WTI (Sep) $76.98 -$1.37, Brent (Oct) $79.76 -93c, Diff -$2.78 +44c
USNG (Sep) $2.22 +7c, UKNG (Sep) 94.0p, TTF (Sep) €38.995 -€0.94

Oil price

Oil fell back as there was no sign of activity from Iran and peace talks started albeit pretty lame without Hamas or the US Secretary of State. The inflation numbers came in OK but the inventory numbers were disappointing compared to the API numbers. 

Diversified Energy Company

Diversified has announced it is trading in line with expectations and provides  its Interim Results for the six months ended June 30, 2024 and other recent highlights.

Delivering Reliable Results

• Average net daily production: 746 MMcfepd (124 Mboepd);
• Reflects effectively flat production volumes since 4Q2023, on a normalized basis(a)
• June 2024 exit rate of 855 MMcfepd (143 Mboepd), including the impact of the Oaktree Acquisition
• Net Income of $16 million, inclusive of approximately $98 million in tax benefits
• 1H24 Adjusted EBITDA(b) of $218 million
• 1H24 Adjusted EBITDA Margin(c) of 50%
• 1H24 Adjusted Cost per Unit(d) of $1.68/Mcfe ($10.08/Boe)
• Free Cash Flow of $121 million, excluding the impact of working capital(e)
• Annualized Free Cash Flow Yield (excl. working capital) of 38%(e)
• Leverage ratio of ~2.8x(f), excluding Oaktree transaction, leverage ratio of 2.6x(g)
• Undrawn credit facility capacity and unrestricted cash of ~$120 million
• Executing Strategic Objectives and Achieving Milestones

Accretive Acquisitions:

• Announced $516 million (gross) of high-margin, low-decline asset and working interest acquisitions
• Includes the $410 million acquisition of Oaktree working interests and $106 million for assets to be acquired from Crescent Pass

Sustainable Capital Return:

Declared 2Q24 interim dividend of $0.29 per share

Paid $55 million of dividends 1H24 and returned a total of $65 million, including share repurchases of ~2% of shares outstanding(i)

Systematic Debt Reduction:

• Reduced amortizing debt principal by $108 million

Recent Milestones:

• Included in the US Russell 2000 Index, adding to daily trading liquidity and US shareholder base
• Permanently retired 169 wells in Appalachia, including 135 Diversified wells (70% of 2024 goal)
• Realized ~$15 million of upside value through the divestiture of non-core assets and leasehold sales(h)

Commenting on the results, CEO Rusty Hutson, Jr. said:
“Building a portfolio of high-performing assets with dedicated teams of experienced professionals has been part of our strategic vision since the Company went public, and we have continued our track record of delivering on that vision with two recent announcements: the closing of our Oaktree acquisition and the pending Crescent Pass acquisition.  The outstanding results presented, both operationally and financially, reinforce the success of this strategy. Our ability to drive the 3% cost structure improvement during the first half of 2024 is enhanced by further scale and vertical integration, allowing us to once again deliver approximately 50% Adjusted EBITDA margins and consistent free cash flow generation. This strategic vision has proven highly successful, but it’s our employees’ commitment to operational excellence in the field and the corporate office that has helped Diversified achieve these results. We remain committed to our balanced capital allocation framework, with the diversity and strength of our asset base providing a solid foundation for accretive growth and value creation for our shareholders, while maintaining our position as the Right Company at the Right Time to responsibly manage long-life, mature producing assets.”

Yet again DEC has delivered the goods and wherever you look in the impressive presentation, long term progress is being made as the model kicks in again. The four pillars of DEC strategy which are Debt reduction, share repurchases, dividend payments and accretive acquisitions have all contributed to the tune of $108m, $10m, $55m and $516m respectively. 

In the recent transactions column the Oaktree acquisition has closed and the Crescent Pass deal is progressing and both tick those boxes of being bought on low multiples and are highly accretive adding even more long term value to DEC. The company has led the way in top of sector margins, in this report it is 50% but cash margins are over 50% for all of the last 7 years and that is across many cycles in what is a volatile natural gas market. 

Indeed, DEC leads its peers in Free Cash Flow conversion with 11x the peer group average and is a talented and efficient hedger with a team of traders who have for example hedged its 2024 output at some 40% above the NYMEX strip.

The company put a slide in the presentation which I strongly advise looking at as it confirms what I have been saying for years that there is so much embedded value in the undeveloped acreage in the portfolio that they can sell parts of it, when bid for at very profitable rates. The company are therefore buying high quality acreage when offered at reasonable prices and trading other interests, the acreage has a see through value which in Oklahoma for example of some $800m on its own. 

I have said so many times that the DEC differentiated business model has created a company that makes strategic and accretive acquisitions, enhancing margins and ultimately delivering shareholder margins and with a modernised field management team. This is confirmed by todays other announcement in which they announced that the Board has declared an interim dividend of 29 cents per share in respect of 2Q24 for the three month period ended June 30, 2024. DEC remains a must have stock and is a huge pool of value in the sector and the US listing has helped considerably.

Sound Energy

Sound has announced, further to the Company’s announcement of 25 June 2024, that the planned work over operations on the gas well TE-7 in preparation for long term gas production into the micro-LNG plant currently under construction at site have resumed following the arrival of additional wellhead equipment.  The operation to run new completion tubing into TE-7, will utilize the Star Valley Rig 101 currently located on the Tendrara Production Concession. The rig had been stacked on site at no additional cost to the Group awaiting the arrival of the additional wellhead equipment.

In June 2024, the Company successfully pulled the existing completion tubing in both TE-6 and TE-7 and ran new corrosion resistant completion tubing into TE-6 and installed the Production Christmas Tree.  Following importation of the additional well surface equipment a similar operation at TE-7 will now proceed. 

The Company thanks the dedication and professionalism of our contractors and suppliers, and the Office National des Hydrocarbures et des Mines for their ongoing partnership and support.

Good news from Sound as the TE-7 well nears the planned workover operations.

KeyFacts Energy Industry Directory: Malcy's Blog