx and G&A costs of $7.05/boe ($1.17/Mcfe) Cash Margin(a) • Average 2020 hedge floor of $2.69/MMBtu 32% Low declines and stable, hedg
Slide 4: Creating Differentiated Value
CREATING DIFFERENTIATED VALUE • June 2020 exit rate net production ~109 Mboepd; Update Map Legacy assets ~70 Mboepd during 1H20 • 2Q20 interim dividend of 3.75¢/shr (+7% vs 1Q20) • Completed transition to Premium Segment of the London Stock Exchange Pennsylvania • Acquired $235MM(a) upstream & midst
Slide 5: What We Do: An Integrated Business Model
WHAT WE DO: AN INTEGRATED BUSINESS MODEL ACQUIRE, OPTIMISE, PRODUCE AND TRANSPORT utilise owned midstream to maximise efficiencies Optimise, Produce, Transport Acquire • Target low-cost, long-life, low-decline production • Deploy rigorous field management programmes • Focus on high-quality assets wi
Slide 6: Operations Overview
sd DIVERSIFIED GAS & OIL PL C OPERATIONS OVERVIEW
Slide 7: Acquire, Optimise, Produce Model Delivers
ACQUIRE, OPTIMISE, PRODUCE MODEL DELIVERS RECORD PRODUCTION EXCEEDS 100 MBOEPD Net Production (Mboepd) 109.0 D A Steady Contribution from Legacy Assets 93.7 95.1 C 18.7 Legacy asset production maintained at ~70 Mboepd 3.9 for 8th consecutive quarter(a) 75.7 23.7 21.9 20.9 B 6.3 B Unconventional Asse
Slide 8: Vertical Integration Model
VERTICAL INTEGRATION MODEL MIDSTREAM ASSETS ENHANCE UPSTREAM ASSET VALUES & RAISE CASH MARGINS BY PROVIDING: Flow Assurance Pricing Optionality Revenue Generation Allows control of owned Generates increased realised Provides third‐party revenue production to desired end prices by moving volumes to f
Slide 9: Corporate Responsibility Update
CORPORATE RESPONSIBILITY UPDATE CONTINUING TO SERVE ALL OUR STAKEHOLDERS ENVIRONMENTAL SOCIAL GOVERNANCE Well Retirement Education Assistance Programme Risk Management DGO helped craft and financially DGO recently added a college tuition DGO places significant emphasis on our support enacted W. Virg
Slide 10: 2020 Acquisition Update
2020 ACQUISITION UPDATE INTEGRATED BUSINESS MODEL MAXIMISING CONSOLIDATED VALUE Workforce Synergies Reduce Immediate, Ongoing Operating Expenses 25% $600K UPSTREAM decreased payroll expense(a) in annual savings (b) Attributable to workforce Following transition of rationalisation and previously cont
Slide 11: Enhancing Acquisition Economics
ENHANCING ACQUISITION ECONOMICS APPLICATION OF SMARTER ASSET MANAGEMENT GENERATES CONTINUING VALUE Asset portfolio fully aligns with DGO’s historically stated objective to: Acquire high‐quality assets with synergistic opportunities, whether upstream or midstream EQT Water Disposal Cost Savings CARBO
Slide 12: Smarter Asset Management
SMARTER ASSET MANAGEMENT CONTINUOUS OPPORTUNITIES MAXIMISE PRODUCTION, MINIMISE COSTS Tank Replacement Line Loss Repair Well Hookup Asset Consolidation Improve control of gas fluid ratio to Repair 10” steel line to prevent line loss, Finalise gathering arrangements & turn Reduce/consolidate compress
Slide 13: Financial Overview
sd DIVERSIFIED GAS & OIL PL C FINANCIAL OVERVIEW
Slide 14: DGO Stands Out Among E&Ps and Majors
DGO STANDS OUT AMONG E&PS AND MAJORS STRATEGY REMAINS FOCUSED ON GENERATION OF CASH AND RETURNS Free Cash Flow Yield(a) Dividend Yield North American E&Ps and Majors(b) North American E&Ps and Majors(b) 67 Appalachian Producer 67 Positive Free Cash Yield Regular Dividend Payers 28 32 Appalachian E&P
