WTI (Mar) $72.32 +$1.32, Brent (Apr) $75.87 +$1.21, Diff -$3.55 -11c
USNG (Mar) $3.44 +13c, UKNG (Mar) 139.62p -0.14p, TTF (Mar) €57.71 -€0.72

Oil price

Brent is up exactly one dollar as I write, sanctions on Russia where production is down to below Opec quotas and Iran where the Donald has promised ‘maximum pressure to drive oil exports to zero’ with very little chance to talk it over.

Diversified Energy Company

Diversified has announced the following operations and trading update for the year ended December 31, 2024. 

Delivering Reliable Results

• Full-year 2024 average production of 791 MMcfepd (132 Mboepd)
• 4Q24 average production of 843 MMcfepd (141 Mboepd)
• December 2024 exit rate of 864 MMcfepd (144 Mboepd)
• 2024 Adjusted EBITDA(a) of $470-$475 million; Adjusted Free Cash Flow(b) of $210-$215 million
• 2024 Adjusted EBITDA Margin(a) of 50%and TTM Adjusted Free Cash Flow Yield(b) of 33%
• 2024 Total Revenue, Inclusive of Settled Hedges per Unit(c) of $3.21/Mcfe ($19.28/Boe)
• 2024 Adjusted Operating Cost per Unit(d) of $1.70/Mcfe ($10.22/Boe) 

Cash Flow Growth Initiatives

• Announced fixed-price contract for gas delivery to a major Gulf Coast LNG export facility
• Generated ~$42 million year-to-date in cash flow through divestiture of undeveloped leasehold
• Recorded $8 million in impact to Adjusted EBITDA from Coal Mine Methane (“CMM”) Revenues

Executing Strategic Objectives and Milestones

• Retired over $200 million in debt principal through amortizing debt payments
• Returned $105 million to shareholders, including $21 million in share buybacks(e)
• Completed $585 million (gross) in strategic and bolt-on acquisition during 2024
• Announced accretive bolt-on acquisition of southern Appalachia assets from Summit Natural Resources
• Announced transformative $1.3 billion acquisition of Maverick Natural Resources
• Marked one full year of trading on the New York Stock Exchange and as is customary, the Company expects to file a shelf registration with the US Securities and Exchange Commission

Next LVL Milestones

• The Company retired 202 operated wells in 2024, marking its third consecutive year to exceed its stated goal of retiring 200 wells per year
• Next LVL Energy completed a total 287 well retirements, including Diversified’s wells and 85 wells associated with state-owned orphan wells and third-party operators

Rusty Hutson, Jr., CEO of Diversified, commented:
“Our team executed extremely well and continued to deliver solid results in 2024 that enabled us to advance our balanced capital allocation framework. Our strong results highlight our unique business model that strives to deliver consistent cash flow during the full range and volatility of commodity cycles. Aligned with our priorities, we generated significant cash flows, returned capital to investors, and paid down more than $200 million in debt principal, all while executing and integrating over $585 million in accretive acquisitions. Once again, our ability to deliver durable production and consistent cash flow throughout the year was a result of our team’s relentless execution of our strategies. We are committed to lowering costs and improving operational efficiencies across the organization, along with providing innovative solutions to extract hidden value from our asset base. The results we have achieved in 2024 strike at the heart of our business model and strategy.

We believe that 2025 has the potential to be a transformative year for the Company as we work to execute our strategic initiative to become the premier public company focused on managing mature producing assets. The Company’s previously announced accretive acquisitions of Summit Natural Resources and Maverick Natural Resources are proceeding as planned, and we have received encouraging comments from both shareholders and the public debt and equity markets. During the past year, we have seen our strategy and our previous investment decisions yield increased performance in all aspects of our business model.  We are optimistic about our future and confident that our current efforts will continue to position us well to have a significant positive impact on shareholder value.”

There is very little one can add to what was written after the recent ‘transformative’ Maverick acquisition. DEC is in a very strong position indeed with growing production, EDITDA, FCF and maintaining a margin of 50%. In addition the company are back to what they do best, acquiring assets on an accretive basis, the most recent of which is quite possibly the deal of a lifetime.

Indeed it should be remembered that this strong, and continuing cash flow, has been and will continue to be the basis for premium returns to shareholders and all the while paying down ‘more than $200m in debt principal’. Why, even the natural gas price is moving their way…

Those who doubted the DEC model, or perhaps more appropriately the high quality management team that put it and the others together, are being punished as the shares, having already outperformed by some 50% look to be justifying market favouritism with much more to go. 

With the arrival of Trump 2.0 one can only feel that the mood music in the US energy business has changed and one which I would not be surprised that DEC would not take advantage of in due course. As CEO Rusty Hutson says the performance was down to ‘our team’s relentless execution of our strategies. We are committed to lowering costs and improving operational efficiencies across the organization, along with providing innovative solutions to extract hidden value from our asset base. The results we have achieved in 2024 strike at the heart of our business model and strategy’.

