WTI (Dec) $68.04 -$2.34, Brent (Jan) $71.83 -$2.04, Diff -$3.79 +30c
USNG (Dec) $2.92 +25c, UKNG (Dec) 112.44 +6.44p, TTF (Dec) €43.505 +€0.25

Oil price

After a couple of down days during which oil fell, under pressure from the Chinese economic data and a very strong dollar it has rallied modestly today. As post election fever remains high and just a few House seats yet to declare there will be a sort of vacuum in the corridors of power, next stop Opec+…

Diversified Energy Company

Diversified Energy has announced the following operations and trading update for the quarter ended September 30, 2024.

Delivering Reliable Results

• Recorded average 3Q24 production of 829 MMcfepd (138 Mboepd)
• September 2024 exit rate of 851 MMcfepd (142 Mboepd)
• Operating Cash Flow of $102 million, and Net loss of $1 million inclusive of non-cash unsettled derivative adjustments, and non-cash depreciation, depletion and amortization
• Achieved 3Q24 Adjusted EBITDA(a) of $115 million and Free Cash Flow(b) of $47 million
• Realized 49% 3Q24 Adjusted EBITDA Margin(a) and TTM Free Cash Flow Yield(b) of 32%
• 3Q24 Total Revenue, Inclusive of Settled Hedges per Unit(c) of $3.23/Mcfe ($19.38/Boe)
• 3Q24 Adjusted Operating Cost per Unit(d) of $1.71/Mcfe ($10.23/Boe)
• Reaffirmed credit facility borrowing base at $385 million with $102 million of undrawn capacity and unrestricted cash

Revenue Growth Initiatives

• Announced fixed-price contract for gas delivery to a major Gulf Coast LNG export facility
• Generated ~ $23 million year-to-date in cash flow through divestiture of undeveloped leasehold
• Expansion into adjacent market of Coal Mine Methane (“CMM”) capture and environmental credit sales generating $8 to $10 million of EBITDA in 2024

Executing Strategic Objectives

• Retired $154 million debt principal through amortizing debt payments, year-to-date
• Declared 3Q24 dividend of $0.29 cents per share
• Repurchased ~1.4 million shares in 2024, representing ~$20 million of share buybacks(e)
• Completed previously announced acquisitions of Crescent Pass Energy and East Texas assets
• Combined with Oaktree Working Interest Acquisition, offsets ~2 years of declines(f) 

Next LVL Milestones

1. The Company has retired a total of 165 operated wells, year-to-date and is on track to meet or exceed Diversified’s stated goal of retiring 200 wells within its Appalachian footprint in 2024
2. Next LVL Energy completed 233 well retirements through September 2024, including 68 wells associated with orphan wells and third-party operators 

Rusty Hutson, Jr., CEO of Diversified, commented:
“Our results this quarter demonstrate the underlying strength of our business to deliver consistent cash flow and our commitment to operational excellence. Year-to-date, we have announced $85 million in dividend payments, retired $154 million in outstanding debt principal, and executed over $20 million in share repurchases. We continue to remain on-track with the integration of the three acquisitions we have made this year and believe we have put in place an operational infrastructure platform that has the ability to significantly expand our business within our core operating areas without any meaningful increase in corporate G&A expense. This scalable and capable platform is a valuable advantage for our growth strategy.

Strong financial and operational performance during the third quarter, supported by our strategic hedging program positions which provided hedge protection of $53 million in the quarter and $130 million, year-to-date, and acquisition-related synergies, provide momentum heading into the remainder of the year.  Looking ahead, we expect continued strong performance across our operations and we are well positioned for additional opportunities to add to the diversity of revenue generation streams, including robust undeveloped land sales, additional LNG agreements, and our expansion into adjacent markets of non-traditional operations, notably, Coal Mine Methane capture and sale of environmental credits.  

We continue to execute on our long-term strategic plan – investing in the growth of our core business, driving operational excellence, and maintaining a disciplined approach to allocating capital to foster the strengthening of the balance sheet and create shareholder value. As we continue to scale our company, we remain focused on operating safely, reliably and in an environmentally responsible manner, and that as the Right Company at the Right Time we can help provide the essential energy to our communities, country, and the world that is needed today and into the future.”

With production of 138 Mboepd in the quarter and exiting at some 142 Mboepd this was another good workmanlike period with EBITDA of $115 and margins of 49% which fell slightly due to some lower prices but the excellent hedging team which is an amazing operation kept the figures strong. 

I really like some of the new initiatives from the company, in particular the announcement of a fixed-price contract for gas delivery to a major Gulf Coast LNG export facility which is a huge market and provides a long term market for DEC’s gas inventory. I am biased as I go back a long way in Coal Mine Methane and I really feel that again, with its inventory, DEC must be sitting on a potential jackpot for drilling in this part of the portfolio. Add to that the $23m generated in cash flow from the divestiture of undeveloped leasehold makes the value in the company bigger than most have it. 

