Diversified Energy Announces Complementary Acquisition in Central Region

BIRMINGHAM, AL /ACCESSWIRE/July 28, 2022/ Diversified Energy Company PLC (LSE:DEC) (“Diversified” or the “Company”) announces that it has entered into a purchase and sale (“PSA”) agreement to acquire certain upstream assets and related facilities (the “Assets”) in Oklahoma and Texas, in the Company’s central region , from ConocoPhillips Company (the “Seller”) (collectively with the Assets, the “Acquisition”).

The Company has posted a website presenting the acquisition at ir.div.energy/presentations.

Central Region Acquisition Highlights

  • Purchase price of $240 million before customary purchase price adjustments
  • Estimated net price of approximately $210 million (“Acquisition Cost”) with a closing in late September (“the Closing”)
  • Fully funded from existing cash
  • Cash margins(a) approximately 70% on estimated adjusted EBITDA of $82 million(b)
  • Diversified 2021 hedged adjusted EBITDA per share up c.20%(vs)
  • The acquisition cost represents a purchase multiple of approximately 2.5 x(D) and PV17 of the PDP reserves
  • Pro forma net debt / adjusted EBITDA of 2.2x(e) with ~95% of debt in fully redeemable notes
  • Consolidated companies fell unchanged to ~8.5%(F)
  • Net production(g) increase of ~9 Mboepd (~52 MMcfepd; 60% operated), (+6% vs 1Q22 exit rate)
  • Upside available through field-level synergies, Smarter Asset Management acreage swaps, untapped development opportunities

Commenting on the acquisition, CEO Rusty Hutson, Jr. said:

“I am pleased to announce another strategically aligned acquisition at an attractive valuation in the company’s core region that reinforces our commitment to creating long-term shareholder value. Funded entirely with existing cash, this non-dilutive acquisition represents an attractive opportunity to continue to grow our portfolio in the Central Region while maintaining a strong balance sheet.Building on our success in Appalachia, we are excited to increase our holdings in the Central Region, which positions us to generate further great synergies and unlocking additional shareholder value through scale.

Deliver significant value per share at low multiples with non-dilutive financing

The Company signed a PSA with the Seller on July 27, 2022 for a purchase price of $240 million. Estimated acquisition cost due at closing of approximately $210 million reflects customary purchase price adjustments estimated through the closing date and represents a multiple of approximately 2.5x the acquisition price(D) before any anticipated synergy. The acquisition highlights Diversified’s ability to make accretive acquisitions throughout the commodity price cycle.

Diversified acquires the unhedged assets and, at closing, will assess its consolidated hedge levels consistent with its commitment to protect the cash flows that underpin its consistent dividend and debt repayment. The Company expects to close the transaction at the end of September 2022, following customary due diligence. Closing is subject to satisfaction of customary conditions, including the title of an environmental review.

Diversified will finance the assets with available cash and existing availability on its Revolving Credit Facility (“RCF”) resulting in a pro forma net debt / adjusted EBITDA of 2.2x(e) (1Q22: 2.2x). Following the financing of the Acquisition, approximately 95% of the Company’s borrowings will consist of fixed rate, fully amortizing, primarily investment grade notes that benefit from hedged cash flows. The company’s post-acquisition financing cash is approximately $250 million(h) prior to any increase in the Company’s RCF borrowing base for additional Acquisition collateral. As a result, the Company expects liquidity to increase with its next borrowing base review scheduled for fall 2022.

By financing this acquisition with no new equity and only existing cash, at the current price, the company estimates that the acquisition adds approximately 20% to the 2021 Hedged Adjusted EBITDA per share previously reported by Diversified (2021: $0.43 /shr). Combined with the company’s previously announced acquisition of East Texas Assets in April, the company increased accretion per share by approximately 30% over 2021 hedged adjusted EBITDA per share.

With an effective date of June 1, 2022, the acquisition adds approximately 31 MMBoe (186 Gcfe) of net PDP reserves, with a PV10 of approximately $297 million, using the NYMEX strip price at 25 July 2022. Accordingly, the purchase price represents a PDP Valuation estimate of PV17. Assets Complement Diversified’s Existing Portfolio, Contributing to Estimated Adjusted EBITDA of $82 Million(b) supported by high cash operating margins of around 70%(a) and a modest annual decline of around 8%(F) which continues shallow. Adjusted for acquisition, Diversified’s consolidated business decline rate remains industry-leading at approximately 8.5%(F).

Expansion of presence and scale in the central region

The acquisition, which includes an interest in approximately 1,500 producing wells located in Oklahoma and Texas, represents Diversified’s sixth major acquisition in the Central region since May 2021 and the second acquisition in the Midcontinent region since mid -2021. The proximity of the assets to the previously acquired Tapstone assets creates additional potential to develop operational synergies of scale in the central region and benefits from a constructive regulatory environment.

