Diversified Energy Company PLC Q3 FY2025 earnings call

• Proud of the business built, team capabilities, asset quality, and business model. Positioned as a consolidator of PDP assets with strong cash flow, secure balance sheet, and proven business model.
• Acquisitions of Maverick Natural Resources and upcoming Canvas Energy; acquisition-driven growth unlocks operational leverage. Capital allocation around 4 pillars: systematic debt reduction, return of capital, growing cash-generating assets, and accretive acquisitions.
• Moving primary equity listing to NYSE, redomiciling to U.S. corporate entity, expected to enhance trading liquidity. Launched a first-of-its-kind agreement with West Virginia Governor for well retirement in the state, using a $70 million investment over 20 years.
• Disciplined acquisition framework to analyze deals, with Canvas acquisition as an example of in-basin opportunity. Smarter Asset Management practices optimizing cash flow from acquired assets, like the Fallowfield Compressor Station project.

In the third quarter, daily production exit rate for September was approximately 1.14 Bcf per day, with quarterly production averaging over 1.13 Bcf per day. Approximately 65% of produced volumes were generated in the Central region. Total revenue was approximately $500 million and adjusted EBITDA was $286 million for the third quarter with an EBITDA margin of 66%.

• Increased financial guidance 7% on adjusted EBITDA and 5% on adjusted free cash flow. Anticipates generating between $900 million to $925 million in adjusted EBITDA and more than $440 million in adjusted free cash flow for the year. Pro forma for full year of Maverick, would have delivered over $1 billion of adjusted EBITDA.

Remarks reflect financial and operational outlooks with assumptions involving risks and uncertainties, and market dynamics for oil and gas producers are a factor.

Q: Tim Rezvan asked about uses of free cash flow, including share repurchases vs. liquidity for future ABS deals and M&A.

A: Robert Hutson said it depends on best return for shareholders, currently sees shares as undervalued so likely to use cash for repurchases, with growth also on the horizon. Brad Gray agreed and mentioned using liquidity for Canvas Energy acquisition.

Q: Charles Meade asked about ABS market and joint development agreements.

A: Brad Gray said ABS market is deep, with insurance companies comfortable investing, and Diversified has a solid reputation as a quality issuer and operator. Robert Hutson talked about successful joint development in Cherokee Basin with good returns, and evaluating more JDAs in future.

Q: Tim Hurst-Brown asked about adjustment to ARO for West Virginia plugging fund.

A: Brad Gray said current accounting guidance won't adjust discounted ARO on balance sheet, but the fund offsets liability for West Virginia wells. Robert Hutson emphasized the fund addresses liability for long term rather than accounting match.

Q: Paul Diamond asked about portfolio optimization cadence.

A: Bradley Gray said on annual basis, $40 million to $50 million baseline revenue from these programs is achievable, with evaluation processes continuing. Robert Hutson added cash from programs provides flexibility for share repurchases, growth, etc.

Q: Tim Moore asked about workover count and integration timing of acquisitions.

A: Bradley Gray said will provide guidance in first quarter after Canvas acquisition. Robert Hutson talked about team's capability in integrating acquisitions quickly due to people, processes, and technology, with Maverick integration completed quickly.