Diversified Energy Company · NYSE:DEC
Diversified Energy — H1 2021 Earnings Presentation
40 slides from Diversified Energy's earnings presentation, Aug 5, 2021
Slide 1: Interim Results
Interim Results Rusty Hutson, Jr. | Co-Founder & CEO Brad Gray | Executive Vice President & COO Eric Williams | Executive Vice President & CFO 5 August 2021
Slide 2: Disclaimer
DISCLAIMER The information contained in this document (the "Presentation") has been prepared by Diversified Energy Company PLC (“Diversified” or 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
Slide 3: Company Information
COMPANY INFORMATION For the latest news and financial information, please visit www.div.energy About Diversified Energy Company PLC Diversified Energy (“DEC”) is a leading, independent energy company engaged in Market and Trading Summary (as of 23 July 2021) the production, marketing and transportat
Slide 4: 1H2021 Highlights
1H2021 HIGHLIGHTS ACCRETIVE ACQUISITIONS FREE CASH GENERATION $342 Million(a) Central Region provides platform to replicate success in Appalachia Significant free cash flow provides tangible returns through Dividends $117 Million(b) and scheduled Debt Repayments ADJ. EBITDA MARGIN AVG. DAILY PRODUCT
Slide 5: Operations Highlights
Operations Highlights Brad Gray | Executive Vice President & COO
Slide 6: Advancing ESG Initiatives
ADVANCING ESG INITIATIVES Fundamentally Committed to Good ESG is Good Business Environmental Social Governance Committed to emissions reduction and Committed to supporting our workforce Committed to transparency and proven transparent reporting and our communities best practices • Deepened EHS team
Slide 7: Deploying Consolidation Strategy in Central Region
DEPLOYING CONSOLIDATION STRATEGY IN CENTRAL REGION Integrate Optimise Consolidate Immediate Goals On-board Central Region employees and Empower retained personnel to apply DEC’s Further develop operating and market integrate processes to drive efficiencies and Smarter Asset Management techniques to
Slide 8: Production… Record Levels
PRODUCTION… RECORD LEVELS Avg. Daily Net Production Acquisitions increase pro 1H21 Production Sets New Highs(c) (MBoepd) forma production by 30%(b) Average daily output of 106 MBoepd and June 2021 exit rate Low base declines, SAM and small 2H20 141 of 116 MBoepd, both record levels for Diversified b
Slide 9: Industry-Leading Annual Production Declines
INDUSTRY-LEADING ANNUAL PRODUCTION DECLINES Differentiated Strategy and Performance Minimal Capex to Maintain Production Disciplined focus on the operation of existing wells emphasizes Mature PDP wells generate stable, consistent cash flows with the efficient operation of mature, low-decline produci
Slide 10: Creating Value Through Vertical Integration
CREATING VALUE THROUGH VERTICAL INTEGRATION Midstream Integration Creates a Control Premium Flow Pricing Revenue Expense Assurance Optimisation Diversification Optimsation Revenue Optimisation| Midstream Capital Project Identified Re-route Opportunities Volumes to Sell at Premium Pricing Acquired
Slide 11: Financial Highlights
Financial Highlights Eric Williams | Executive Vice President & CFO
Slide 12: Profitability
SUMMARY FINANCIALS FROM 2021 INTERIM REPORT (UNAUDITED) 1H21 2H20 % Change 1H20 % Change Revenues $323 $224 44% $185 75% Revenues and Expenses Gain (Loss) on Settled Derivative Instruments ($22) $61 -136% $84 -126% Gain (Loss) on Unsettled Derivative Instruments ($371) ($129) -188% ($110) -239% Adju
Slide 13: Growing Revenue on Stable, Improving Realised Price
GROWING REVENUE ON STABLE, IMPROVING REALISED PRICE Hedging Drives Consistency in Realised Pricing… …Allowing for Steady Growth of Adj. Revenue(a) Realised Price (Hedged) Realised Price (Unhedged) 106 104 $16.90 $15.50 $15.75 $14.82 95 Avg. Net Production (MBoepd) $15.36 $301 Adjusted Revenue ($MM)
