Diversified Energy Company · NYSE:DEC
Diversified Energy — FY2021 Earnings Presentation
51 slides from Diversified Energy's earnings presentation, March 2022
Slide 1: 2021 Final Results
2021 Final Results March 2022 DIV.energy
Slide 2: Disclaimer
DISCLAIMER The information contained in this document (the "Presentation") has been prepared by Diversified Accordingly, no assurance can be given that the forward-looking statements will prove to be accurate Energy Company PLC (“Diversified” or the "Company”). This Presentation is not to be copied,
Slide 3: Diversified Energy Profile
DIVERSIFIED ENERGY PROFILE Long-Life, Low Durable LSE: DEC (FTSE250) Efficient Cash Decline Production Pricing Strategy Generation Market and Trading Summary (as of 18 March 2022) Share Price £1.12 / $1.48 ~9% ~90% ~20% Market Cap (MM) £952 / $1,212 Consolidated Hedged 2022 Free Cash Net Debt (MM) £
Slide 4: Executive Summary
Executive Summary Rusty Hutson, Jr Chief Executive Officer DIV.energy
Slide 5: Built for Sustainable Shareholder Returns
BUILT FOR SUSTAINABLE SHAREHOLDER RETURNS 179% TSR since 2017 IPO (c) +179% Total Return (Rebased to 100) Annual Average Nat Gas Price ($/MMBtu) Annual Dividends per Share ($/share) $4.95 100 $3.84 16.50¢ 17.00¢ $3.11 13.92¢ 15.25¢ $3.09 11.23¢ $2.46 5.44¢ $2.63 1.99¢ $2.08 2016 2017 2018 2019 2020
Slide 6: 2021 Highlights
2021 HIGHLIGHTS Completed Strategic Entry into Central Region Four acquisitions of high margin assets; expanded opportunity set Produced Record Annual Volumes of 119 Mboepd 19% increase over 2020 through growth and Smarter Asset Management Generated $343 Million in Hedged Adj. EBITDA Achieved high C
Slide 7: Advancing Our ESG Initiatives
ADVANCING OUR ESG INITIATIVES $15 Million in Emissions-Related Capital Commitments Inaugural investment for high impact projects to reduce emissions intensity Emissions detection supported handheld device deployment and aerial surveys. Initial activities include conversion or elimination of pneumati
Slide 8: Operating Results
Operating Results Brad Gray Chief Operating Officer DIV.energy
Slide 9: Substantial Progress on ESG Commitments
SUBSTANTIAL PROGRESS ON ESG COMMITMENTS ENVIRONMENTAL Improving Emissions Intensity Metrics(d) Improved the accuracy of emissions reporting with Project Fresh 7.4 emissions inventory process(a) Realised 18% and 6% reductions in GHG and methane emissions intensity metrics compared to 2020(b) 18% DECR
Slide 10: Developing Immediate and Long-Term Acquisition Upside
DEVELOPING IMMEDIATE AND LONG-TERM ACQUISITION UPSIDE Integration of Assets Application of People, Process, Systems Apply standardised processes and Consolidate acquisitions into standardised operational and systems to acquisitions technology platforms for strategic alignment Unlock Immediate Upside
Slide 11: Smarter Asset Management in Action
SMARTER ASSET MANAGEMENT IN ACTION Midstream Pipeline Addition| Reaching premium-priced end markets Increase volume of gas re-routed for price optimisation with addition to previously constructed midstream assets in Appalachia Pipeline Fees Eliminated | Optimise future cash flow potential Eliminate
Slide 12: Production and Reserves
PRODUCTION AND RESERVES 139 35% Increase in December Exit Rate Production December Exit Rate 103 Central Region and SAM impacts set stage for record (Mboepd) annual production in 2021 ~5% declines in Appalachia continue to beat engineered production declines of ~7% 35% Increase in Exit Rate 2020
