Diversified Energy Company · NYSE:DEC
Diversified Energy — Diversified Gas & Oil — H1 2018 Earnings Presentation
39 slides from Diversified Energy's earnings presentation, Sep 11, 2018
Slide 1: Half-Year Results
H a l f - Ye a r R e s u l t s 11 September 2018
Slide 2: Disclaimer
DISCLAIMER The information contained in this document has been prepared by Diversified Gas & Oil PLC (the “Company”). This document is being made available for information purposes only and does not constitute an offer or invitation for the sale or purchase of securities or any of the assets describ
Slide 3: About Diversified Gas and Oil: 1H 2018 Highlights
ABOUT DIVERSIFIED GAS AND OIL • Adj EBITDA(a) up 69% vs 2H17 & 456% Y/Y $22.8mm vs $13.5mm and 4.1mm respectively Avg Daily production up 450% vs 1H17 to 19.3 MBOEPD 1H • Dividend yield of ~6% for 1Q18 Strong adj. EBITDA margins of ~40% 2018 Accretive acquisitions driving increasing payouts • Acquis
Slide 4: A Step Change in Operational & Financial Performance
A STEP CHANGE IN OPERATIONAL & FINANCIAL PERFORMANCE ▪ HY Results demonstrate positive trends across KPIs including production, OpEx unit costs and adjusted EBITDA. ▪ Transformative period in terms of value accretive acquisitions – material PDP reserves growth underpin value of the company. ▪ Benefi
Slide 5: A Transformational Year Underway
A TRANSFORMATIONAL YEAR UNDERWAY 1H18 Reporting Period 2H18 Reporting Period Jan Feb Mar Apr May June July Aug Sep 31st 20th 7th 14th 29th 27th 18th $189mm $250mm Equity Offering Equity Offering Priced… Priced… 166.4 million share 195.3 million share offering at 80 offering at 97 pence pence per sha
Slide 6: EQT Acquisition Highlights
EQT ACQUISITION HIGHLIGHTS S Immediately Accretive to Shareholders Production (Mboed) 2017 EBITDA ($mm)(a) $237 60 Unparalleled Scale in Conventional Gas Space 114% 225% 28 < 5% Low-Decline, Predictable Production Profile $73 NGL DGO DGO (+) DGO DGO (+) High Liquid Content Provides Exposure to Oil (
Slide 7: Financial Results Overview
& DIVERSIFIED GAS & OIL Pt € Financial Results Overview
Slide 8: Multiplying Production
MULTIPLYING PRODUCTION Net Production Net Daily Production 12.0 70.0 ~ 450 % ~ 95 % 10.0 58.6 60.0 Daily Production Sequential Increase 50.0 Y/Y Increase from 2H17 to 1H18 8.0 MBOEPD MMBOE 40.0 6.0 30.0 ~ 27 ~ 60 4.0 19.3 20.0 MBOEPD MBOEPD June Exit Rate July Exit Rate 2.0 9.9 10.0 3.5 0.6 1.8 3.5
Slide 9: Revenue and Expense Highlights
REVENUE AND EXPENSE HIGHLIGHTS Fueling Higher Margins Commodity Revenue(b) (Unhedged; $MM) Commodity Revenue Realized Price per BOE(b) Lower LOE Lower G&A $200.0 $20.00 Pro Forma Pro Forma $180.0 $160.0 $18.46 $140.0 36 14 21 $17.56 MBOE $120.0 % % % $100.0 $16.14 $16.19 $15.00 $80.0 $60.0 Higher $4
Slide 10: Earnings Highlights
EARNINGS HIGHLIGHTS Adj EBITDA(b) (Unhedged; in Millions) Strong Adj EBITDA Margins (Unhedged) $120.0 $0.25 a Total Adjusted EBITDA Per Share G&A G&T Prod Tax LOE Revenue Margin $20 $19.03 $108.3 $18.65 $17.73 $16.46 $0.21 $100.0 37% $0.20 $15 42% Per Boe $12.03 40% 59% $10.34 $80.0 $10 $9.93 133% $
Slide 11: Accretive Acquisitions Enhancing Dividends
ACCRETIVE ACQUISITIONS ENHANCING DIVIDENDS Period Declare Ex-Div Pay Q1 June September September Q2 September November December Q3 December March March Q4 March June June Adj. FCFPS Accretion(a) Higher Dividend Payouts(b) 12.00¢ Dividend 10.0% Switch to Quarterly Dividends Implied Annual Dividend 11
Slide 12: Balance Sheet Highlights
BALANCE SHEET HIGHLIGHTS Gas and Oil Properties & Midstream Assets, net Cash and Liquidity (in Millions) Cash Credit Availability $187 MM 30Jun17 192% 31Dec17 $177 30Jun18 155% $64 MM 30Jun18 PF(a) $54 118% $10 $10 30-Jun-18 30Jun18PF(a)(b) Leverage; Borrowings Total Equity $600 Leverage Multiple Ne
Slide 13: Strong Balance Sheet Positions for DGO Growth
