Diversified Energy Company

and welcome to the Diversified Energy 2022 Interim Results Conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Rusty Hudson. Please go ahead.

Thank you, appreciate it. Thank everybody for joining this morning. We are going to spend a few minutes this morning walking through our mid-year earnings for 2022. As you all know, we released those earnings this morning at 7 a.m., so those should be available to everybody by RNS and on our website, so you can access them there. We're going to take a little different approach this morning. I'm going to speak a little bit about our strategic objectives that we've laid out for the last five years and we've spoken to a lot of the investors and analysts about. I'm going to talk about kind of where we stand, the gauge on where we're at on those. Also speak a little bit about how that's translated into our shareholder returns. And then speak a little bit about kind of how we are compared and how we look as it relates to the other sectors and from a shareholder return perspective and metric perspective. And then I'll give a quick overview of some of the first quarter or first half highlights and then turn it over to Brad and Eric to give you some specifics around the operations and the financials. So with that, we'll turn to page four and start. You know, five years ago when we took the company public, a little over five years ago, I guess, we laid out some direct strategic objectives and we told our investors exactly what we wanted to accomplish and that we would stay consistent in our approach to that. As we look at some of those objectives, first and foremost in that was prioritizing shareholder returns, providing a sustainable dividend that would grow with acquisitions and as we grew the company. As we sit here today, we have the highest dividend yield among the upstream energy sector. and five times the S&P 500 average. So we've been pretty successful in accomplishing that. We also said we would allocate our incremental free cash flow differently than some of the other companies in the sector. Instead of putting a lot of capex into the drill bit and completions, we would use our free cash flow to return returns for our shareholders, to reduce our leverage, and to grow the company in a non-dilutive way. And so we've been very successful in doing that. Our accretive acquisition opportunities continue to be very robust, mainstay of our business model. We continue to be very successful in being able to accomplish that. We've obviously announced three acquisitions so far in 2022, and we'll talk a little bit more about those later on in the presentation. We've done 21 acquisitions since IPO, which I think is astounding as we sit here today over a five-year period. 2022 and really all of 2021 was our new entry into the central region. That's been a very successful venture for us. We've done a couple of acquisitions this year already, ranging at a PV-17 to PV-40 on a discounted cash flow basis. and a two-times purchase price multiple. So we've been very successful and continue to maintain our ability to stay very disciplined in our approach to acquiring assets, even in a high-price environment. Cash margins continue to be very robust. Ended the first half of the year at a 48% cash margin. And we continue to replace those cash flows with organic growth, which is extremely important to the business model as we've grown it over the last five years. The latest acquisition that we announced recently from Conoco added about $300 million of PV10 value with 70% cash margins. So we continue to add assets and add acquisitions that are very accretive to the business model. Back in November of last year, as most of you know, we made a lot of commitments around our ESG initiatives and how to approach both the identification and the reduction of methane emissions. We said we're going to get very aggressive on that, and we have. We've flown over 6,000 miles of pipeline year-to-date with our flyover LIDAR. The program is on track to survey approximately 15,000 miles by the end of 2022, which is 90% of our midstream portfolio. More importantly, as we identify, we're correcting those identified emissions very quickly, and Brad will get into some of the specifics around that. We've also deployed our handheld emission devices across our Appalachian operation, and continue to make a lot of progress. We've moved up our goals in terms of the number of wells that we'll be able to visit by the end of September. Brad will get into some more of that. But we are utilizing those handhelds to see a very nice reduction in our overall emissions as a benefit of not only identifying them, but fixing them as we do identify them. And then the last thing as it relates to our initiatives, we've said all along that we're not going to put our balance sheet at risk just for the sake of growth, and that will continue to ensure the financial strength of the company and the business model as we move forward. You've seen us kind of migrate more to an amortizing debt structure, being really the first company to utilize the ABS structures back in 2019, and we continue to use them over the last few years. Now we've done five different ABS transactions, 100% of our debt is now on amortizing notes, fixed coupon, fixing the cost of that debt so that we have a clear understanding of what it's costing us. But more importantly, amortizing that debt off over a period of time is the right thing for us to do because it matches our asset base so well. Long life, low decline assets. And really at the core of that is the fact that we have the lowest PDP decline profile in the industry and utilizing our hedging strategy, which is also core to our business, and maintaining visible cash flows that give us the ability to pay that debt down over a period of time. So really, as we look at those strategic objectives, we've really hit our goals of what we wanted to accomplish probably a lot quicker than what we even anticipated back when we went public in 2017. So moving over to page five, you can kind of see how this has translated to very, very aggressive returns for our shareholders. If you look at the, since IPO, we've returned to our shareholders 250% total shareholder returns. And you can see that we've accomplished that regardless of the commodity price cycles. You can see over the period of the last five and a half years that even when the prices dipped in 2019 and 2020, we were still able to generate dividends that were in that 11% range and really continue to show to our shareholders that we have a sustainable shareholder return profile that we can continue into the future. You can see we've paid over $492 million in dividends since the IPO. That dividend yield has averaged around 11% over that period of time. We continue to protect those cash flows