WTI (Oct) $83.63 +$2.00, Brent (Nov)* $86.86 +$1.00, Diff -$3.23 -$1.00
USNG (Oct) $2.76 -3c, UKNG (Oct) 90.0p -5.35p, TTF (Oct) €36.25 -€2.11
*Brent October contract expiry

Oil price

The month left oil good by $1.83 for WTI and $1.30 for Brent but this has been a particularly good week, with today’s dollar rise they may end up $5 on the week. This is for a number of reasons from the return of the hurricane season to the news that Russia is to extend cuts and not forgetting the big fall in crude inventories.

Diversified Energy Company

Diversified Energy has announce its Interim Results for the six months ended 30 June 2023 and other recent highlights.

Delivering Reliable Results

• Record avg. net daily production: 852 MMcfepd (142 Mboepd); +4.4% vs 1H22: 816 MMcfepd (136 Mboepd)
• June 2023  exit rate of 864 MMcfepd (144 Mboepd)
• Maintained industry-leading consolidated corporate decline rate of ~10%
• Increased 1H23 Adjusted EBITDA(a) of $283 million (+26% vs 1H22: $224 million)
• 1H23 Adjusted Cost per Unit of $1.66/Mcfe ($9.96/Boe); –10% vs 2H22: $1.84/Mcfe ($11.04/Boe)(b)
• 1H23 Adjusted EBITDA Margin(c) of 52% (1H22: 48%)
• Net Income of $631 million, which includes $761 million (pre-tax) of non-cash hedge valuation gain
• Annualized Free Cash Flow Yield of 32%(d), excluding the impact of working capital
• Leverage ratio of 2.4x(e)
• Liquidity of ~$103 million

Executing Strategic Objectives

• Generated $62 million (net) in liquidity through the monetization of non-core assets(f)
• Completed $262 million acquisition of complementary Central Region upstream assets(g)
• Declared 2Q23 interim dividend of $0.04375 per share (2Q22: $0.04250 per share, +3%)
• Paid $84 million of dividends to shareholders through 2Q23

Creating Value Through Stewardship

• Increased MSCI sustainability rating to AA
• Achieved Project Canary Gold rating for low methane emissions on specific Central Region assets
• Completed >120,000 upstream surveys, with a post-inspection no-leak rate on ~97% of assets
• Included initial inspections for ~75% of Central Region
• Conducted aerial emissions surveys on ~6,300 miles of midstream systems
• Permanently retired 174 wells in Appalachia, including 87 Diversified wells
• 66 of 87 external wells retired in conjunction with state orphan well programs
• Converted pneumatic devices on 50+ well pads in Central Region, exceeding FY2023 goal of 50 well pads

Commenting on the results, CEO Rusty Hutson, Jr. said:|
“These results reflect the resilience and consistency of our business. The execution of our disciplined strategic plan and the strength of our operational performance translated directly into strong financial results and allowed the Company once again to generate robust cash margins despite lower natural gas prices. Diversified is the right company at the right time to deliver long-term stakeholder returns while also providing the solution to existing, long-life producing wells that have become non-core assets for other operators.

Our seasoned management team and dedicated field personnel remain highly focused on our stewardship model and have a track record of optimizing the technical, commercial, and operational aspects of acquired assets through our Smarter Asset Management.  During the first half of the year, we again demonstrated Diversified’s prudent and proven consolidation strategy with the Tanos II acquisition, while our operations team remained busy finding new and innovative ways to enhance margins by combining productivity enhancements and cost reductions from our existing assets. We will continue to evaluate and execute transactions that are in the best interest of shareholders, and we appreciate the continued and long-term support of our collective stakeholder base as we continue to implement our well-defined growth through acquisition strategy.

Consistent with our strategy, we delivered on our initiative to realize value from undeveloped acreage and non-core assets with over $60 million in cash proceeds. We believe that significant opportunities through outright sales, advantageous joint ventures, or other partnership constructs will provide a catalyst to unlock our net asset value upside and drive organic, no-cost production growth.

We are more excited than ever about the future and look forward to continuing to build a company that provides safe, reliable, and responsibly produced energy while delivering meaningful value to stakeholders.”

Diversified Energy headlined their webcast presentation with the banner ‘Right Company Right Time’ a moniker it has justified by time and time again in the six plus years that it has been here in London. 

Today’s figures were excellent, belying the industry cost inflation, lower gas prices and fewer potential acquisitions as DEC came in with a first class set of interims. Record production of 142 Mboepd which was 144 Mboepd at the quarter end and lower unit costs, by 10%,  led to revenue that thrashed the whisper and EBITDA a top of the range $283m. 

This strong operational performance was born in the Smarter Asset Management team where core efficiencies delivered 1H23 Adjusted EBITDA Margin of 52% beating this time last year by 4 basis points and the company describe as being ‘robust’.  Indeed some gas wells were shut in to come back to at higher prices.                         

And as I mentioned earlier, this performance was achieved on the back of lower gas prices but still achieved Net Income of $631 million, which includes $761 million (pre-tax) of non-cash hedge valuation gain, yet again proving that hedging has proved further added value, this time 15% higher than the strip. 

Finally the company also announced the interim dividend with today’s figures, at 4.375 cents per share for 2Q 2023 that is an increase of 3% over this time last year and for a company I have yielding C.15% for this year and 17% for next.