Slide 13: Lowering Plugging Costs and Expanding Well Retirement Capacity
LOWERING PLUGGING COSTS AND EXPANDING WELL RETIREMENT CAPACITY Expanding In-House Asset Retirement 30% Savings with In-House Teams 2022 acquisition of Next LVL Energy propels Lower costs in West Virginia drive 10% capacity towards goal of 10-12 teams reduction in 2021 average plugging cost 350 - 400
Slide 14: Financial Results
Financial Results Eric Williams Chief Financial Officer DIV.energy
Slide 15: 2021 Summary Financials
2021 SUMMARY FINANCIALS INFORMATION 2021 Annual Results BY THE NUMBERS Available online at DIV.energy DELIVERING STABILITY THROUGH VOLATILITY $1.0 Billion $664 Million $(325) Million IFRS Total Revenue Unhedged Adj. EBITDA Net Income 2020: $409 Million 2020: $156 Million 2020: $(23) Million $687 Mil
Slide 16: Built to Deliver Stable Margins Through Volatile Commodity Cycles
BUILT TO DELIVER STABLE MARGINS THROUGH VOLATILE COMMODITY CYCLES 54% Cash Margin 50% Cash Margin Robust 50% Cash Margin in 2021 38% Unhedged 65% Unhedged 9% lower Adjusted G&A per unit and higher Realised Price $15.88 realised pricing in Central Region ($/Boe) $15.14 ($2.65/Mcfe) ($2.52/Mcfe) $7.95
Slide 17: Well Retirement Cost Improvement Driving Significant LT Value
WELL RETIREMENT COST IMPROVEMENT DRIVING SIGNIFICANT LT VALUE Potential for Portfolio-Wide Savings Could Generate Becoming a Leader in Well Plugging $500 Million in Additional Distributions Added investments in Diversified’s teams create opportunity for future revenue streams and further cost-reduct
Slide 18: Organic Reinvestment of Significant Free Cash Flow
ORGANIC REINVESTMENT OF SIGNIFICANT FREE CASH FLOW Generating $252 Million in 2021 Free Cash Flow Durable 50% Cash Margins Support $252 Million in 2021 Free Cash Flow Focus on hedge-protected revenues and efficient operations results in 20% Free Cash Flow Yield $343 $(91) Delivering Robust 40% FCF M
Slide 19: Simple, Low-Cost, Highly-Amortising Structure
SIMPLE, LOW-COST, HIGHLY-AMORTISING STRUCTURE ESG-linked coupons(a) reflect Liquidity-enhancing long-term Competitive cost of capital commitment to sustainability financing alternative to RBL with low, ~5% fixed rates Leverage(b) 2.1x 1.8x 2.0x 2.2x 2.1x 2.1x $1,600 Liquidity enhancing effect of rec
Slide 20: Setting the Stage for Organic Growth with Record Liquidity
SETTING THE STAGE FOR ORGANIC GROWTH WITH RECORD LIQUIDITY $412 Million in Pro Forma Liquidity(a) Unlocking Asset Value with Record availability sets the stage for organic reinvestment potential including M&A and other capital projects Long-Term Financing Structures Naturally deleveraging instrument
Slide 21: Closing Remarks
Closing Remarks Rusty Hutson Chief Executive Officer DIV.energy
Slide 22: 2022 Outlook and Value Drivers
2022 OUTLOOK AND VALUE DRIVERS Maintain Focused Execution on Aggressively Drive Reductions in Leverage Financial Opportunities Operations Optimisation Absolute Emissions and Improve Profitability Create value through effective Build on momentum generated by Pursue margin enhancement with Smarter Ass
Slide 23: 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 https://div.energy Jim Sheehan Peter Krens Ashton Clanfield IR@dgoc.com peter.krens@tennysonse
Slide 24: Appendix
Appendix DIV.energy
Slide 25: Why Invest in Diversified?