Slide 14: Hedge Programme Protects Dividends & Debt Payments
HEDGE PROGRAMME PROTECTS DIVIDENDS & DEBT PAYMENTS Protect Pricing, Limit Volatility Improved Forward Curve Creates Value Capture Opportunity Historical hedging programme has generated Outlook generates potential to capture additional value through additional hedging significant cash flows, limiting
Slide 15: Improved Price Outlook Benefits Future Cash Flows
IMPROVED PRICE OUTLOOK BENEFITS FUTURE CASH FLOWS Locking In Cash Flows From the Improved Forward Curve Pricing Positively Impacts Value of PDP Reserves Rolling Hedge Coverage Targets Capture Prices Over Time Long tenor hedges create foundation for healthy cash margins and progressive Pro Forma Rese
Slide 16: Opportunity to Expand Healthy Margins
OPPORTUNITY TO EXPAND HEALTHY MARGINS Higher Prices + Lower Costs = Enhanced Margins Poised to Replicate Appalachian Success in the Central Region Higher Price Realisations Realised Price $17.35 Cash Margin Central Region offers improved basis $17.41 $18.34 $16.54 $15.14 $15.75 53% 54% pricing when
Slide 17: Continuously Reducing Leverage
CONTINUOUSLY REDUCING LEVERAGE Focused on Low Leverage Expanding Credit Facility Optimising Cost of Capital Net Debt/Adj. EBITDA of 1.9x(a) well below Post-acquisition upsizing of RBL Facility Weighted average interest rate of 4.8% target of 2.5x with unique debt structure underway to include added
Slide 18: Significant Cash Generation on Low Capital Intensity
SIGNIFICANT CASH GENERATION ON LOW CAPITAL INTENSITY High Cash Margins Generate Substantial Returns Dividends Paid to Shareholders $62 $301 Million Reliable distributions supported by positive cash profile $151 $117 Available for Re-investment… ~50% Adj. EBITDA Margin ~40% FCF Margin $55 … in growth
Slide 19: Committed to Value Generation and Return of Capital
COMMITTED TO VALUE GENERATION AND RETURN OF CAPITAL • Deploy Smarter Asset Management to sustain cash generation from portfolio Maximise Impact of low-decline, stable production assets of Existing Assets • Develop maximum value of Central Region assets through integration and identification of opera
Slide 20: 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.div.energy Teresa Odom Peter Krens Ashton Clanfield IR@dgoc.com peter.krens@tennysonsecuri
Slide 21: Appendix
Appendix
Slide 22: Commodity Derivatives Portfolio (Consolidated)
COMMODITY DERIVATIVES PORTFOLIO (CONSOLIDATED) As of 30 June 2021 (NATURAL GAS AMOUNTS PRESENTED IN MMBTU(c)) Natural Gas Fi na nci a l Deri va ti ves Contra cts Natural Gas (MMBtu, $/MMBtu) 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 FY21 FY22 FY23 FY24 NYMEX NG Swaps(a) Volume 66,372,000 64,582,000 54
Slide 23: Smarter Asset Management Pilots and Initiatives
SMARTER ASSET MANAGEMENT PILOTS AND INITIATIVES Small Victories Add Up To BIG WINS Through Daily Stewardship Of Operated Assets Successful pilots have potential for application across the larger portfolio for compounding results Southern Appalachia Northern Appalachia Central Region Midstream Operat
Slide 24: Safely & Systematically Retiring ~300 Wells Since 2018
SAFELY & SYSTEMATICALLY RETIRING ~300 WELLS SINCE 2018 Plugging Progress in 2021 Inaugural Successes for Internal Well-Retirement Team Cumulative body of work through 1H2021 continues to 14 wells retired by DEC compared to 12 by 3rd-party contractors support ARO assumption of ~$25,000/well cost to
Slide 25: Valuing the Asset Retirement Programme
VALUING THE ASSET RETIREMENT PROGRAMME PV Analysis Bridging to the Balance Sheet ARO(a) Rollforward Net Cash Flow (Field Level) Asset Retirement Obligation $48 ~ $6,700 ~4:1 ($1) ~ $2,500 ~ $1,700 $69 Undiscounted(b) PV10 Inputs Underlying Determinants Diversified Value ▪ Well life is a primary dete
Slide 26: 20 Years of Successfully Expanding the Business
