Diversified Energy Company · NYSE:DEC
Diversified Energy — H1 2022 Earnings Presentation
57 slides from Diversified Energy's earnings presentation, August 2022
Slide 1: Interim Results
Interim Results August 2022 DIV.energy
Slide 2: Disclaimer and Forward-Looking Statements
DISCLAIMER AND FORWARD-LOOKING STATEMENTS The information contained in this document (the "Presentation") has been prepared by Diversified Energy In furnishing this Presentation, the Company does not undertake or agree to any obligation to provide the recipient with Company PLC (“Diversified” or the
Slide 3: Diversified Energy Profile
DIVERSIFIED ENERGY PROFILE LSE: DEC (FTSE250) Long-Life, Low Durable Efficient Cash Decline Production Pricing Strategy Generation Market and Trading Summary (as of 29 July 2022) Share Price £1.24 / $1.51 ~8.5% ~90% 22% Market Cap (MM) £1,053 / $1,281 Consolidated Hedged 2022 1H22 Free Cash Net Debt
Slide 4: Delivering on Strategic Objectives
DELIVERING ON STRATEGIC OBJECTIVES Prioritize Shareholder Returns Provide a sustainable dividend across commodity price cycles Highest dividend yield among upstream energy and ~ 5x the S&P 500 average dividend yield Solving the Energy Transition Puzzle Allocate incremental free cash flow to debt
Slide 5: Built for Sustainable Shareholder Returns
BUILT FOR SUSTAINABLE SHAREHOLDER RETURNS 250% TSR Since Feb 2017 IPO (a) Total Return (Rebased to 100) +250% Annual Average Nat Gas Price ($/MMBtu) Annual Dividends per Share ($/share) $8.69 100 16.50¢ 17.00¢ 13.92¢ 15.25¢ 11.23¢ $3.84 $2.46 5.44¢ $2.08 1.99¢ $3.11 $3.09 $2.63 (b) 2016 2017 2018 20
Slide 6: Compelling Valuation Across Sectors
COMPELLING VALUATION ACROSS SECTORS Enterprise Value to Adjusted EBITDA(a) Free Cash Flow to Enterprise Value(b) 25.0 14% 12.8% 20.8x 12% 20.0 10% 15.0x 15.0 14.2x 14.9x 12.4x 12.5x 8% 11.3x 9.3x 6% 5.0% 5.3% 10.0 8.4x 4.4% 3.6% 3.9% 4.0% 4% 3.2% 3.4% 4.5x 2.6% 5.0 2% 0.0 0% Diversified trades at a
Slide 7: Diversified's Value Attributes
DIVERSIFIED’S VALUE ATTRIBUTES Top 10 Dividend Yield in Upstream(a)(b) (2022E) 10.6% 9.9% 3-Yr Historic Avg: Upstream 2.97% 8.9% 10.2% 7.1% 4.7% 3.1% 2.7% 2.6% 3.1% 3.0% 2.2% 2.0% 2.0% 1.6% 1.5% 1.4% 1.6% 1.5% 1.0% 0.9% DEC-GB BRY CIVI NOG MUR (c) XOP (c) Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Pe
Slide 8: Share Price Has Decoupled from Commodity Prices
SHARE PRICE HAS DECOUPLED FROM COMMODITY PRICES The disconnect between DEC’s share price and long-term natural gas prices creates an opportunity DEC’s Share Price Relative To Natural Gas Prices PDP PV10 per Share vs Current Share Price(b) Rebased to 100 Pro Forma 2021 YE, Net of Hedges and Net Debt
Slide 9: Natural Gas Macro Remains Strong
NATURAL GAS MACRO REMAINS STRONG US Natural Gas Supply Growth Limited(a) Production Growth Muted by Takeaway Constraints Bcf per day Marcellus and Utica production forecasted to be flat in 2022 & 2023 105 and Haynesville increases in 2022 but remains relatively flat in 2023 Dry Gas Production 100 Na
Slide 10: Executive Highlights
Executive Highlights Rusty Hutson, Jr Chief Executive Officer DIV.energy
Slide 11: 1H22 Performance Highlights
1H22 PERFORMANCE HIGHLIGHTS Expanded Scale in Central Region with $260MM in Acquisitions(a) Complementary acquisitions of high margin assets strengthen opportunity set Produced 139 Mboepd in June 2022 20% increase over June 2021 through growth and Smarter Asset Management Generated $224 Million in A