As always DEC has kept shareholders at the front and centre of minds, a 29c dividend which yields nearly 14% and a repurchase of c.1.4m shares which represented c.$20m of share buybacks. In addition the company retired $145m of principal debt through amortizing debt payments ytd.

As I often state, this model really works and is well achieved by the high quality board and key executives and their teams in areas such as hedging and doing the RBL. The margin is better than anything in the industry and Free Cash Flow conversion at 42% is some 5x its peer group average.Finally using ABS notes for funding is pure genius, one day all companies will be run like this. 

I have put the dividend details in here for record keeping purposes.

Diversified Energy Company PLC (LSE:DEC, NYSE:DEC) is pleased to announce that the Board has declared an interim dividend of 29 cents per share in respect of 3Q24 for the three month period ended September 30, 2024.

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 March 7, 2025.

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

Executing Strategic Objectives

• Retired $154 million debt principal through amortizing debt payments, year-to-date
• Declared 3Q24 dividend of $0.29 cents per share
• Repurchased ~1.4 million shares in 2024, representing ~$20 million of share buybacks(e)

Genel Energy

Genel has issued the following trading and operations update in respect of the third quarter and first nine months of 2024.

Paul Weir, Chief Executive of Genel, said:
“Since our half year results in August, we have continued optimising cash flows, evolving our capital structure and originating and maturing opportunities to acquire new assets that add reserves and diversify our cash generation geographically. We maintain our discipline on spend and focus on profitability and both delivering, and building on, the significant value upside that is already in the business.

We have repurchased and cancelled $182 million of our own bonds, reducing our debt from $248 million to $66 million at the end of October. Our balance sheet position remains strong, with net cash at the end of October of $125 million, and cash of $191 million.

The Tawke PSC continues to deliver consistent production into consistent domestic market demand to generate significant cash flow. That cash generation more than covers our cash out-flows in the period, which have further reduced as a result of non-repeating activity in the first half of the year coming to an end, decreasing activity on non-core licences as we move towards exit and reduction in net interest cost following the purchases of our bonds.

Finally, the timing of the award from the London-seated Miran and Bina Bawi oil and gas assets arbitration is not certain, but is expected before the end of 2024.”

Genel continues to develop the no-pipe strategy successfully and with Tawke producing consistently well and sales into the thriving local market ‘create significant cash flow’. As the company further reduces costs, seen again in the first half of the year, as cash generation more than covers costs and non-core licences activity decreases, along with savings on interest costs on the bonds.

On that note, the repurchasing of a large amount of the bonds has reduced debt from $248m to $66m at the end of October which of course strengthens the balance sheet with net cash of $125m. This strength enables the company to continue to look at the M&A market to add something to the portfolio which will provide a sensible addition that will maximise returns whilst not adding too much beta. On that front whilst nothing has yet been signed it looks like there is a regular flow of potential candidates being put to the board so watch this space. 

So, Genel is profitable, runs a tight ship and with a strong balance sheet is able to keep an eye on potential acquisitions, in the meantime it remains well placed either in new ventures or, should the pipeline reopen and relations between Erbil and Baghdad flourish then back in Kurdistan again. 

FINANCIAL

• Tawke cash generation has again more than covered all spend in the period, resulting in year-to-date free cash flow of $20 million (2023: $60 million out flow)
• Cash of $273 million at 30 September 2024 (30 June 2024: $370 million)
  • $109 million invested in August to purchase $107 million nominal value of bonds through the bond tender announced at half year results
  • Bond debt of $141 million at 30 September 2024 (30 June 2024: $248 million)
  • Net cash of $132 million at 30 September 2024
• Balance sheet further evolved at 31 October 2024 by call of $75 million nominal value of bonds
  • Cancellation of $234 million nominal value of all bonds already held by the Company
  • Cash of $191 million and debt of $66 million, net cash of $125 million
• We retain an overdue receivables balance of nominal $107 million owed by the KRG. Although there has been discussion on the mechanism for recovery of this balance, there is not yet a formal payment plan in place. We expect any resolution to include offsetting balances owed to the KRG, which at the end of October amounted to around $50 million. This balance relates to unpaid amounts owed on the Tawke, Taq Taq, Sarta and Qara Dagh PSCs and arises from past year and current year items such as Oil field Police Force, financial obligations under our PSCs and positive working capital movements.