WHY INVEST IN DIVERSIFIED? Differentiated Focus on Efficient, Sustainable Operations Dependably delivering cash flows and shareholder distributions throughout commodity price cycles with a vertically integrated value chain Firmly Committed to Long-Term Asset Stewardship Acquiring and responsibly ope
Slide 26: Driving Value Through Accretive Acquisitions
DRIVING VALUE THROUGH ACCRETIVE ACQUISITIONS Appalachia Central PA OK OH ~$2.3 Billion WV 20 acquisitions since LA 2017 IPO TX VA KY TN Enervest Eclipse Resources Diversified Seneca Resources Inc. Resources NGO 2001 2016 2017 2018 2019 2020 2021 Company Uplist to Entry to IPO on AIM Founded Main Mar
Slide 27: Commodity Derivatives Portfolio (Natural Gas)
COMMODITY DERIVATIVES PORTFOLIO (AS OF 17 MARCH 2022) Natural Gas $3.19/Mcfe $3.06/Mcfe $2.85/Mcfe 2022 2023 2024 Annual Summary(a) ~90% Hedged ~70% Hedged ~55% Hedged Natural Gas Financial Derivatives Contracts Natural Gas (MMBtu, $/MMBtu) 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 FY22 FY23 FY24 FY25
Slide 28: Commodity Derivatives Portfolio (NGLs and Oil)
COMMODITY DERIVATIVES PORTFOLIO (AS OF 17 MARCH 2022) NGLs $30.85/bbl $37.11/bbl $32.41/bbl 2022 2023 2024 Annual Summary(a) ~85% Hedged ~65% Hedged ~25% Hedged Oil $67.12/bbl $60.75/bbl $37.00/bbl 2022 2023 2024 Annual Summary(a) ~70% Hedged ~35% Hedged ~5% Hedged Natural Gas Liquids Financial Deri
Slide 29: Historical Operating Expenses by Nature
HISTORICAL OPERATING EXPENSES BY NATURE $8.55 ($1.43/Mcfe) $7.71 $7.95 $/Boe ($1.28/Mcfe) ($1.33/Mcfe) Efficiencies of Scale in Appalachia $1.34 $6.92 ($1.16/Mcfe) $1.21 Consolidation, unconventional production drives $1.17 47% reduction in Base LOE from 2018-2020 $1.00 $1.33 $0.68 $1.40 $1.42 $0.80
Slide 30: Amortising Debt Structures Drive Disciplined Repayment
AMORTISING DEBT STRUCTURES DRIVE DISCIPLINED REPAYMENT Key Attributes for Diversified $132 Ability to scale financing through additional ABS issuances Long-term hedging provides cash flow stability for consistent repayment $129 Diversified retains 100% operational control of assets ESG-linke
Slide 31: Illustrative Cash Flow Replacement Model
ILLUSTRATIVE CASH FLOW REPLACEMENT MODEL $343 Improved Cash Generative Ability Increased commodity pricing, increase in $(91) hedge floors beneficial to future cash flows $252 $130 USD Millions Industry-Leading Production Declines Limited maintenance capital requirement $72 driven by low-decline mid
Slide 32: Our ESG Commitments: Navigating the Path to Net Zero
OUR ESG COMMITMENTS: NAVIGATING THE PATH TO NET ZERO Near-Term Plan Mid-Term Plan Long-Term Plan 2022 2023-2026 2027+ • Utilising new detection equipment, • 30% reduction in methane emissions • 50% reduction in methane emissions initiate comprehensive fugitive intensity by 2026(a) intensity by 2030(
Slide 33: Smarter Asset Management Initiatives Across the Portfolio
SMARTER ASSET MANAGEMENT INITIATIVES ACROSS THE PORTFOLIO SAM Drives Efficiency and Sustainability Universal Appalachia Central Return wells to production Swab wells to relieve hydrostatic Optimise wellhead compression pressure Install optimal artificial lift Right-size contractor expense
Slide 34: Integrated Marketing Team Delivers on Vertical Integration
INTEGRATED MARKETING TEAM DELIVERS ON VERTICAL INTEGRATION A Top 25 Marketer(a) / Active in 20+ Markets Experienced Team Summary of Assets Managed • Gas & NGL Marketing • Producer services Gas Marketing • Scheduling • Midstream • 1.2 BCF of gas marketed per day • Origination • Gas accounting • 211 a
Slide 35: Marketing 99% of Produced Volumes to Maximise Pricing
MARKETING 99% OF PRODUCED VOLUMES TO MAXIMISE PRICING Advantages in Appalachia Managing volumes through owned midstream assets allows: • Gas reroutes to highest value markets • Avoid interstate capacity constraints without firm transport ~20% of regional sales occur on Midstream system to end-users