DEC has continued to deliver excellent figures year after year, whatever the background whilst all the time backed by a strong balance sheet and aggressive dividend payments. A while ago I worked out with the company that they could pay the dividends for many years and still the company would not lose any value, quite some tribute to the management and the model they have established.

For the future there will be more acquisitions, the company has been waiting for deals to come to them as the market has been a bit toppy as vendors are yet to come to terms with the higher costs and expectations are maybe a bit too high, DEC don’t want to overpay, nor will they. 

DEC are extraordinarily cheap, whilst they are off the bottom, at 91p they carry a substantial, 15 yield, directors have been buying stock and I can’t think of any companies better placed to take advantage of current market conditions, they are indeed resilient and consistently execute the model which has worked very well for them. 

Diversified Energy Company PLC (LSE:DEC) is pleased to announce that the Board has declared an interim dividend of 4.375 cents per share in respect of 2Q23 for the three month period ended 30 June 2023, an increase of 3% over the 2Q22 dividend of 4.250 cents per share.

Key dates related to this dividend include:

Diversified will pay the dividend in U.S. dollars while continuing to make available to shareholders a sterling election. For those shareholders who wish to receive their dividend payment in sterling, and who have not yet completed a currency election form, the Company has made available a dividend election form on its website at https://ir.div.energy/dividend-information. Shareholders who wish to receive sterling should submit the currency election form to Computershare Investor Services no later than 8 December 2023.

Diversified will announce the sterling value of the dividend payable per share approximately two weeks prior to the payment date.

San Leon Energy

San Leon has announced a further extension to the longstop dates for the proposed transactions with Midwestern Oil & Gas Company Limited and the Company’s further conditional investments in Energy Link Infrastructure (Malta) Limited.  Details of the Proposed Transactions were announced by the Company on 8 July 2022 and set out in an admission document published by the Company on the same day. 

All longstop dates in relation to the Proposed Transactions have, in agreement with Midwestern and the other relevant parties, now been extended to 30 September 2023. The longstop dates are in relation to the New Eroton Debt Facilities, the Sahara OML 18 Acquisition Agreement, the MLPL Reorganisation Agreement and the ELI Reorganisation Agreement (details of all of which are set out in the.

The Company is in discussions with Midwestern on whether a potential revision to the Proposed Transactions can be agreed to allow completion to occur whilst the New Eroton Debt Facilities and the Sahara OML 18 Acquisition continue to be delayed for reasons outside of the Company’s control. There can be no guarantee that any such revised terms will be agreed.

Further to the update on refinancing discussions and outstanding creditors (including the US$5.0 million loan from funds managed by Toscafund Asset Management LLP) announced on 8 August 2023, San Leon remains in discussions with a third party in relation to securing an alternative loan facility of US$50.0 million and will provide an update to shareholders when the loan facility is entered into.

Further to the Company’s announcement of 8 August 2023, San Leon remains in discussions with ELI regarding making further potential investments of up to US$37.0 million, in ELI, which would be conditional, inter alia, on San Leon completing the alternative loan facility of US$50.0 million referred to above.

Unless otherwise defined herein, the capitalised defined terms used in this announcement have the same meaning as those used in the Admission Document.

The longstop dates for recently announced transactions have been further extended until 30th September 2023, this certainly won’t come as a surprise to followers of the complicated deals in all their forms. 

Jadestone Energy

Jadestone yesterday provided the following operational update.

Montara
The Company is pleased to announce that, following an investigation and assurance review into the 4S/5C tank defect, it intends to restart production at Montara on 1 September 2023.

Production will be restarted from one well at an expected rate of c.1,000 bbls/d to recommission the FPSO’s oil production system, followed by gas compression, allowing further wells to be brought back online within several days.  At this point, production is expected to increase to c.6,000 bbls/d, the rate prior to the shutdown at the end of July 2023.

The Company will continue to utilise a shuttle tanker to provide additional storage during this period of constrained FPSO storage capacity.

Further to the announcement on 23 August 2023, FPSO tank inspection and repair work has continued to make progress, with the following activities taking place:

• Repairs in ballast water tank 4P are almost complete, after which it will be returned to service.
• Inspections and preparations for repair work are now underway in tank 5C and ballast water tank 4S.

The defects encountered pose no safety or structural risk, nor any risk of a hydrocarbon leak to sea.

The National Offshore Petroleum Safety and Environmental Management Authority has been kept regularly updated on progress at Montara.

Further updates on Montara will be provided as activity progresses.

Akatara
The Akatara development continues to make good progress, and remains on budget and schedule for first gas in H1 2024.  The project is currently c.55% complete (from c.42% in mid-July 2023) with c.2.5 million man hours worked without a lost-time incident.

Malaysia
On 15 August 2023, the Naga-2 rig was taken on contract for the East Belumut field drilling campaign on the PM329 PSC.  Drilling operations on the first of the four wells has commenced.  The four wells are expected to deliver incremental gross peak oil production of 2-2,500 bbls/d with a projected IRR of c.90%.

As predicted Montara is coming back, slowly at first but building over the next few days after initial inspections approved the repairs. Elsewhere Akatara is doing well and on target for first gas H1 next year and the drilling programme has started on PM329 PSC. 

KeyFacts Energy Industry Directory: Malcy's Blog