Slide 12: Operating Highlights
Operating Highlights Brad Gray Chief Operating Officer and Executive Vice President DIV.energy
Slide 13: 1H22 ESG Highlights
1H22 ESG HIGHLIGHTS Conducted ~49,000 Upstream Emissions Inspections 90% of surveys completed with no detectable emissions Completed ~6,000 Miles of Midstream Emissions Surveys 40% of Appalachian assets surveyed with 75% of confirmed leaks repaired Expanded Asset Retirement Programme with 15 Pluggin
Slide 14: Strategically Growing Our Appalachian Asset Retirement Programme
STRATEGICALLY GROWING OUR APPALACHIAN ASSET RETIREMENT PROGRAMME Building Significant Plugging Capacity 2018 Initiated State Agreements Total Number of Rigs Established plugging consent orders covering 99% of assets 15 Creating enhanced line of sight to to enhance line-of-sight for plugging meeting
Slide 15: Executing Proven Acquisition Strategy to Drive Value
EXECUTING PROVEN ACQUISITION STRATEGY TO DRIVE VALUE 2021 2022 Acquisitions Acquisitions Indigo Blackbeard Tanos Tapstone East Texas ConocoPhillips Central Midstream Completed onboarding of Central Region personnel Complementary acquisitions consolidate regional footprint Deployed standardized
Slide 16: Smarter Asset Management Offsetting an Inflationary Environment
SMARTER ASSET MANAGEMENT OFFSETTING AN INFLATIONARY ENVIRONMENT 66 Wells Returned to Production| Well Swabbing and Workovers Small Victories Add Up to Big Wins Application of low-cost, low-risk techniques add incremental sales Focus on producing wells provides a portfolio of production volumes and o
Slide 17: Unlocking Additional Asset Value in the Central Region
UNLOCKING ADDITIONAL ASSET VALUE IN THE CENTRAL REGION 150 Wells Returned to Production | Unlocking Idle PDP Value Adding Value with Smarter Asset Management Extensive inventory of low-cost candidates in Central Region provide incremental cash flows in high price environment 1.8x ~15% 1.6x Enhancing
Slide 18: Production and Reserves
PRODUCTION AND RESERVES ~147 27% Increase in June Exit Rate Production ~116 ~109 (Mboepd) Exit Rate Central Region and SAM impacts set stage for record annual production in 2022 Appalachian production continues to beat engineered production declines of ~7% 35% Increase in Exit Rate 1H20 1H21 1H2
Slide 19: Shallow Declines and Dynamic Hedging Creates Predictable Cash Flow
SHALLOW DECLINES AND DYNAMIC HEDGING CREATES PREDICTABLE CASH FLOW Diversified’s Leads E&P Peers in Annual Declines(a) Annual Production Decline (%) Corporate Declines 3x Lower than Peers 31% Focus on low-decline, stable production assets Peer Average 29% sets apart Diversified’s business model 28%
Slide 20: Financial Highlights
Financial Highlights Eric Williams Chief Financial Officer and Executive Vice President DIV.energy
Slide 21: 1H22 Summary Financials
1H22 SUMMARY FINANCIALS Includes Non-Cash Market Valuation Losses $1.2 billion pre-tax market-to-market adjustment of long-dated hedge portfolio $934 Million $609 Million $(935) Million IFRS Total Revenue Gross Profit Net Loss 1H21: $323 Million 1H21: $132 Million 1H21: $(84) Million $465 Million $2
Slide 22: Built to Deliver Stable Margins Through Volatile Commodity Cycles
BUILT TO DELIVER STABLE MARGINS THROUGH VOLATILE COMMODITY CYCLES 50% Cash Margin 48% Cash Margin Realizing Higher Prices (+20%) 53% Unhedged 76% Unhedged Favourable Central Region differentials and Total Revenue $18.88 increased hedge pricing benefits cash flows ($/Boe) ($3.15/Mcfe) $15.75 ($2.63/M