STRONG BALANCE SHEET POSITIONS FOR DGO GROWTH Capitalization ($MM) Highlights 30-Jun 30-Jun Committed to maintaining low leverage 2018 2018 PF(a) • Target 2x or less Net Debt / Adj EBITDA. • Credit Facility provides cost effective means to fund acquisitions without Cash $10 $10 additional equity dil
Slide 14: Hedged to Protect Cash Flow & Dividend
HEDGED TO PROTECT CASH FLOW & DIVIDEND Hedging Overview (See Appendix for Hedge Portfolio Detail by Commodity) Hedging Strategy Hedge Portfolio Target Levels Average NATURAL GAS 1 Downside Average Volume 75% - 90% of net PDP reserves Period Protection(b) (MMBtu/day) Unhedged on a volumetric basis(a)
Slide 15: Operations Overview
& DIVERSIFIED GAS & OIL Pt € Operations Overview
Slide 16: Adding Value Through Smarter Well Management
ADDING VALUE THROUGH SMARTER WELL MANAGEMENT 1 Wellhead Compression Compression can be costly and is utilized only after several other optimization methods have been used. In this instance, the team 38% 5 Boe/d managed to link a single well-head compressor to eight wells, increasing production acros
Slide 17: Adding Value Through Smarter Well Management (Cont'd)
ADDING VALUE THROUGH SMARTER WELL MANAGEMENT (CONT’D) 4 Plunger Lift Setup The team installed a plunger lift on this well, which decreases the fluid load on the well, which allows gas to flow more freely. They 96% schedule the plunger lift to run on a schedule 35 Boe/d uniquely tuned to the specific
Slide 18: Returning Wells to Production in Past 18 Months
RETURNING WELLS TO PRODUCTION IN PAST 18 MONTHS Titan APC CNX(a) Total 152 354 18 524 Wells removed from States’ plugging lists One of DGO’s core objectives is to return previously unproductive wells to production. This focus creates value for our shareholders while simultaneously achieving producti
Slide 19: P&A Summary
P&A SUMMARY Background Illustrative AFE(a) (Using 3rd Party Vendors) • Plugging and abandoning (“P&A”) a well is the process of (In USD) Pennsylvania permanently closing and relinquishing a well by using Cost Items Cost Driver West Virginia Coal Non-Coal Ohio Kentucky cement to create plugs that pre
Slide 20: Cost Saving Initiatives Underway on Southern Assets
COST SAVING INITIATIVES UNDERWAY ON SOUTHERN ASSETS Kentucky P&A Costs Commentary • Since gaining operatorship of the asset in mid-July, $45,215 DGO has implemented several initiatives that already Contingency reduced P&A costs by ~$16,800 per well. Dozer • Key areas of cost improvement include: A•
Slide 21: P&A Portfolio Considerations
P&A PORTFOLIO CONSIDERATIONS Commentary Well Map Legend • Over 87% of DGO’s well portfolio will cost less than $25,000 Horizontal Wells to plug. Kentucky Misc. The higher cost, horizontal wellbores are among the Ohio younger wells that DGO possesses thus will be PA Coal plugged towards the end of
Slide 22: Estimated Plugging Program
ESTIMATED PLUGGING PROGRAM Commentary Cumulative PV10% Graph • DGO has or is negotiating firm $50 60,000 multi-year plugging agreements with the states in which it operates. $45 Years 1-5 assume 70 50,000 wells plugged per year $40 Years 6-15 assume 100 wells plugged per year Cumulative PV10% of
Slide 23: DGOC: A Unique Investment Opportunity
DGOC: A UNIQUE INVESTMENT OPPORTUNITY • Track record of • Capitalising on consistent growth unique regional and returns, acquisition window reducing costs to build platform for through increasing long-term growth scale Proven Model Disciplined (Founded 2001) (Focused Strategy) Dividend Financially P
Slide 24: Appendix
& DIVERSIFIED GAS & OIL APPENDIX
Slide 25: Accounting Decommissioning Liability
ACCOUNTING DECOMMISSIONING LIABILITY Commentary PV Bridge • DGOs plugging program used in the reserve report $55 $136 was adjusted for the balance sheet, as recommended in accounting guidance ASC 410-20 & IAS 37. • ASC 410-20 / IAS 37 require the ARO liability to be risked and discounted $35 using a
