Diversified Energy Co Q3 FY2024 earnings call

• Strategy focus: Focus on building a strategic, resilient energy producer by optimizing existing U.S. energy assets, minimizing AMP risk, and driving consistent cash flow. - Debt reduction: Year-to-date debt principal reduction totaled approximately $155 million. - Capital allocation: Returned ~$85 million to shareholders via dividends and ~$20 million via share repurchases, with ~$585 million in announced acquisitions. - Acquisitions: Recent acquisitions include Oaktree (June), Crescent Pass (August), and East Texas assets (recent). The East Texas acquisition has a significant PDP component, net production of 21 million cubic feet per day, and estimated next 12 months EBITDA of $19 million. - Hedging: Disciplined hedging strategy realized $130 million in year-to-date hedge gains. - Low capital intensity: Around 11%, significantly below industry peers, with annual maintenance capital expenditures of ~$50 million. - ABS notes: Largest issuer of upstream ABS notes since 2020, with investment-grade fixed rate notes saving over $70 million in interest payments. - Coal mine methane: New revenue stream with ~80%-85% of expected $8 million to $10 million EBITDA realized year-to-date, with potential for expansion. - Asset retirement: On track to hit 2024 goals, hopeful for regulatory improvements under new administration to enhance retirement business.

Average net daily production for the third quarter was approximately 830 million cubic feet equivalent per day, with over 50% of produced volumes generated in the Central region. Total revenue was $239 million. Adjusted EBITDA for the third quarter was $115 million, representing an approximate 50% adjusted EBITDA margin. Free cash flow for the quarter came in at $47 million. Net debt stood at approximately $1.6 billion, and the lending syndicate reaffirmed the borrowing base at $385 million. The company's asset base has a low capital intensity of around 11%, significantly below industry peers, with annual maintenance capital expenditures of approximately $50 million.

• Continued focus on systematic debt reduction, returning capital to shareholders, and growing through accretive acquisitions. - Disciplined hedging strategy to support predictable cash flow. - Expectation to continue evaluating strategic acquisition opportunities that fit existing footprint. - Hopeful for regulatory changes to enhance asset retirement business and unlock additional value from undeveloped acreage.

Risks and uncertainties related to financial and operational outlooks are discussed in regulatory filings, including market volatility, regulatory changes, and hedging program effectiveness.

Q: On the coal mine methane update, does the $8 million to $10 million of EBITDA translate into free cash flow and is there potential to grow?

A: Brad Gray stated there's opportunity to further develop, it's a new revenue stream, and no significant impact from potential federal regulation changes.

Q: On asset retirement progress and election results, any changes expected?

A: Rusty Hutson said it's steady as she goes, but hopeful new administration brings regulatory changes to improve retirement business.

Q: On asset sales expectations for next year, any triggers for material step-up?

A: Rusty Hutson said asset sales are opportunistic, following drilling activity in basins like Cherokee, which is popular due to inventory search.

Q: How much coal mine methane EBITDA has come in first nine months and what's driving Cherokee's popularity?

A: Brad Gray said ~80%-85% of expected EBITDA realized year-to-date. Rusty Hutson said Cherokee is popular due to industry inventory search for new drilling opportunities outside major basins.