Diversified Energy Company PLC is pleased to announce its annual results for the full-year ended December 31, 2021. Diversified has published to the Company's website its annual report and accounts for the year ended December 31, 2021 (the "Annual Report") and notice of the annual general meeting ("AGM") of shareholders (the "Notice") along with the form of proxy for the AGM.
Key Highlights
- Full-year production up 19% to 119 MBoepd (711 MMcefpd) (2020: 100 MBoepd) and December exit rate production(a) up 35% to 139 MBoepd (833 MMcfepd) (2020: 103 MBoepd)
- Peer-leading ~9% consolidated corporate annual decline rate(b) underpins durable dividends
- Consistent Cash Margins(c) of =50% in 2021 and 2020
- Hedged Adjusted EBITDA(d) up 14% y/y to $343 million (2020: $301 million)
- Net loss of $325 million (2020: net loss of $23 million) inclusive of $485 million (2020: $181 million) tax-effected, non-cash unsettled derivative fair value adjustments
- Adjusted Total Revenue(e) up 24% to $687 million (2020: $553 million) net of $321 million commodity cash hedge payments (2020: included $145 million of commodity cash hedge receipts)
- Total Revenue up 147% to $1 billion (2020: $409 million)
- Dividends per share up 8% to $0.1650 (2020: $0.1525); Total dividends paid up 31% to $130 million (2020: $99 million)
- Recommending a final quarterly dividend of $0.0425/share up 6% over final 2020 dividend of $0.0400/share
- Adding hedges in improving commodity price environment positioning for margin expansion; recent 2022 and 2023 NYMEX hedges added at an average floor of $4.55/Mcf(f) and $3.71/Mcf(f), respectively, representing a 50% premium and 30% premium, respectively, to the Company's portfolio as at December 31, 2021
- Adjusted G&A(g) per unit down 9.0% to $1.21/Boe ($0.20/Mcfe) (2020: $1.33/Boe)
- Pro forma year-end liquidity(h) of >$400 million, adjusted for two successful Asset Backed Securitization ("ABS") refinancings of Credit Facility borrowings with fixed rates <5%; Available for significant non-dilutive growth
- Net Debt(i) of $1,010 million resulting in Net Debt-to-Pro Forma TTM Hedged Adjusted EBITDA ("Leverage") of 2.1x(i) at December 31, 2021
ESG Highlights
- Revised 2020 reported methane emissions intensity downward 62% to 1.6 MT CO2e/MMcfe using refined measures from extensive well reviews and physical measurement vs. previous reporting primarily using theoretical factors(k) (Prior 2020:4.2 MT CO2e/MMcfe)
- 2021 methane emissions intensity, inclusive of Central Regions assets, down 6% to 1.5 MT CO2e/MMcfe (Revised 2020: 1.6 MT CO2e/MMcfe)
- Deploying 600 handheld leak detection devices, enhancing our ability to identify and remediate emissions as part of our Smarter Asset Management programs
- Progressing light detection and ranging (LiDAR) flights to detect and drive emission reduction, particularly related to compression and midstream assets
- Achieved a 10% reduction in average well retirement cost (136 wells averaging ~$22,500 per well) underpinned by a ~30% reduction in the average well retirement cost when using our retirement crews and equipment
- The Company now has six well retirement crews with an ability to plug an estimated 200-250 wells per year
- Progressed our Climate-Related Financial Disclosures (TCFD) report with enhanced disclosures and analysis included within our Annual Report available on our company website
- Expect to publish our 2021 Sustainability Report in early April 2022
Significant 2021 & Recent Acquisition Activity
Acquired and integrated several Central Region acquisitions and an Appalachian well retirement company:
- Indigo Minerals LLC ("Indigo") for cash consideration of $117 million(l);
- Blackbeard Operating LLC ("Blackbeard") for cash consideration of $171 million;
- Tanos Energy Holdings III, LLC ("Tanos") for cash consideration of $116 million;
- Tapstone Energy Holdings LLC ("Tapstone") for cash consideration of $177 million; and
- Next LVL Energy, an Appalachian Basin plugging company headquartered in Pennsylvania.