with a very robust Hedge strategy with the remainder of 2022 hedged around 90%. We've seen a 48% EBITDA margin in the first half of 22, even in the midst of some of the highest commodity prices we've seen now in over 10 years and having a much lower hedge price. We've seen those margins compressed, but only 2% or 3% from their 2020 and early 2021 levels. So not a significant difference even with those high commodity prices. And we continue to see one of the strongest free cash flow yields in the industry, which we'll talk about at 22%, which we'll talk about on another slide. Flipping to page six, just looking at our overall trading metrics in relation to some of these other sectors, I think it's important to show that we have one of the highest free cash flow yields to enterprise value, not just to market value, market price, but to enterprise value at almost 13%. And when you really compare that to the other industries, much, much higher and outperforming pretty much every sector out there. But if you look at the left side of the chart, you'll see that on an enterprise value to adjusted EBITDA, we're still from a trading multiple, still trading under all those same sectors. And I've even noticed this even with it as it relates to the sector in general. It's 1.5%. The EMP sector is 1.5% of the S&P 500, but represents almost 40% of the free cash flow of the S&P 500 as we sit here today. So there's a huge disconnect, and we're trading at a significantly lower multiple when we should be but trading at a much higher free cash flow yield. So it's kind of disconnected in some ways. And then flipping to page seven, you can see, you know, we have one of the top 10 dividend yields in the upstream sector at almost 11%, as we sit here today, which is higher than all the, you know, the other peers that we have in the group, much higher than a lot of the other sectors and indexes out there, you know, as you can see onto the right of the chart. And then if you look at the free cash flow yield, we're number two out of the top 10 peers at 32 point, and this is in relation to the market cap of the company on 2022 estimates, much higher than the rest of the sectors. But more importantly, and I think what's really important to note in this slide is as we talk about consistency, which has been the core of our business model, if you look at a three-year historic average that the dividend yield is been at 10.2% compared to the rest of the upstream of less than 3%. And then from a free cash flow yield, which I think this one is really, really important, we're at 23.5% three-year average versus the rest of the sector, which is 10.2%. It's not just about a one-year rise in commodity prices. This has been a consistent element of our business model over the whole five and a half years that we've been out as a public company. So it's all about consistency, doing what we say we're going to do, and do it on a consistent basis. And then on page eight, as you look at our share price relative to natural gas prices, you can see that that disconnect has really taken off and really increased as commodity prices have made a run. The 10-year NYMEX strip from the year end 21, our future cash flows are just underappreciated. Now, this is not just us. The sector is similar, the rest of the sector. But with us, it seems like it's a little more advanced compared to the rest of the sector. You can see that there's a fairly large disconnect since the middle of last year as commodity prices have went up. And a lot of people say, well, you're highly hedged. But if you go to the right side of this page, you'll see our current share price trading at $1.48 a there's a 50% discount between that and what the share price should be on a PV10, less debt, and affected for hedges. You can see that on that basis, it should be trading at around 282. So we're still seeing a significant discount in our share price to what we should be trading at on a PV10 basis, even affected for debt and hedges. So there continues to be an underappreciation of diversified shares in the market. And on page nine, the natural gas macro obviously still remains very, very strong. The production growth in the market in the U.S. has really remained muted because of takeaway capacity and the ability to really to move the gas out of some of the higher producing regions like the Marcellus. And there's just been a much more disciplined approach to production by the companies that drill and complete wells in these basins. The Haynesville continues to see some increases, but it obviously has access to those LNG markets, which are continuing to be very robust. Freeport, which was out of service from a fire, it's scheduled now to be back online at the beginning of October, which will add to the supply-demand shortage or tightness and With more LNG expected to come on in 25, 26, around 13 BCF additional, it's going to make this Gulf Coast gas, I believe, a premium price market into the future, and we'll talk a little bit about that in a minute. Heat waves continue. We've seen a lot of power demand in the U.S. and really internationally across the globe. Global balances have become very tight, especially with the Russian pipeline situation. And just at the end of the day, the reluctance of the producers to add production and to stay disciplined in their cash flow approaches have continued to make the natural gas macro, I believe, very strong. Real quickly, let's talk on page 11 about the first half performance. I think the first half was a great performance. beginning to the year. We obviously have announced three acquisitions, one $50 million East Texas asset from Legacy that we believe is a great addition to our central region portfolio. The Conoco deal, obviously, which we announced last week, I believe, is a great Oklahoma transaction for us and will give us a lot of scale and size and efficiency opportunities there. So the acquisition strategy will continue there in central region. Production about 139,000 BOE per day in June, up from that first quarter trading update as we've seen some of those weather-related impacts kind of roll off and was a 20% increase over last year, June. We've generated about $224 million in adjusted EBITDA. Cash margins, as I said earlier, around 48%, with a free cash flow yield of 22%. So we continue to be very strong from the cash flow perspective. Leverage continues to stay in our stated range of 2.2. And we continue to see great progress in our ESG initiatives, which we published our 2021 sustainability report, which I believe was first class and best in class in terms of the content and the disclosures. And then the ESG initiatives, which Brad will get into in his operations sections. So with that, I'm going to turn it over to Brad and let him talk a little bit about the operating highlights of that first half.