Slide 23: Enabling Consistent Margins and Returns with Hedge Strategy
ENABLING CONSISTENT MARGINS AND RETURNS WITH HEDGE STRATEGY Supports Stable Cash Flows Hedge Coverage Targets... Diligent application of hedging strategy has produced a robust average Cash Margin of 50% since Feb 2017 IPO 1-12 Months 70-90% Maintain robust margins by Underpins Low-Cost Financing Str
Slide 24: Simple, Low-Cost, Highly-Amortizing Structure
SIMPLE, LOW-COST, HIGHLY-AMORTIZING STRUCTURE Low, ~5% fixed rates provide Liquidity-enhancing long-term ESG-linked Financing(a) reflect cost of capital advantage financing alternative to RBL commitment to sustainability Leverage(b) 2.1x 1.8x 2.0x 2.2x 2.1x 2.2x $2,000 Liquidity enhancing effect of
Slide 25: Leverage Aligned with Low-Decline Hedge-Protected Assets and High Margins
LEVERAGE ALIGNED WITH LOW-DECLINE HEDGE-PROTECTED ASSETS AND HIGH MARGINS Unlocking Asset Value with Stable Production Profile Makes the Difference Long-life, low-decline producing assets create line of sight to future Long-Term Financing Structures cash flows within the need for significant develop
Slide 26: Enhancing Cash Flows with Asset Retirement Cost Optimisation
ENHANCING CASH FLOWS WITH ASSET RETIREMENT COST OPTIMISATION Efficiencies Enhance Consolidated Cash Flows Average Retirement Cost per Well (Net) 16% Reduction to 2020 Net Cost per Well(a) Excess capacity meaningfully impacts the Increase to number of wells plugged internally $25,000 net cash flows f
Slide 27: Providing Consistent Margins and Returns
PROVIDING CONSISTENT MARGINS AND RETURNS 60% Increase in Adjusted EBITDA Disciplined execution of acquisition and operating strategies enhance cash generation while sustaining robust margins 20% Growth in Sustainable Dividend Distributions Consistency in cash generation sets the stage for differenti
Slide 28: Outlook & Closing Remarks
Outlook & Closing Remarks Rusty Hutson, Jr Chief Executive Officer DIV.energy
Slide 29: 2022 Outlook and Value Drivers
2022 OUTLOOK AND VALUE DRIVERS Maintain Focused Execution on Aggressively Drive Reductions in Operations Optimisation Absolute Emissions Create value through effective Build on momentum generated by Smarter Asset Management financial, operational commitments Capture Higher Prices in Hedge Enhance Li
Slide 30: 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 div.energy Douglas Kris Peter Krens Ashton Clanfield IR@dgoc.com peter.krens@tennysonsecuritie
Slide 31: Acquisition Strategy
Acquistion Strategy DIV.energy
Slide 32: Growth via Acquisition with Low-Risk Upside
GROWTH VIA ACQUISITION WITH LOW-RISK UPSIDE Market Volatility & Dislocation = Opportunity Set Utilize track record of underwriting, More economic to buy reserves which yields low capital buying and managing undervalued expenses, ability to return cash to shareholders and assets as a competitive adva
Slide 33: Driving Value Through Accretive Acquisitions
DRIVING VALUE THROUGH ACCRETIVE ACQUISITIONS Apply industry leading Smart Asset Management (SAM) on larger PDP base without balance sheet stress Appalachia OK Central PA OH WV ~$2.5 Billion TX VA 21 acquisitions since LA 2017 IPO KY TN Central Region Midstream East Texas Diversified Upstream Resourc