Slide 26: Hedged to Protect Cash Flow and Dividend
HEDGED TO PROTECT CASH FLOW AND DIVIDEND Natural Gas Financial Hedges (33% of Portfolio)(a) Hedge Contract Structure 120,000 $2.88 $2.87 $2.82 $3.50 $2.69 $2.69 $2.54 5% $2.66 $2.61 $3.00 Deferred $2.50 Premium 5% 80,000 $2.00 Puts $1.50 40,000 $1.00 $0.50 - $0.00 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 FY20
Slide 27: Natural Gas Hedge Detail
NATURAL GAS HEDGE DETAIL Financial Contracts Physical Contracts Combined Contracts Footnote: Hedge Contracts as of Mid August 2018 27
Slide 28: Oil Hedges
OIL HEDGES Price Protection of ~$47/Bbl for ~36 months Hedge Contract Structure Crude Oil Hedges $52.70 700 $47.84 Swaps $47.84 $46.50 $47.23 $47.20 $47.20 $44.53 $50.00 24% 600 500 $40.00 BBL Per Day 400 $30.00 300 $20.00 200 $10.00 100 Costless Collars - $0.00 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 FY20 FY
Slide 29: NGL Hedges
NGL HEDGES Price Protection of ~$34.07/Bbl for ~36 months Hedge Contract Structure NGL Hedges 4,500 4,000 $50.00 3,500 $34.07 $34.11 $34.07 $34.07 $34.07 $34.06 $33.98 $40.00 3,000 $34.06 BBL per Day 2,500 $30.00 2,000 $20.00 1,500 1,000 $10.00 Swaps 500 100% - $0.00 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 FY
Slide 30: Statement of Operations
STATEMENT OF OPERATIONS(a) DIVERSIFIED GAS & OIL PLC Interim Consolidated Statements of Profit or Loss and Other Comprehensive Income (Amounts in thousands, except per-share amounts) Footnote: (a) Prior reported expenses equaling to $231k were reclassed from LOE to Production Taxes in 1H17 and prior
Slide 31: Balance Sheet
BALANCE SHEET DIVERSIFIED GAS & OIL PLC Interim Consolidated Statements Of Financial Position (Amounts in Thousands) 31
Slide 32: Cash Flow Statement
CASH FLOW STATEMENT DIVERSIFIED GAS & OIL PLC Interim Consolidated Statements of Cash Flow (Amounts in Thousands) 32
Slide 33: Non-IFRS & Other Reconciliations
NON-IFRS & OTHER RECONCILIATIONS 33
Slide 34: Non-IFRS & Other Reconciliations
NON-IFRS & OTHER RECONCILIATIONS (a) Footnote: (a) Prior reported expenses equaling to $231 were reclassed from LOE to Production Taxes in 1H17 and prior reported expenses related to LOE, Production Taxes, and Gathering & Transportation were reclassed in 2H17 (949, -1816, & 867 respectively) 34
Slide 35: Non-IFRS & Other Reconciliations
NON-IFRS & OTHER RECONCILIATIONS 35
Slide 36: Business Model: Acquire, Produce, Drill
BUSINESS MODEL: ACQUIRE, PRODUCE, DRILL Acquire and manage producing natural gas and oil properties to generate cash flows, providing stability and growth for our stakeholders Inorganic Ongoing Organic Result Maximise Execute Create Target PDP Production; Low Risk, Shareholder Acquisitions Minimize
Slide 37: Long History of Successful Growth
LONG HISTORY OF SUCCESSFUL GROWTH Gross 78,000 Boed(a) ~186% Gross ‘18 Production CAGR from 2014 to 2018 Gross January: 18,000 Boed Raised $180mm net equity proceeds to fully fund two, transformative ‘17 acquisitions in March February: Floated on AIM raising $50mm – March: Gross largest UK O&G IPO s
Slide 38: Robust, Expanding Distribution Network
ROBUST, EXPANDING DISTRIBUTION NETWORK Conventional Production Benefits Recent Pipeline Approvals: Low pressure gathering and transmission systems that Atlantic Sunrise: ~200 miles of pipe; 1.7 Bcf/day do not take Marcellus and Utica production Rover: ~500 miles of pipe; 3.25 Bcf/day Separation Unit
Slide 39: Contact Information
Contact Information DIVERSIFIED BROKERS Corporate Mirabaud Stifel PO BOX 381087 MIRABAUD SECURITIES LIMITED STIFEL NICOLAUS EUROPE LTD BIRMINGHAM, ALABAMA 10 BRESSENDEN PLACE 1650 CHEAPSIDE 35238-1087 (USA) LONDON SW1E 5DH LONDON EC2V 6ET WWW.DGOC.COM ERIC WILLIAMS, CFO PETER KRENS ASHTON CLANFIELD
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