Diversified Energy Company · NYSE:DEC
Diversified Energy — Diversified Gas & Oil — FY2018 Earnings Presentation
53 slides from Diversified Energy's earnings presentation, Feb 28, 2019
Slide 1: Full Year Results
F U L L Y E A R R E S U LT S 28 February 2019
Slide 2: Disclaimer
DISCLAIMER FY Results 2018 Presentation 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
Slide 3: Diversified Gas & Oil: Structurally transformed to drive greater profitability
DIVERSIFIED GAS & OIL Structurally transformed to drive greater profitability Four accretive acquisitions totaling nearly $1 Billion Strong cash flow drives Net Debt/Adj EBITDA to ~1.8x(a) Southern midstream assets enhance margins Arrested declines through smarter well management 2018 Aver
Slide 4: Continued Commitment to Our Strategy
CONTINUED COMMITMENT TO OUR STRATEGY A disciplined approach to creating long-term value Continued disciplined growth Each transaction increased operational cash flow per share in the aggregate from $0.06 to $0.23 year over year(a) Acquire long-life, low decline assets Drives cost-efficient produ
Slide 5: Four Accretive Acquisitions in 2018
FOUR ACCRETIVE ACQUISITIONS IN 2018 Geographically concentrated footprint adds scale in Appalachia Current DGO = 70 Mboed 8.8 Mboed 9.0 Mboed 49 MMboe PDP Reserves 69 MMboe PDP Reserves 1.5 Million Acres 0.9 Million Acres APC $95 MM CNX $85 MM Top 15 Producer 32 Mboed 11.2 Mboed 230 MMboe PDP Reserv
Slide 6: Delivering Value to Shareholders
DELIVERING VALUE TO SHAREHOLDERS Transforming the composition of our revenue stream while optimising costs Structurally Enhanced Lower Unit ~ 25 % Realised Prices(a) ~ 20 %Cash Costs(b) ~$21.71 ~$ 8.55 ~$17.14 ~$10.74 4Q18 vs 4Q17 FY 2018 vs FY 2017 Higher per-share ~ 4x Op Cash Flow Per Share(c) >
Slide 7: Operations Overview
& DIVERSIFIED GAS & OIL PL c¢c Operations Overview
Slide 8: Lessons from 2018
LESSONS FROM 2018 Strategic consolidation of assets drives value Diversified recognizes that not all assets are the same. That’s why we purchase assets based on their ability to generate outsized returns. In 2018, this meant consolidating assets where we could achieve the following: OPTIMISE PRODUCT
Slide 9: Optimise Production of Neglected Assets
OPTIMISE PRODUCTION OF NEGLECTED ASSETS Utilizing DGO’s “Smarter Well Management” to increase production & reserves I Capital–constrained Marcellus producers have to allocate cash & significant resources to drilling for production optimisation. DGO’s Smarter Well Management Programme allows us to ma
Slide 10: Reduce Costs with Operational Efficiencies
REDUCE COSTS WITH OPERATIONAL EFFICIENCIES Leveraging economies of scale to reduce costs II Overlapping assets shortens well tender routes, decreases equipment overhead, and creates II purchasing power which ultimately reduces costs $6.1 MM Compression 36% Annualised Op Costs Maintenance Disposal $3
Slide 11: Aggregating Knowledge & Resources
AGGREGATING KNOWLEDGE & RESOURCES A future built upon successful basin-wide integration of knowledge & systems PEOPLE PROCESS SYSTEMS RETAIN SKILLED EXPERTISE CROSS-TRAIN SHARED CONSOLIDATE & OPTIMISE KNOWLEDGE & SKILLS MANAGED RESOURCE THROUGHOUT THE SYSTEMS FOSTER A CULTURE OF APPALACHIAN BASIN -
Slide 12: Leveraging Resources Across Appalachia
LEVERAGING RESOURCES ACROSS APPALACHIA Setting the standard with experienced and skilled operations professionals Our consolidated footprint of Skilled Resources spans densely across Northern & Southern Appalachia, enabling us to develop Innovative Programs that set a new standard in efficient Produ