Slide 34: Delivering Exceptional Value on Central Region Acquisitions
DELIVERING EXCEPTIONAL VALUE ON CENTRAL REGION ACQUISITIONS Total Shareholder Return Bolt-On of East Texas Upstream Assets Since Feb 2017 IPO +250% Underwrite and allocate value to PDP assets with embedded DEC upside potential E&P Peers(d) $35MM ~10% >PV40 1.4x Estimated Uplift to Adj. Equivalent Pu
Slide 35: Appendix
Appendix DIV.energy
Slide 36: Who Are We: Operator of U.S. Onshore Developed Assets
WHO ARE WE: OPERATOR OF U.S. ONSHORE DEVELOPED ASSETS Appalachian Region: Appalachian Basin Pennsylvania, West Virginia, Ohio, PA OH Kentucky, Virginia, Tennessee ~65% of Production Central Region: Oklahoma, Texas, Louisiana ~35% of Production WV Central Region KY VA OK TN LA HQ TX DIV.energy 36
Slide 37: Historical Operating Expenses by Nature
HISTORICAL OPERATING EXPENSES BY NATURE Appalachia Partially Includes Fully Includes Only Central Region Central Region $9.85 Runway to Replicate Efficiencies of Scale $/Boe ($1.64/Mcfe) Central Region consolidation creates opportunity to $8.03 $1.47 $7.84 reduce unit costs, replicate success in App
Slide 38: 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 39: Commodity Derivatives Portfolio (as of 29 July 2022)
COMMODITY DERIVATIVES PORTFOLIO (AS OF 29 JULY 2022) Natural Gas $3.31/Mcfe $3.27/Mcfe $3.02/Mcfe 2022 2023 2024 Annual Summary(a) ~90% Hedged ~80% Hedged ~65% Hedged Natural Gas Financial Derivatives Contracts Natural Gas (MMBtu, $/MMBtu) 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 FY22 FY23 FY24 FY25
Slide 40: Commodity Derivatives Portfolio (as of July 2022)
COMMODITY DERIVATIVES PORTFOLIO (AS OF 29 JULY 2022) NGLs $31.85/bbl $36.80/bbl $35.40/bbl 2022 2023 2024 Annual Summary(a) ~75% Hedged ~70% Hedged ~35% 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 Deriv
Slide 41: 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 2026a) intensity by 2030(a
Slide 42: About Oil & Gas Methane Partnership 2.0 (OGMP 2.0)
ABOUT OIL & GAS METHANE PARTNERSHIP 2.0 (“OGMP 2.0”) What is OGMP 2.0? Reporting Levels Voluntary framework of collaborative parties 1 Emissions reported for a venture at asset or country level Aims to systematically reduce Scope 1 emissions 2 Emissions reported in consolidated, simplified sourc
Slide 43: Glossary
GLOSSARY 1H21 First-half 2021, or the six month period ended 30 June 2021 1H22 First-half 2022, or the six month period ended 30 June 2022 2H21 Second-half 2021, or the six month period ended 31 December 2021 £ British pound sterling $ U.S. dollar Adjusted EBITDA Adjusted EBITDA is an APM. Please re
Slide 44: Glossary
GLOSSARY M&A Mergers and acquisitions MBbls Thousand barrels MBoe Thousand barrels of oil equivalent 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, NG
Slide 45: Glossary
GLOSSARY Total Cash Cost Total Cash Cost is an APM. Please refer to the APM section in Additional Information within this Interim Report for information on how this metric is calculated and reconciled to IFRS measures. Total Cash Cost per Boe Total Cash Cost per Boe is an APM. Please refer to the AP
Slide 46: Supplemental Information
Supplemental Information DIV.energy
Slide 47: Unaudited Financial Statements: Profit or Loss
UNAUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Unaudited Audited Six Months Ended Year Ended 30-Jun-22 30-Jun-21 31-Dec-21 Revenue $ 933,528 $ 323,316 $ 1,007,561 Operating expense (206,357) (119,555) (291,213) Depreciation, depletion and amor