TAWKE PSC ACTIVITY AND PRODUCTION

• Q3 Gross production of 84,210 bopd (Q2 2024: 79,780 bopd) sold domestically at average $37/bbl (Q2 2024: $36/bbl), with a small increase in YTD production since the half year to 80,120 bopd (H1 2024: 78,050 bopd)
• Q3 Working interest production of 21,050 bopd in Q3 2024 (19,950 bopd in Q2 2024)
• Three wells that were drilled last year, but not completed due to the closure of the Iraq-Türkiye Pipeline, were brought onstream midyear to meet demand from local traders, contributing 7,800 bopd to gross production in the quarter
• Further production was added from well interventions work.
• In association with our industry peers, we continue dialogue towards the resumption of exports on a basis that properly rewards IOCs that have chosen to invest in Kurdistan in accordance with their contractual terms

ESG

• Emissions reduction: in partnership with DNO, Genel continues to be part of the first Associated Gas Injection (AGI) project in the KRI. The project has successfully captured over 1.2 million tonnes of CO2e from the Peshkabir field
• CDP Climate score of B for two consecutive years
• Genel’s Mobile Medical Clinic project in Somaliland launched phase two of the project in July, with a further 15,000 cases treated to take the total cases treated to nearly 30,000
• Following the Annual General Meeting on 9 May 2024 the Company announced that resolutions 2, 3, 4, 6 and 12 had over 20% of votes cast against them. The Company reached out to major shareholders to understand their views. The Company does not believe it is necessary or appropriate to take any additional action

OUTLOOK

• With domestic sales expected to continue at similar levels, the Company expects net cash at the end of the year to be around $125 million
• The Company continues to seek progression towards building a business with a strong balance sheet that delivers resilient, reliable, repeatable and diversified cash flows that supports a dividend programme
• We continue to work towards the restart of exports to access international pricing, and the acquisition of new production assets to add reserves and diversify our cash generation
• The timing of the award relating to the London-seated international arbitration regarding Genel’s counterclaim for substantial compensation from the KRG following the termination of the Miran and Bina Bawi PSCs is not certain, but it is expected by the end of the year.

Union Jack Oil/Europa Oil & Gas

Union Jack has confirmed that, as expected and indicated in the announcement dated 18 October 2024, planning permission for the Wressle development, initially granted on 13 September 2024, has been formally rescinded. This is on the basis that the North Lincolnshire Council omitted to consider the likely Scope 3 GHG (greenhouse gas) emissions associated with the project when determining if the proposed development required an Environmental Impact Assessment. This is a consequence of the Supreme Court Finch ruling in June 2024, which post-dated the original EIA screening decision by the NLC made in July 2023.

The Operator, Egdon Resources U.K. Limited, will now provide the NLC with an analysis of Scope 3 GHG emissions for the proposed development conducted by an independent third-party specialist company and request a new EIA screening opinion. Depending on the outcome of this decision, a new determination of the Wressle planning application will be made based on either the existing submitted information or with the requirement for a new Environmental Statement.

This decision has no effect on the existing planning consent at Wressle and production and operations continue with no detriment to Union Jack and its partners.

The Company holds a 40% interest in the Wressle development.

I can add nothing to this that we didn’t already, planning has been formally rescinded due to Scope 3 emissions being omitted from the Environmental Impact Assessment, this is no fault to the project owners as the Finch ruling came after their application. 

But it does tell you that the whole process has been a complete can of worms which means that the operators will have to start again in order to put the development of Wressle back to the authorities, in the meantime the asset will continue successful and profitable operation as before.

And from Europa a very similar story…I’ve nothing more to add obv.

Europa has confirmed that, further to the RNS dated 18 October 2024, the planning permission for the Wressle development granted on 13 September 2024 has been formally rescinded on the basis that North Lincolnshire Council  omitted to consider the likely Scope 3 GHG (Greenhouse gas) emissions associated with the project when determining if the proposed development required an Environmental Impact Assessment (EIA). This ruling follows the Supreme Court Finch ruling in June 2024 which post-dated the original EIA screening decision by NLC made in July 2023.

Egdon Resources UK Limited, the operator of the Wressle field, will now provide NLC with an analysis of the Scope 3 GHG emissions for the proposed development conducted by a third-party specialist company and request a new EIA screening opinion.  Depending upon the outcome of this decision a new determination of the Wressle planning application will be made based either on the existing submitted information or with the requirement for a new Environmental Statement. 

Europa holds a 30% interest in the Wressle development.

Will Holland, Chief Executive Officer of Europa, said:
“We are confident that the third-party Scope 3 GHG analysis will demonstrate that the environmental logic of the proposed Wressle development is compelling. Developing domestic hydrocarbons is in the best interests of the UK, not only from an environmental perspective, but also because it provides national security of oil and gas supply in uncertain times. I look forward to updating the market further in due course.”

Original article   l   KeyFacts Energy Industry Directory: Malcy's Blog