Slide 13: Create Value by Controlling the Value Chain
CREATE VALUE BY CONTROLLING THE VALUE CHAIN Eliminating costly gathering while adding a new revenue stream III Since acquiring our midstream assets this year, unit cash margins have been significantly enhanced through reduced G&C costs, additional revenue stream, & III integration synergies Q4 Enhan
Slide 14: Protect Cash Flows by Market Diversification
PROTECT CASH FLOWS BY MARKET DIVERSIFICATION Diversifying gas markets for advantageous takeaway optionality and pricing Ample Takeaway Capacity Through Major Pipelines IV Each of our operating areas are supported by multiple takeaway alternatives. This optionality allows us to redirect gas to more f
Slide 15: Enhance Margins with Liquids Production
ENHANCE MARGINS WITH LIQUIDS PRODUCTION Extracting more value from each molecule produced V Our High BTU gas routed and processed at the Langley plant has allowed for higher realized pricing & increased margins. V UNPROCESSED GAS PROCESSED GAS Processing creates a $1.54/mcfe benefit compared to unpr
Slide 16: P&A Agreements by State
P&A AGREEMENTS BY STATE Committed to safe, systematic asset retirement Well Agreement Detail Minimum P&A Obligations by State & AFE Totals COST (a) $2.6MM $2.6MM $2.6MM $2.6MM $2.6MM P&A West Virginia • 30 initial wells • 50 wells per year 120 • 15 year agreement • 20 min plug/year 105 105 105 105 1
Slide 17: Financial Results Overview
& DIVERSIFIED GAS & OIL PL c¢c FINANCIAL RESULTS OVERVIEW
Slide 18: By the Numbers
BY THE NUMBERS Full Year and 4Q Comparisons 2017 2018 Change 4Q17 4Q18 Change PDP Reserves (Mmboe) 55 474 7.5x -- -- -- PV-10 Reserves ($B) .25B 1.6B 5.5x -- -- -- Results Summary Average net Mboepd 6.6 41.0 5x -- -- -- Exit rate (MBoepd) 10.4 70.0 6x 10.4 70.0 6x (a) Total revenue (Hedged) ($MM) $4
Slide 19: Cash Flow Considerations
A CASH FLOW CONSIDERATIONS DGO not only led CFPS growth, but is positioned to generate highest returns 400% Value Creation ▬ CF Outspend FCF Positive 300% Growth Operating Cash Flow per Share Growth Growth 200% 100% 2017 – 2018(a) – (50%) (40%) (30%) (20%) (10%) – 10% 20% 30% 40% 50% (100%) (2
Slide 20: Total Shareholder Returns in 2018
A TOTAL SHAREHOLDER RETURNS IN 2018 In a year when the industry struggled, DGO’s return DOUBLED that of its next closest peer 75% 46% 50% FY18 Total Shareholder Return 25% 21% 11% 7% 5% – (6%) (6%) (12%) (13%) (18%) (21%) (22%) (23%) (25%) (38%) (39%) (39%) (43%) (50%) (49%) (51%) (56%) (75%) DGO Ap
Slide 21: Accretive Growth Enhancing Dividends
ACCRETIVE GROWTH ENHANCING DIVIDENDS Consistent execution of creating value for our shareholders Dividends per Share Growth Higher Dividend Payouts (b) FY2018 = 11.23c Shift to Quarterly Dividends(a) FY2017 = 5.44c 10.0% ¢14 > 2.0x 12¢ 9.0% 8.8% 9.3% 9.0% 8.0% DIVIDEND ¢12 GROWTH 7.0% 3.40¢ 7.0% Div
Slide 22: Production
PRODUCTION Increasing liquids component enhances overall economics Production Profile Evolution ~ 600% Y/Y 70,000 Daily Production… boed with Strengthened Production Mix 12% 10,400 boed 2% 70.0 Mboed 6% 3% 14% Liquids 10.4 Mboed 86% 9% Liquids Realized Price: 91% FY17: $17.41 Realized Price: 4Q17: $
Slide 23: Revenues
REVENUES Transformation of the asset base driving realized price improvements REVENUE GROWTH(a) FOURTH QUARTER: DRIVING REALIZED PRICING HIGHER(a) 4Q Revenue $25.00 MIDSTREAM 1Q - 3Q UPSTREAM CONTRIBUTION Realized $/ Boe(b) ENCHANCEMENTS $1.28 $21.71 $0.80 350 $20 $0.51 $3.10 $20.00 $0.51 $1.47 $17.