Slide 15: Robust Hedging Protects Acquisitive Growth
ROBUST HEDGING PROTECTS ACQUISITIVE GROWTH DYNAMIC HEDGE PROGRAMME PROVIDES STABILITY IN VOLATILE COMMODITY MARKET Historical Hedge Book Provided Forward Price Recovery Presents Significant Downside Protection Further Opportunity for Value $3.27 $2.89 $2.92 $3.01 $2.74 $2.68 $2.73 $2.81 $2.55 $2.48
Slide 16: Unit Cost Profile Generates Significant Margins
UNIT COST PROFILE GENERATES SIGNIFICANT MARGINS LEVERAGING SCALE TO PROVIDE FOUNDATION FOR CASH FLOW AND RETURNS Adj. EBITDA Unhedged Unhedged Unhedged 54% 52% 53% 44% 55% 34% Margin $9.58/Boe ($1.60/Mcfe) $8.23/Boe ($1.37/Mcfe) $8.45/Boe ($1.41/Mcfe) Scale Drives Low Base LOE Cost per Unit Breakdow
Slide 17: Built to Operate in Any Price Environment
BUILT TO OPERATE IN ANY PRICE ENVIRONMENT DECREASING UNIT COSTS, EFFECTIVE HEDGE PROGRAMME PROVIDE MARGIN STABILITY Lower Costs Drive Stable Margins $2.20 53% 53% 55% 43% Total Cash Costs ($/Mcfe) Protecting Shareholder Returns with $2.00 Dynamic and Long‐Term Hedge Programme $1.80 $1.79 Free Cash F
Slide 18: Commodity Derivatives Portfolio - Consolidated
COMMODITY DERIVATIVES PORTFOLIO - CONSOLIDATED AS OF 31 JULY 2020 Philosophy: Gas 91% of Total Production(a) Floor Price Percent of • Aggressively hedge production to protect cash Period MMBtu/Day (per MMBtu) Production(b) flows and support future dividends, debt 2H20 456,979 $2.69 15,815 ~80% repay
Slide 19: Financial Discipline and Return of Capital
FINANCIAL DISCIPLINE AND RETURN OF CAPITAL FOCUS ON LOW FINANCING COST AND ALIGNMENT WITH CORPORATE STRATEGY Highlights Capital Structure Aligning capital structure with business model (in Millions) 30 Jun 2020 Debt Structure Liquidity Asset backed structures complement asset profile Cash $7 ~$2
Slide 20: Results of Spring Borrowing Base
RESULTS OF SPRING BORROWING BASE REAFFIRMED AT $425 MILLION WITH NO CHANGES TO PRICING OR TERMS Spring Borrowing Base Redetermination Key Takeaways Borrowing Base Reduction from Prior(a) • DGO Borrowing Base reaffirmed at $425 0% 0% 0% MM by 17‐member bank syndicate, despite challenging energy lendi
Slide 21: Outlook and Investment Thesis
OUTLOOK AND INVESTMENT THESIS
Slide 22: Strategic Near-Term Priorities
STRATEGIC NEAR-TERM PRIORITIES Integration Protection Discipline Focus Exposure Complete Monitor commodity Maintain disciplined Identify and Target September integration of EQT & markets, hedging approach to maximise entry into FTSE250 Carbon asset opportunistically to acquisition growth opportuniti
Slide 23: DGO: A Compelling Investment
DGO: A COMPELLING INVESTMENT A SIMPLE STRATEGY DELIVERING TANGIBLE RESULTS 55% Adj. EBITDA Cash Margin Operational efficiency and dynamic hedge strategy support strong margins 32% Free Cash Flow Yield Result of low‐decline production and vertical integration ~12% Dividend Yield Corporate dividend po
Slide 24: Diversified Brokers and Corporate Contacts
DIVERSIFIED BROKERS Corporate Mirabaud Stifel PO BOX 381087 MIRABAUD SECURITIES LIMITED STIFEL NICOLAUS EUROPE LTD BIRMINGHAM, ALABAMA 10 BRESSENDEN PLACE 150 CHEAPSIDE 35238-1087 (USA) LONDON SW1E 5DH LONDON EC2V 6ET WWW.DGOC.COM TERESA ODOM PETER KRENS ASHTON CLANFIELD VP INVESTOR RELATIONS PETER.