Slide 48: Unaudited Financial Statements: Financial Position
UNAUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Unaudited Audited Unaudited Audited 30-Jun-22 31-Dec-21 30-Jun-22 31-Dec-21 ASSETS EQUITY AND LIABILITIES Non-current assets: Shareholders' equity: Natural gas and oil properties, net $ 2,428,848 $ 2,530,078 Share capital $
Slide 49: Unaudited Financial Statements: Cash Flow
UNAUDITED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOW Unaudited Audited Unaudited Audited Six Months Ended Year Ended Six Months Ended Year Ended 30-Jun-22 30-Jun-21 31-Dec-21 30-Jun-22 30-Jun-21 31-Dec-21 Cash flows from operating activities: Cash flows from investing activities: Net
Slide 50: Revenue Reconciliation (Non-IFRS)
REVENUE RECONCILIATION (NON-IFRS) 1Q21 2Q21 1H21 3Q21 4Q21 FY21 1Q22 2Q22 1H22 Units 1Q21 2Q21 1H21 3Q21 4Q21 FY21 1Q22 2Q22 1H22 Production: Natural gas (MMcf) 50,579 54,309 104,888 63,950 65,805 234,643 62,419 64,979 127,398 Oil (MBbls) 113 129 242 130 220 592 385 401 786 NGL (MBbls) 642 768 1,410
Slide 51: Expense Reconciliation (Non-IFRS)
EXPENSE RECONCILIATION (NON-IFRS) 1Q21 2Q21 1H21 3Q21 4Q21 FY21 1Q22 2Q22 1H22 Units 1Q21 2Q21 1H21 3Q21 4Q21 FY21 1Q22 2Q22 1H22 Production: Natural gas (MMcf) 50,579 54,309 104,888 63,950 65,805 234,643 62,419 64,979 127,398 Oil (MBbls) 113 129 242 130 220 592 385 401 786 NGL (MBbls) 642 768 1,410
Slide 52: Adjusted EBITDA Reconciliation (Non-IFRS)
ADJUSTED EBITDA RECONCILIATION (NON-IFRS) 1Q21 2Q21 1H21 3Q21 4Q21 FY21 1Q22 2Q22 1H22 Adjusted EBITDA (hedged) $ 78,002 $ 73,312 $ 151,314 $ 91,735 $ 100,096 $ 343,145 $ 109,562 $ 114,198 $ 223,760 Depreciation and depletion (34,192) (36,991) (71,183) (44,345) (50,271) (165,799) (54,431) (62,200) (
Slide 53: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Average Quarterly Dividend per Average Quarterly Dividend per Share is reflective of the average of the dividends per share declared throughout the year which gives consideration to Share changes in dividend rates and changes in the amount of shares outsta
Slide 54: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Adjusted EBITDA As used herein, EBITDA represents earnings before interest, taxes, depletion, depreciation and amortisation. Adjusted EBITDA includes adjusting items that are comparable period over period, non-cash items such as gains on the sale of assets
Slide 55: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) As used herein, Hedged Total Revenue includes the impact of derivatives settled in cash. The Directors believe that Hedged Total Revenue is a useful Hedged Total Revenue measure because it enables investors to discern DEC’s realised revenue after adjusting
Slide 56: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Free Cash Flow and As used herein, Free Cash Flow represents net cash provided by operating activities less expenditures on natural gas and oil properties and equipment and Free Cash Flow Yield cash paid for interest. The Directors believe that Free Cash F
Slide 57: Alternative Performance Metrics (Unaudited)
ALTERNATIVE PERFORMANCE METRICS (UNAUDITED) Net Debt and Net Debt-to- 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 Adjusted EBITDA debt, Credit Facility borrowings and secured financing b
Diversified Energy Company — H1 2022 Earnings Presentation on 6ix