Slide 24: Expenses & Margin
A EXPENSES & MARGIN Leveraging scale to reduce unit costs and enhance cash margins MARGINS WIDENING ON CONSOLIDATED PORTFOLIO REDUCING EXPENSES $20 $21.71 Expenses > 20% 2018 Total Expenses $10.74 $17.14 $10 $2.03 90% Expenses $8.55 $15 $6.84 ~ $13.20 $1.34 Cash Margin $8 Price per Boe Expense per B
Slide 25: Reserves
RESERVES PDP Reserves 17’ vs. 18’ climb ~760% (55 to 474 mmboe) 100% PDP Reserves $1.8 PV10% $1.6B 500 9 $1.6 Where did the production $1.4 400 column I added go? $1.2 PDP Reserves (MMboe) PV10% ($Billions) 300 $1.0 425 474 $0.8 200 $0.6 PV10% $0.4 PV10% $259MM 100 $125MM $0.2 15 55 28 40 - $0.0 YE1
Slide 26: Demonstrated Commitment to Low Leverage
DEMONSTRATED COMMITMENT TO LOW LEVERAGE Strategically balanced to provide the optimum cash flow flexibility 31-Dec 31-Dec Committed to maintaining low leverage (Currencies In Millions) • Target 2x or less Net Debt / Adj EBITDA 2017 2018 • Credit Facility provides cost effective means to fund acquisi
Slide 27: Hedged to Protect Cash Flow & Dividends
HEDGED TO PROTECT CASH FLOW & DIVIDENDS Outer-month target levels allow for managing through illiquid / inefficient markets Target Months Target Months Levels : 1 - 18 Levels : 19 - 36 Unhedged Unhedged Discretionary Hedging 76-90% Discretionary Hedging 51-90% Portfolio Duration Preferred Structures
Slide 28: 2019 Outlook
& DIVERSIFIED GAS & OIL PL c¢c 2019 OUTLOOK
Slide 29: Outlook: 2019 & Beyond
OUTLOOK: 2019 & BEYOND Our differentiated business model drives steady, predictable shareholder returns Vast Opportunity set coupled with… Capital Allocation framework 1 A …is driving our st Organic Cash Acquisitions in Flow Projects: Market: DGO’s Well Management Public E&P’s Seeking Drilling 2 Pro
Slide 30: Outlook: 2019
OUTLOOK: 2019 Other company initiatives Emphasis on System Modernization & Data Board Expansion / Composition Evaluate Move to Main Market DGOC 2018 FY Results 30
Slide 31: Appendix - About DGO
& DIVERSIFIED GAS & OIL PL c¢c APPENDIX —- ABOUT DGO
Slide 32: Business Model
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 L
Slide 33: The Journey
THE JOURNEY Top 15 Established, profitable, proven, & growing Appalachian Producer ~ 70,000 Net Boe/d ~185% Net Production CAGR ‘18 from YE 2016 to YE 2018 Net ~10,400 Boe/d January: Raised $180MM net equity proceeds to fully fund two, transformative acquisitions in March, Net ‘17 3,000 Boe/d March:
Slide 34: DGO's Smarter Well Management Programme
DGO’S SMARTER WELL MANAGEMENT PROGRAMME Improving production on active wells, Returning inactive wells to production 1 Pumpjack Installation 4 Plunger Lift Setup For wells with higher oil production potential, The team installed a plunger lift on this well, the team will manage the well to reduce wh
Slide 35: Organic Growth Opportunity
ORGANIC GROWTH OPPORTUNITY Vast land bank provides ample opportunity in higher price environments Substantial ~7.8 million acres of land sparsely drilled and largely undeveloped Current development at >100 acre spacing Deemed full developed at ~20 acre spacing (i.e. 4 additional well locations
Slide 36: Hedge Portfolio Summary
HEDGE PORTFOLIO SUMMARY AS OF FEBRUARY 28, 2019 Natural Gas Hedges(a) NGL Hedges Oil Hedges Physical Sales Swaps Swaps 17% 29% 18% Deferred Premium Puts 19% Costless Costless Collars Swaps Collars 35% 100% 82% $2.71 $2.65 $2.66 $2.65 $3.00 $38.78 $36.38 $36.25 $36.76 350,000 $2.60 $2.62 7,000 $35.95
Slide 37: A Unique Investment Opportunity
A UNIQUE INVESTMENT OPPORTUNITY Diversified Gas & Oil • 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) Divide
Slide 38: Appendix - Asset Retirement
& DIVERSIFIED GAS & OIL PL c¢c APPENDIX - ASSET RETIREMENT
Slide 39: Planning Safe & Efficient Operations
PLANNING SAFE & EFFICIENT OPERATIONS Proactively managing wells and planning out asset retirement STEP Does it present any NO STEP Is the well 1 threat to the 2 economic or not? environment? YES YES NO Will it be economic if Continue STEP Plug 3 prices moderately Producing recover? WELL MANAGEMENT &