20 YEARS OF SUCCESSFULLY EXPANDING THE BUSINESS Appalachian Basin A History of Growth by the Numbers(a) +70% dividends per share +39x daily production +27x PDP reserves +24x Enterprise Value ~116,000 ~105,000 ~95,000 Location of DEC Assets ~70,000 Headquarters ~10,400 Net Production(b) ~3,000 MBoepd
Slide 27: The Diversified Difference
THE DIVERSIFIED DIFFERENCE PERCEPTION REALITY Cash wise Cash deficient Cash used to paydown LIBOR+ revolving credit facility rather than with a limited cash position on the balance sheet generating minimal earnings at <1% An Appalachian Basin pure-play Value-focused consolidator A basin-focused comp
Slide 28: Supplemental Schedules
SUPPLEMENTAL SCHEDULES for the Six Months Ended 30 June 2021 28 2021 Interim Results 28 August 2021
Slide 29: Supplemental Schedules
SUPPLEMENTAL SCHEDULES for the Six Months Ended 30 June 2021
Slide 30: Unaudited Financial Statements
UNAUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Unaudited Audited Six Months Ended Year Ended 30 June 2021 30 June 2020 31 December 2020 Revenue $ 323,316 $ 184,878 $ 408,693 Operating expense (119,555) (98,951) (203,963) Depreciation, depletio
Slide 31: Unaudited Financial Statements
UNAUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Unaudited Audited Unaudited Audited 30 June 2021 31 December 2020 30 June 2021 31 December 2020 ASSETS EQUITY AND LIABILITIES Non-current assets: Shareholders' equity: Natural gas and oil properties $ 2,009,270 $ 1,755,085
Slide 32: Unaudited Financial Statements
UNAUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOW Unaudited Audited Unaudited Audited Six Months Ended Year Ended Six Months Ended Year Ended 30 June 2021 30 June 2020 31 December 2020 30 June 2021 30 June 2020 31 December 2020 Cash flows from operating activities: Cash flows from
Slide 33: Non-IFRS & Other Reconciliations
NON-IFRS & OTHER RECONCILIATIONS REVENUE RECONCILIATION Per Unit 1Q20 2Q20 1H20 3Q20 4Q20 FY20 1Q21 2Q21 1H21 Units 1Q20 2Q20 1H20 3Q20 4Q20 FY20 1Q21 2Q21 1H21 Production: Natural gas (MMcf) 45,391 48,652 94,043 53,935 51,689 199,667 50,579 54,309 104,888 Oil (MBbls) 98 92 190 115 112 417 113 129 2
Slide 34: Non-IFRS & Other Reconciliations
NON-IFRS & OTHER RECONCILIATIONS EXPENSE RECONCILIATION Per Unit 1Q20 2Q20 1H20 3Q20 4Q20 FY20 1Q21 2Q21 1H21 Units 1Q20 2Q20 1H20 3Q20 4Q20 FY20 1Q21 2Q21 1H21 Production: Natural gas (MMcf) 45,391 48,652 94,043 53,935 51,689 199,667 50,579 54,309 104,888 Oil (MBbls) 98 92 190 115 112 417 113 129 2
Slide 35: Non-IFRS & Other Reconciliations
NON-IFRS & OTHER RECONCILIATIONS ADJUSTED EBITDA RECONCILIATION 1Q20 2Q20 1H20 3Q20 4Q20 FY20 1Q21 2Q21 1H21 Adjusted EBITDA (hedged) $ 78,310 $ 67,993 $ 146,303 $ 75,124 $ 79,163 $ 300,590 $ 78,002 $ 73,312 $ 151,314 Depreciation and depletion (26,961) (28,875) (55,837) (30,199) (30,542) (116,578)
Slide 36: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) DEC 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 37: 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 38: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Net Debt and 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 DEC’s current portion of debt, Credit Facility borrowings and secured Adjusted EBITDA finan
Slide 39: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Adjusted Total Revenue As used herein, Adjusted Total Revenue includes the impact of derivatives settled in cash. The Directors believe that Adjusted Total Revenue is a useful measure because it enables investors to discern DEC’s realised revenue after adj
Slide 40: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Total Cash Cost per Boe Total Cash Cost per Boe is a metric which allows us to measure the cumulative operating cost it takes to produce each Boe. This metric includes operating expense and Adjusted G&A, both of which include fixed and variable cost compon
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