Quite what we are going to write about the company on St Patricks Day, when the results come out and we have another trading statement, CEO comment and webcast is anyones guess…

Operations and Finance Update

Production
Diversified exited the year with December 2024 average production of 864 MMcfepd (144 Mboepd), up 11% versus the December 2023 exit rate of 775 MMcfepd (129 Mboepd), reflecting the cumulative effect of the Company’s 2024 acquisitions and industry-leading PDP declines of ~10% per year(f).

Diversified ended the year with 4Q24 average production of 843 MMcfepd (141 Mboepd) and full-year 2024 average production of 791 MMcfepd (132 Mboepd).

The Company’s production continues to be positively impacted by Diversified’s Smarter Asset Management (“SAM”) approach focused on the improvement and optimization of production profiles, development of efficiency gains and extension of well life, and the Company is well-positioned to again-deliver on a solid operational foundation for robust cash flows in 2025 with the additional impact of the recently announced acquisitions of Maverick Natural Resources and Summit Natural Resources.

Margin, Realized Price and Total Cash Expenses per Unit
Diversified’s resilient cash flow strategy is exemplified by the Company’s 2024 Adjusted EBITDA Margin of 50%, marking the Company’s seventh consecutive annual period of ~50% margins or higher.

The Company’s commitment to responsibly hedge production and initiatives to expand revenue generation is reflected in 2024 Total Revenue, Inclusive of Settled Hedges per unit of $3.21/Mcfe ($19.28/Boe), with Financial Derivatives Settled in Cash delivering $151 million in cash flows, and Midstream & Other Revenue delivering $63 million in supplemental income during the year.

Prudent expense management resulted in the stable Adjusted Operating Cost per Unit for 2024 of just $1.70/Mcfe ($10.22/Boe) representing a minimal 1% change when compared to the prior year.

(1) 2024 excludes $0.06/Mcfe ($0.34/Boe) and 2023 excludes $0.09/Mcfe ($0.57/Boe) of other revenues generated by Next LVL Energy 2024 excludes $0.09/Mcfe ($0.54/Boe) & 2023 excludes $0.08/Mcfe ($0.48/Boe) of proceeds from land sales
(2) 2024 excludes $(0.07)/Mcfe ($(0.40)/Boe) and 2023 excludes $(0.07)/Mcfe ($(0.43)/Boe) of expenses attributable to Next LVL Energy

Results of Hedging and Current Financial Derivatives Portfolio

Diversified’s consistent application of the Company’s differentiated hedging strategy resulted in a 2024 weighted average natural gas hedge floor of $3.26/MMbtu and realized price of $2.49/MMBtu, providing insulation from historically low commodity prices and representing respective premiums of 44% and 10% to the 2024 NYMEX average Henry Hub settlement price of $2.27/MMbtu(h). The Company enters 2025 with ~80% of consolidated production hedged, and stands to benefit from the recent improvement in the forward strip. The table below reflects Diversified’s full-year hedge positions through calendar year 2027 as of December 31, 2024:

Environmental Update

Asset Retirement Progress and Next LVL Energy Update
During the year, the Company exceeded its Appalachian well retirement commitments and stated plugging goals by retiring 202 Diversified-operated wells. Total well retirements by Next LVL Energy in Appalachia amounted to 287 wells, including 51 retirements associated with state orphan well programs.

Next LVL Energy continues to be a strategic and value-additive component of Diversified’s vertically integrated operations focused on the full life cycle of operated wells and to provide third-party revenue to offset the cash costs associated with the retirement of operated wells.

Acquisition Update

2024 Acquisitions Update
The Company’s previously announced acquisition of Oaktree Working Interests, Crescent Pass Energy assets and East Texas assets were successfully closed in the course of the year, representing $585 million (gross) in strategic, accretive acquisitions in 2024. These assets have been fully integrated into Diversified’s systems and processes, and are already benefiting from the Company focus on safe, efficient operations through the application of Smarter Asset Management.

Summit Natural Resources

Diversified’s previously announced acquisition of Appalachia and Alabama assets from Summit Natural Resources is proceeding as planned and the Company expects to close the transaction in the first quarter of 2025.

Maverick Natural Resources

As previously announced on January 27, 2025, Diversified has entered into a definitive agreement to acquire Maverick Natural Resources for total consideration of approximately $1,275 million. The acquisition of Maverick by Diversified (the “Acquisition”) adds immediate scale, increases liquids production, and creates a combined company with long-term free cash flow generation, superior unit cash margins, and a compelling sustainability profile. 

The Acquisition is expected to close during the first half of 2025, subject to customary closing conditions, including, among others, regulatory clearance and approval by Diversified shareholders for the issue and allotment of the Ordinary Shares pursuant to the merger agreement.