Slide 36: Building Digital Operations: The Role of Technology at Diversified
BUILDING DIGITAL OPERATIONS: THE ROLE OF TECHNOLOGY AT DIVERSIFIED Vision: Drive Value from the Wellhead to the Board Room Results • Scalable digital platform… Strategy supporting rapid acquisition Goals model • Safety First – increase defences and reduce risk • Common systems & data • Build a scala
Slide 37: Glossary
GLOSSARY £ British pound sterling $ US dollar Adjusted EBITDA Adjusted EBITDA is an APM. Please refer to the APM appendices within this presentation for information on how this metric is calculated and reconciled to IFRS measures. Adjusted EPS Adjusted EPS is an APM. Please refer to the APM appendic
Slide 38: Glossary (Continued)
GLOSSARY (CONTINUED) Mcf Thousand cubic feet of natural gas Mcfe Thousand cubic feet of natural gas equivalent Midstream Midstream activities include the processing, storing, transporting and marketing of natural gas, NGLs and oil. MMBoe Million barrels of oil equivalent MMBtu Million British therma
Slide 39: Glossary (Continued)
GLOSSARY(CONTINUED) TCFD Task Force on Climate-Related Financial Disclosures Total Cash Cost Total Cash Cost is an APM. Please refer to the APM appendices within this presentation for information on how this metric is calculated and reconciled to IFRS measures. Total Cash Cost per Boe Total Cash Cos
Slide 40: Supplemental Information
Supplemental Information DIV.energy
Slide 41: Audited Financial Statements: Profit or Loss
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Year Ended 31 December 2021 31 December 2020 Revenue $ 1,007,561 $ 408,693 Operating expense (291,213) (203,963) Depreciation, depletion and amortisation (167,644) (117,290) Gross profit $ 548,704 $
Slide 42: Audited Financial Statements: Financial Position
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Year Ended Year Ended 31 December 2021 31 December 2020 31 December 2021 31 December 2020 ASSETS EQUITY AND LIABILITIES Non-current assets: Shareholders' equity: Natural gas and oil properties, net $ 2,530,078 $ 1,755,085 Sha
Slide 43: Audited Financial Statements: Cash Flow
AUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOW Year Ended Year Ended 31 December 2021 31 December 2020 31 December 2021 31 December 2020 Cash flows from operating activities: Cash flows from investing activities: Income (loss) after taxation $ (325,206) $ (23,474) Consideration fo
Slide 44: Revenue Reconciliation (Non-IFRS)
REVENUE RECONCILIATION (NON-IFRS) Amounts in thousands unless otherwise noted a) Certain expense reclassifications were made to conform previously reported results to current presentation 44 DIV.energy 44
Slide 45: Expense Reconciliation (Non-IFRS)
EXPENSE RECONCILIATION (NON-IFRS) Amounts in thousands unless otherwise noted; 45 DIV.energy 45
Slide 46: Adjusted EBITDA Reconciliation (Non-IFRS)
ADJUSTED EBITDA RECONCILIATION (NON-IFRS) Amounts in thousands unless otherwise noted; 46 DIV.energy 46
Slide 47: 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 48: 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- Unhedged Adjusted EBITDA cash items such as gain
Slide 49: 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 Adjusted EBITDA borrowings and secured finan
Slide 50: 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, cash interest expense and cash paid for income taxes. The Free Cash Flow Yield Directors believe that Free Cash
Slide 51: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Base G&A As used herein, Base G&A represents total administrative expenses excluding non-recurring and/or non-cash acquisition and integration costs. The Directors use Base G&A because this measure excludes items that affect the comparability of results or
Diversified Energy Company — FY2021 Earnings Presentation on 6ix