Slide 25: Glossary of Terms
GLOSSARY OF TERMS $/Boe: dollars per barrel of oil equivalent $/Mcfe: dollars per thousand cubic feet equivalent ABS: Asset Backed Security; a financing arrangement which is collateralised by a working interest share of certain upstream assets Adjusted EBITDA: earnings before interest, taxes, deplet
Slide 26: Glossary of Terms
GLOSSARY OF TERMS Midstream: a segment of the oil and gas industry that focuses on the processing, storing, transporting and marketing of oil, natural gas, and natural gas liquids Net Debt: represents total debt as recognised on the balance sheet less unrestricted cash and cash equivalents Net Debt/
Slide 27: Appendix
sd DIVERSIFIED GAS & OIL PL C APPENDIX
Slide 28: Main Market and Governance Update
MAIN MARKET AND GOVERNANCE UPDATE RECENT CHANGES IMPROVE DGO INVESTMENT CASE EQUITY MARKET PLATFORMS RECENT GOVERNANCE HIGHLIGHTS Appointed Independent, Non‐Executive Board Chair Provides enlarged funding platform to support long‐term Enhanced Board diversity with more than 25% female United K
Slide 29: ABS vs. RBL
ABS VS. RBL COMPARISON OF KEY ATTRIBUTES OF DGO DEBT STRUCTURE “Mortgage” “Credit Card” ABS RBL ~70% of Debt Outstanding ~30% of Debt Outstanding Fixed rate at closing Typically LIBOR plus spread based on credit quality, market Interest Rate Cost of funds competitive with or better than RBL, t
Slide 30: Built to Deliver Strong Margins at Low Prices
BUILT TO DELIVER STRONG MARGINS AT LOW PRICES EFFICIENT OPERATIONS, LOW FIXED COSTS PRIME DGO FOR SUCCESS IN CURRENT MARKET Illustrative All‐In DGO Cash Costs(a) Net Realised Operating Fully‐Loaded Free Cash ($/Mcfe) Price per Mcfe Cash Margin Cash Margin Flow Yield(d) OpEx + G&A … + CapEx + Interes
Slide 31: Natural Gas Hedges
NATURAL GAS PORTFOLIO AS OF 31 JULY 2020 Natural Gas Financial Hedges Natural Gas (MMBtu, $/MMBtu) 3Q20 4Q20 1Q21 2Q21 3Q21 FY20 FY21 FY22 FY23 FY24 NYMEX NG Swaps(a) 41,566,872 42,517,326 42,786,549 42,241,000 39,852,000 153,431,733 159,866,549 101,724,000 88,957,000 81,739,000 Swap Price $2.65 $2.
Slide 32: Liquids Hedging
LIQUIDS HEDGING PORTFOLIO AS OF 31 JULY 2020 NGL Financial Hedges NGL (bbl, $/bbl) 3Q20 4Q20 1Q21 2Q21 3Q21 FY20 FY21 FY22 FY23 FY24 Propane Swaps 269,928 287,295 201,569 159,342 130,064 1,245,472 616,974 ‐ ‐ ‐ Swap Price $27.72 $17.80 $16.93 $15.71 $13.63 $30.04 $15.11 Isobutane Swaps 19,281 23,414
Slide 33: Capital Allocation Strategy
DELIVERING CASH FLOW CAPITAL ALLOCATION CONTINUES HISTORY OF STRONG SHAREHOLDER RETURNS Historical Distributions 43% Dividend 40% FCF Dividend Payout Ratio Capital Allocation Strategy Distributions(a) distinguishes DGO in the E&P space 16% 25% $47 $166 Equity Share Optionality provides platform for
Slide 34: Valuing the Asset Retirement Programme
VALUING THE ASSET RETIREMENT PROGRAMME OVERVIEW OF DGO’S ASSET RETIREMENT OBLIGATIONS (ARO) PV Analysis Bridging to the Balance Sheet ARO Rollforward ($0.6) Net Cash Flow (Field Level) Asset Retirement Obligation ($1.3) ~4:1 $MM $6,100 $1,627 $2,135 $104 Undiscounted(a) PV10 Inputs Underlying Determ
Slide 35: Safely, Systematically Retire Wells
SAFELY, SYSTEMATICALLY RETIRE WELLS UPDATE OF DGO’S ASSET RETIREMENT PROGRAMME Environmental Stewardship Remains Paramount Near Term State‐Level Plugging Requirements All plugging activities require an environmental safeguard plan and reclamation efforts to restore surface conditions State Term Annu
Slide 36: Focused on Value Creation from the Beginning
FOCUSED ON VALUE CREATION FROM THE BEGINNING COMMITMENT TO DIFFERENTIATED STRATEGY AND RETURN ON EQUITY UNDERPIN GROWTH LSE Uplist Legend Asset Acquisition Net Corporate Acquisition Financing Transaction ~109,000 (a)Boepd Listed on Premium Segment of the LSE ‘20 Net ~95,000 Boepd ‘19 $200 MM Securit