The Company will mine approximately 60% of the Acquisition’s net production of ~9 Mboepd (52 MMcfepd; ~90% natural gas and NGL), representing a 6% increase in Diversified’s exit rate in 1Q22 ( 136 MBoepd; 816 Mcfepd).

The assets provide high operating margins through realized pricing that benefits from low regional commodity differentials and a widely variable expense structure that is consistent with the Company’s other Central Region assets.

  • Total rental operating expenses of $1.90 to $2.00/Mcfe ($11.40 to $12.00/boe)(I)
  • Natural gas price differentials of $(0.20)-$(0.30)/MMBtu
  • Production-weighted average well age of 16 years

Consistent with the Company’s asset acquisition strategy, Diversified intends to retain certain experienced personnel from ConocoPhillips Company who will complement Diversified’s asset management operating philosophy designed to improve well performance, increase margins and reduce emissions.

The Acquisition constitutes a Class 2 transaction for the purposes of the Listing Rules, and this announcement is made in accordance with the Company’s disclosure obligations under Chapter 10 of the Listing Rules.

Footnotes (for Company-specific items, see also the Glossary of Terms and/or Alternative Performance Measures included in the Company’s 2021 Annual Report):

a)

Cash margin calculated as estimated adjusted EBITDA from the acquisition, see footnote (b), as a percentage of total adjusted revenue (which includes, where applicable, revenue from natural gas, NGLs and crude oil, middle income and other income)

b)

Estimated Adjusted EBITDA from the Acquisition assumes historical cost structure using NYMEX strip prices as of July 25, 2022 and assumes closing of the Acquisition at the end of September 2022; The estimate does not reflect the synergies that could be realized following the post-acquisition integration; this figure is not intended in any way to constitute a projection of the actual results attributable to the Acquisition or to the pro forma consolidated Company; Purchase price multiple based on estimated net purchase price and estimated adjusted EBITDA from the acquisition (unhedged)

vs)

East Texas acquisition and adjusted EBITDA per share calculated using reported estimated adjusted EBITDA and current diluted shares outstanding of 863 million; 2021 Pro Forma Hedged Adjusted EBITDA per share calculated using previously reported Pro Forma Hedged Adjusted EBITDA of $491 million and 2021 weighted average diluted shares outstanding (had the company not been in a position net loss) of 800 million shares

D)

Multiple of the acquisition price calculated by dividing the net consideration to be paid by the estimated adjusted EBITDA

e)

Pro-forma net debt / Adjusted EBITDA (“leverage”) calculated as an estimate of post-closing net debt / Adjusted EBITDA for the last twelve months (hedged) as of March 30, 2022, pro forma of the annualized impact of acquisitions upstream of the previously announced Central region and the impact of Diversified’s ABS V financing, previously announced on May 30, 2022; this figure is not intended to be a projection of actual results attributable to the Central Region Acquisitions or the Pro Forma Consolidated Company.

F)

Illustrative value represents the consolidated annual rate of decline estimated using the Company’s previously reported business decline of approximately 8.5% (as measured and annualized from the December 2021 exit rate to the March exit rate 2022) pro forma for the acquisition, which excludes the impact of a recently completed well due to limited production data available for calculation; Estimated total declines, including new production well, are approximately 10% over the twelve-month period ending August 30, 2023

g)

Current production defined as June 2022 average (net) daily production estimate for acquired assets and non-operated interests

h)

Calculated as the available portion of the Company’s revolving credit facility borrowing base of $300 million and including cash and letters of credit

I)

Lease operating costs are defined as base lease operating plus owned intermediate operating costs (if any), third party transportation costs and production taxes; ~60% of variable expenses with production and pricing

Market Abuse Regulation

This announcement contains inside information within the meaning of section 7 of the UK version of Regulation (EU) no. 596/2014 on market abuse, as it forms part of UK domestic law under the European Union (Withdrawal) Act 2018 (“UK MAR”) and Regulation (EU) no. 596/2014 on market abuse (“EU MAR”).

For more information, please contact:

PLC Diversified Energy Company
Doug Kris
www.div.energy
+1 205 408 0909
[email protected]

FTI Council
Financial public relations in the United States and the United Kingdom
[email protected]

About Diversified Energy Company PLC

Diversified Energy Company PLC is an independent energy company engaged in the production, marketing and transportation primarily of natural gas related to its onshore synergistic upstream and midstream assets in the United States.

THE SOURCE: PLC Diversified Energy Company