Oaktree Capital Management L.P. ("Oaktree") significantly co-invested in Indigo, Tanos and Tapstone under the previously announced Joint Participation Agreement.
Recent Financing Activity
- Completed two leverage-neutral, liquidity-enhancing, sustainability-linked ABS transactions in February 2022 for $525 million ($501 million net of a certain transaction costs and $16 million restricted cash interest reserve for the notes)
- Weighted-average fixed coupon of 4.9% (issued at par)
- Fully amortizing over ~9 years and underpinned by long-term hedge protection
- Proceeds used to reduce borrowings on the Company's Credit Facility
- Borrowing base revised from $825 million to $500 million (reduction of $325 million vs. the $525 million of ABS gross proceeds)
Commenting on the results, CEO Rusty Hutson, Jr. said:
"I'm pleased to report another year of consistent operational excellence amplified by the strategic expansion of our low-risk, long-life, low-decline asset acquisition model into the Central Region through four accretive, complementary acquisitions and an acquisition of an established Appalachian well plugging company that significantly increases our well retirement capacities. These transactions enhanced our scale, enlarged our portfolio of Smarter Asset Management opportunities and created strategic optionality across our expanded operations. Our 2021 results reflect record average production through the year of 119 MBoepd and an exit rate of 139 MBoepd that generated Hedged Adjusted EBITDA of $343 million, 14% above the prior year. Our differentiated and value focused business model once again delivered an exceptionally strong free cash flow of $252 million, representing a robust 40% free cash flow margin(m) and an impressive 20% free cash flow yield(n) supporting our durable dividend. Our teams across all areas of our company performed very well in 2021, and I continue to be grateful and impressed with their diligence and focus on delivering exceptional results for all stakeholders.
"To protect our profitability and dividend payments through commodity price cycles, we employ disciplined operational excellence to maximize revenue and reduce expenses while using long-term hedging to limit our exposure to price risk. This strategy once again served us well, delivering yet another year of 50% Cash Margins and supporting the steady cash generation that underpins our ability to insulate the dividend from commodity price swings. We distributed $130 million to shareholders in the period, up more than 30% from 2020 and 8% on a per-share basis, with the per-share quantum positioned to increase in 2022 due to the full-year contribution from our recent Central Region acquisitions.
"We also elevated our ESG strategy this year culminating in our commitment to accelerate our Net Zero(o) target by 10 years to 2040, with an interim commitment to reduce our 2030 Scope I methane emissions by 50% from revised 2020 levels. To support these initiatives in 2022, we are investing $15 million in high impact projects to solidify our emissions reduction trajectory that our Smarter Asset Management programs, enhanced by investments in emissions-detection technology, will drive to achieve our stated goals.
"We also progressed our Asset Retirement commitments by retiring a record number of wells, leveraging our investment in vertical integration to reduce our average plugging costs by 10%, and more significantly, by 30% in West Virginia thanks to the impact of using our internal teams. Building on this success, we are adding crews to our internal teams with an eye towards using the excess capacity to retire wells for third parties, diversifying our business with the potential to offset the near-term cash costs to retire our own wells. Our acquisition of Next LVL Energy positions us to partner with U.S. state governments to plug orphan wells.
"As we look ahead, the macro environment continues to improve, which we proactively capture by adding to our hedge portfolio, increasing the downside commodity price protection. We have hedged approximately 90% of our 2022 production volumes, giving strong visibility into our free cash flow generation that positions us for meaningful non-dilutive growth in a target-rich environment. Higher commodity prices often motivate sellers to transact, so I'm encouraged by the PDP-heavy opportunities before us across an enlarged operating footprint and surrounding territories. With over $400 million in liquidity following our ABS transactions, we are well positioned to enlarge the Company's long-life, low-decline asset base without the need for additional equity at a time many quality assets are coming to market.
"I am excited about our prospects in 2022 and beyond as we evaluate strategically-aligned opportunities while remaining firmly grounded in our commitment to protect our strong balance sheet underpinned by low leverage with ~90% of our borrowings in fully-amortizing structures that provide for systematic debt repayment. Well positioned, we remain ever focused on creating long-term value for our shareholders and other stakeholders."