Slide 37: Significant Acquisitions Since Feb 2017 IPO
SIGNIFICANT ACQUISITIONS SINCE FEB 2017 IPO ESTABLISH DGO AS A TOP PRODUCER IN APPALACHIA Acquisition Metrics(a) ~$1.7B Total Acquisitions 2020 Acquired Assets: EQT, Carbon Grow platform for shareholder returns Purchase Price: $235 Million PDP Reserves: 122 MMboe Production: 18.1 MBoepd 109.0 685 Ac
Slide 38: The DGO Difference: Delivering Real Value
THE DGO DIFFERENCE: DELIVERING REAL VALUE “SOME COMPANIES ARE BUILT TO DRILL, AND SOME TO OPERATE. DIVERSIFIED IS BUILT TO OPERATE VERY EFFICIENTLY” – DGO INVESTOR PERCEPTION REALITY Cash wise Cash deficient Cash used to paydown LIBOR+ revolving credit facility rather with a limited cash position on
Slide 39: Understanding Our Unconventional Assets
UNDERSTANDING OUR UNCONVENTIONAL ASSETS IMPLEMENTING THE DGO STRATEGY ACROSS WELL TYPES Developer / Seller Produces DGO Purchases + Efficiently Produces Hyperbolic (“Steep”) Declines Exponential (“Terminal”) Declines = Volatile Production = Stable Production Mcfpd 50+ years remaining life 0 24 48 72
Slide 40: Appendix: Supplemental Schedules
APPENDIX Supplemental Schedules
Slide 41: Audited Financial Statements: Profit or Loss
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Unaudited Audited Six Months Ended Year Ended 30 June 2020 30 June 2019 31 December 2019 Revenue $ 184,878 $ 237,458 $ 462,256 Operating ex pense (98,951) (95,129) (202,385) Depreciation and depleti
Slide 42: Audited Financial Statements: Assets
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ‐ ASSETS Unaudited Audited 30 June 2020 31 December 2019 ASSETS Non-current assets: Oil and gas properties, net $ 1,679,150 $ 1,490,905 Intangile assets 13,163 15,980 Property and equipment, net 360,026 325,866 Restricted cas
Slide 43: Audited Financial Statements: Equity and Liabilities
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION – EQUITY AND LIABILITIES Amounts in thousands, unless otherwise noted;. 43
Slide 44: Audited Financial Statements: Cash Flow
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOW Unaudited Audited Six Months Ended Year Ended 30 June 2020 30 June 2019 31 December 2019 Cash flows from operating activities: Income after tax ation $ 18,485 $ 62,166 $ 99,400 Cash flow from operations reconciliation: Depreciation an
Slide 45: Non-IFRS Reconciliations: Revenue
NON-IFRS & OTHER RECONCILIATIONS REVENUE RECONCILIATION Amounts in thousands, unless otherwise noted. 45
Slide 46: Non-IFRS Reconciliations: Expense
NON-IFRS & OTHER RECONCILIATIONS EXPENSE RECONCILIATION Amounts in thousands, unless otherwise noted; (a) Certain expense reclassifications were made to conform previously reported results to current presentation 46
Slide 47: Non-IFRS Reconciliations: Adjusted EBITDA
NON-IFRS & OTHER RECONCILIATIONS ADJUSTED EBITDA RECONCILIATION Amounts in thousands, unless otherwise noted. 47
Slide 48: Non-IFRS Reconciliations: Cash Margin and Free Cash Flow
NON-IFRS & OTHER RECONCILIATIONS Adjusted EBITDA Cash Margin As used herein, Adjusted EBITDA Cash Margin is measured as Adjusted EBITDA as a percentage of total revenue (including natural gas, natural liquids and crude oil commodity revenue, midstream revenue and other revenue) plus settled net hedg
Slide 49: Non-IFRS Reconciliations: Net Debt
NON-IFRS & OTHER RECONCILIATIONS Net Debt and As used herein, Net Debt represents total debt as recognised on the balance sheet less unrestricted cash and cash Net Debt-to-Adjusted EBITDA equivalents. Total debt includes the Group’s current portion of debt, credit facility borrowings and term loan b
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