Okay, thank you, Rusty. I'm really pleased to share some of the highlights and the accomplishments and results that our teams delivered for the first six months of 2022. Not only have our teams delivered favorable financial results for this period, our teams are also hard at work each day to add future value to our shareholders by developing and executing numerous projects with our vast inventory of assets. These projects include emissions monitoring and reduction strategies, production optimization, as well as expense efficiency measures. And I continue to appreciate the commitment and diligence from our employees as they professionally manage and safely operate our assets and as they efficiently integrate our acquisitions. So I do want to say a job well done to our diversified team members. I'm going to start on page 13. And first, I want to highlight our continued progress and leadership with the E portion of our ESG programs. In November of 2021, we established a detailed plan to make positive impacts on the environmental aspects of our operations with specific emphasis on methane emission reduction, asset retirement activity, as well as standardized reporting. We have aggressively implemented our upstream emission surveys utilizing our handheld detection devices. And as of June 30th, we completed 49,000 well site surveys, of which 90 percent of those surveys indicated that there were zero detectable emissions. You know, although we're pleased with such a low percent of emissions, we're really not surprised due to our zero tolerance emissions policy that has always been in place. We anticipate that emission surveys for all Appalachia wells will be completed by the end of our third quarter. And for our central region assets, we're already making plans to implement these emission surveys in the first quarter of 2023. Our partnership with Bridger Photonics to fly our Appalachian mystery mass sets is going very well. Bridger is a great partner, and our teams are fully integrated and executing a terrific program. We have flown approximately 6,000 miles of pipeline, which represents about 40% of these pipeline assets in Appalachia. We've successfully repaired 75% of the confirmed leaks. So when we fly the pipelines, we determine a leak, we go confirm it, and we've been able to repair 75% of those leaks. We'll continue to deploy our assets for the second half of 2022, and we'll do so until the weather impacts our ability and effectiveness. We've been very active with increasing the capacity of our asset retirement programs. Through the end of July, we completed three acquisitions of plugging companies in the Appalachian Basin. We acquired Next Level Energy first in February, Nixwell Plugging in May, and most recently, one of West Virginia's most respected plugging companies, Conserve, in July. We're operating our plugging company under the name of Next Level Energy. Our plugging teams have grown from one internal team in the fourth quarter of last year to now we have 15 plugging rigs, which include three larger derrick rigs, and we have a vast inventory of supporting equipment of wireline trucks, cement trucks, yellow iron, earth-moving equipment, as well as transportation assets. We're on track to achieve our objective to plug 200 internal wells this year, while at the same time we are positioned well to generate external revenue by plugging wells for the Appalachian states and other regional operators. We've added some very experienced team members, and we're excited about the contribution our new plugging team employees will bring to us. We've successfully submitted our application with the Oil and Gas Methane Partnership Program of the United Nations. This program is also known as the OGMP 2.0, and this program is quickly becoming a standard certification framework for emissions detection, monitoring, and reporting. We are actively working with the United Nations to further our program as we strive to achieve their gold standard certification in 2023. And finally, we're also well on our way with the conversion of the energy source of our pneumatic devices from natural gas to compressed air. Our focus has been on our larger unconventional wells in Pennsylvania and our multi-well pad sites in our Barnett assets. This conversion project, which involves installing air compressors, is reducing emissions at our well pads and also at a lower cost than we had initially anticipated. Moving on to page 14, As I highlighted on the previous page, we made the strategic decision to grow our asset retirement program during 2021, and we are pleased with the progress that we've done in the first six months of this year. What I also want to highlight is our intentional efforts to responsibly manage our asset retirement obligations started many years ago. We proactively engaged the four states with our largest well counts by entering into defined plugging agreements that go back to early 2018. We continued to work with these states and extended our commitments, and now we have agreements with terms of 10 and 15 years in place. In 2021, we made the decision to stand up our internal plugging team in West Virginia, and we committed to the well plugging goals of 200 wells by 2023. As I already mentioned, we're on track to achieve this goal, which is one year ahead of the original schedule. And also, as I highlighted earlier, We have aggressively grown our plugging capacity this year with three successful acquisitions in our Appalachia operating area. Not only have we significantly increased our plugging