Slide 40: Our Approach to Well Operations
OUR APPROACH TO WELL OPERATIONS Value captured: Acquisition & Integration to Asset Retirement Operating Initiatives OPTIMIZING WELL LIFE Increase production, extend well-life & reactivate inactive wells Planning Initiatives Leverage expansive Proactively plan for midstream assets to asset reti
Slide 41: DGO's Safe & Systematic Asset Retirement
DGO’S SAFE & SYSTEMATIC ASSET RETIREMENT A proactive initiative for long-term environmental and economical sustainability DGO’s Safe & Systematic Asset The DGO Way The Wrong Way Retirement programme reflects DGO’s solid commitment to: Accepting Conforming plans & standardized materials to safely fit
Slide 42: Safe & Systematic Asset Retirement
SAFE & SYSTEMATIC ASSET RETIREMENT Cost saving initiatives developed for current & future plugging activities Since gaining operatorship of this asset in mid-July, DGO EXAMPLE: RECENT P&A COST REDUCTION has implemented several initiatives that already reduced P&A costs by ~$16,800 per well. • Key ar
Slide 43: P&A Portfolio Considerations
P&A PORTFOLIO CONSIDERATIONS Cost saving initiatives developed for current & future plugging activities Well Map Commentary Legend Horizontal Wells • Over 80% of DGO’s current well portfolio will cost less than Kentucky $25,000 to plug. Misc. The higher cost, horizontal wellbores are among the Ohi
Slide 44: Estimated Asset Retirement
ESTIMATED ASSET RETIREMENT A forward look at future plugging needs Commentary Cumulative PV10% Graph 60 70,000 • DGO has or is negotiating firm multi-year plugging agreements with the states in which it operates. 60,000 50 Years 1 – 5 assume ~105 wells plugged per year Years 6 – 15 assume Cumula
Slide 45: Appendix - Financial Details
A P P E N D I X – F I N A N C I A L D E TA I L S
Slide 46: Diversified Gas & Oil Audited Financials
DIVERSIFIED GAS & OIL AUDITED FINANCIALS Consolidated Statements of Profit or Loss and Other Comprehensive Income (Amounts in thousands, except per-share amounts) (Restated) Audited Audited Year ended Year ended Note 31 December 2018 31 December 2017 Revenue 5 $ 289,769 $ 41,777 Operating expense 6
Slide 47: Diversified Gas & Oil Audited Financials - Assets
DIVERSIFIED GAS & OIL AUDITED FINANCIALS Consolidated Statements of Financial Position - Assets (Amounts in thousands) (Restated) Audited Audited Note 31 December 2018 31 December 2017 ASSETS Non-current assets Oil and gas properties, net $ 1,092,951 $ 215,325 Property and equipment, net 324,766 6,9
Slide 48: Diversified Gas & Oil Audited Financials - Equity and Liabilities
DIVERSIFIED GAS & OIL AUDITED FINANCIALS Consolidated Statements of Financial Position – Equity and Liabilities (Amounts in thousands) (Restated) Audited Audited Note 31 December 2018 31 December 2017 EQUITY AND LIABILITIES Shareholders’ equity Share capital $ 7,337 1,940 Share premium 540,664 76,02
Slide 49: Diversified Gas & Oil Audited Financials - Cash Flow
DIVERSIFIED GAS & OIL AUDITED FINANCIALS Consolidated Statements of Cash Flow (Amounts in thousands) (Restated) Year ended Note 31 December 2018 31 December 2017 Cash flows from operating activities Income after taxation 201,119 27,454 Cash flow from operations reconciliation: Depreciation and deple
Slide 50: Non IFRS & Other Reconciliations: Revenue
NON IFRS & OTHER RECONCILIATIONS Revenue reconciliation (Amounts in thousands) DGOC 2018 FY Results 50
Slide 51: Non IFRS & Other Reconciliations: Expense
NON IFRS & OTHER RECONCILIATIONS Expense reconciliation (Amounts in thousands) DGOC 2018 FY Results 51
Slide 52: Non IFRS & Other Reconciliations: Adjusted EBITDA
NON IFRS & OTHER RECONCILIATIONS Adjusted EBITDA reconciliation (Amounts in thousands) DGOC 2018 FY Results 52
Slide 53: Diversified Brokers
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 ADRIAN WILLIAMS, IR MANAGER PETER KRENS ASHTON CLANFIELD IR@DGOC.COM