capacity, we believe that we will continue to gain cost efficiencies while also generating revenue from third party operators and state agencies. Moving to page 15, we've got a very good team that are focused on finding acquisitions, negotiating acquisitions, and funding acquisitions. But equally important is what we do after the acquisition is complete. And we also take a very disciplined approach to our employee onboardings, asset integrations, and system conversions. For new employees, we want to provide a great transition as well as communicate the opportunities they have with our company. For asset integrations, we want to deploy our smarter asset management philosophy, which is focused on optimizing production and driving expense efficiencies. And for our system integrations, we are committed to safe and secure networks while deploying our one DEC philosophy for all technical applications. For our 2021 applications, we have completed our integration and conversion processes and our Smarter Asset Management programs are fully engaged. For our 2022 acquisitions, our teams are working our processes to ensure that we achieve our timelines and our goals. All three acquisitions thus far in 2022, we believe are great opportunities for us to increase our scale and drive improved operating margins. Moving to page 16. Our Smarter Asset Management programs continue to deliver value to our operations. We constantly challenge our teams to successfully achieve our four daily priorities, which are safety, production, efficiency, and enjoyment. Our Smarter Asset Management program is fully aligned with these priorities. And we've always said that our SAM program consists of many small victories adding up to big wins for our company. And on page 16, we're highlighting some of our larger successes within our Appalachia operations this year. We continue to implement low-cost projects to return wells to production. We are always challenging our vendors to optimize cost, which we were able to achieve with our water hauling and our lease compressor programs this year. We also successfully completed the divestiture of some non-core wells in our Ohio operations, which generated about one and a half million in proceeds, and also eliminated future plugging liabilities. Our marketing and midstream teams have successfully increased the profitability of our natural gas storage assets by signing a new $2.5 million revenue agreement. So our Smarter Asset Management program has always been a value driver for us, and during these periods of inflation, our philosophies and practices become even more beneficial. Moving on to page 17, our expansion into the central region has created many value opportunities. and we've successfully executed numerous transactions and projects with our new assets that we believe, and we believe that more value is available to be achieved. We have returned 150 wells to production, and these wells are contributing to positive cash flow. The acquisition of midstream assets in Louisiana has lowered our gathering and transportation cost, while it's also positioned us for numerous future revenue opportunities. We're very active with our central region work over program. Our production engineering team is doing terrific work with our field teams, and we have completed approximately 120 profitable work over projects. The average cash on cash payback period for these projects is two to three months. And finally, we've completed the drilling and completion of eight wells that came with our tapstone acquisition. These wells generate crude oil, natural gas, and some NGLs, and their contribution has been very favorable. The success of these projects has added value to these central region acquisitions, which effectively allows for improved economics on our acquisition price that we estimate to be approximately a 15 percent multiple improvement. Moving to page 18. With the favorable impact of our central region acquisitions, our production rates continue to increase, as do our PDP reserves. I'm pleased with our production volumes, but I'm really excited about the value of our future reserves. With the strong demand for natural gas predicted for many years to come, the increase in our future reserves provides great value to our shareholders as well as to our employees. Our pro forma production rate after including the impact of the recently announced ConocoPhillips assets is 147,000 BOE per day, and the PV10 of our PDP reserves has grown to $4.2 billion. Additionally, with our industry-leading corporate declines of approximately 8.5%, our reserves to production ratio is at a very healthy level of 15 times. And finally, I'll wrap up on page 19. We're highlighting the comparison of our industry-leading and low corporate decline rate of 8.5% versus six other peer companies. As you can see on this page, our corporate decline rate for our producing inventory is three times lower than our peers. This low decline rate coupled with our disciplined hedging program allows for stability and predictability of cash flows. A unique characteristic of our production profile is the low capital requirement we need to maintain this corporate decline rate. We have an efficient capital spend for our upstream production optimization programs, and this upstream capital spend, along with our smarter asset management programs, have a very favorable impact on maintaining our low corporate decline rate. So with that, I'll turn it over to our Chief Financial Officer, Eric Williams, who will discuss our financial results. Thanks, Brad.