Diversified Energy Company

Ladies and gentlemen, good morning and welcome to the Diversified Energy 2023 Final Results Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Douglas Criss, SVP, IR, and Corporate Communications. Please go ahead, sir.

Good morning, and welcome to the Diversified Energy 2023 Results and Acquisition Conference Call. Joining me today are Rusty Hudson, our Founder and Chief Executive Officer, and Brad Gray, our President and Chief Financial Officer. During this call, we will make certain references to non-GAAP financial measures. Reconciliations to those financial measures are in both of our earnings release as well as our annual report, which was published this morning and available on our website, as well with our filings with the SEC. Now, my pleasure to hand the call over to Rusty Hudson. Rusty, please go ahead.

Thank you, Doug. I appreciate it. Real quickly, just to kind of base the presentation today, I'm going to kick it off, talk a little bit about the 2023 numbers, the success that we had in 23. I will turn it over to Brad Gray, our Chief Financial Officer, to discuss financial metrics associated with the year. And then I will come back on and update on the acquisition that we announced this morning along with a 2024 strategic outlook for the remainder of the year. So with that, I'll go to page three of the presentation and start there. I just want to say that we're pretty proud of our year in the 2023, the strategic successes that we had. It was a great year for diversifying a very challenged commodity price environment. We'll talk a little bit about this, but our hedging program and our hedging portfolio was very successful in insulating us from a lot of that commodity price risk that we saw in 2023. But overall, very good year. You can see here on page three some of the highlights that I bring to note. Key being the production was strong through $821 million a day natural gas production on average. We continue to see very resilient decline rates as we held it under 10% again, which is the key to our success long term is the mature producing assets that we operate, which gives us the ability to hedge and be successful with cash flow profile. We had $543 million of EBITDA for the year, which was a record for us. Net debt at 2.3, again, within the margin of the 2 to 2.5 that we talk about with our investors. Cash margin strong at 52%. That has been a staple since 2017. And I think, which is a very key factor that investors should be fees with is over the last, since our IPO, we've returned $800 million of cash back to our investors. Over $700 million of that in dividends and the other portion in share repurchases. In December, we publicly listed on the New York Stock Exchange, which was something that we had been striving for for about a year and a half prior to that. Very important factor for us as we move forward in being able to access the public markets, and the institutional investors in the U.S. Free cash flow of $219 million. Again, on the ESG perspective, continue to see great results around our emissions and our identification and reduction programs. Again, the OGMP awarded us with the gold standard for the second consecutive year. and we retired over 400 wells last year through our asset retirement program and next level asset retirement company. So all in all, a great year. We'll talk about some of the specifics around some of that as we go through the presentation. Moving to page four, delivering our de-risk model, and really it results in de-risking four things, commodity price risk, which we do through our hedging program, our operational risk, which we do through our smarter asset management, and our ground game on a day-to-day basis with people that operate in the field, and really striving and driving for those lower decline rates by operating the assets more effectively. The financing risk and the ability to finance our company's programs both from an RBL, but also through some of the ABS and the financing structures that we've used to finance the business, to create liquidity, and also to pay down debt over a period of time. And then our environmental risk, which we do through our stringent ESG programs for emissions detection and reduction, which we believe is best in class in our sector. leads to a very low-risk model with generating consistent cash flow, which you can see now since 2017, we've operated with these 50% cash margins consistently since 2017. Flipping over to page five, again, a very peer-leading decline rate in 2023. 10% or less, which is what we strive for on an annual basis, and that that is including the whole portfolio. And you can see across all of our peers that that is a peer-leading decline rate, but more importantly, a very peer-leading capital intensity rate. The $0.25 per MCF compared to all of our other peers, and these are U.S. peers, by the way, it just shows how little cash flow that we have to reinvest to keep our decline rates where they are. So we have superior capital intensity, which enhances our free cash flow, which creates greater value for the shareholders and returns over a period of time. Flipping to page six real quick. Hedging strategy. You know, 23 was a very challenged commodity price environment. Well, that didn't stop. It carried over into 2024. But again... The hedging program that we deploy across our portfolio gives us an advantage because you can see here our hedge price for natural gas at 309, about 85% of our production hedged through the remainder of this year. The remainder of 24 strip prices of 245, so it's a pretty robust hedging price above and beyond the current strip. And you can see our program, you know, we're at 85% hedged in 24. You know, we're probably around 70% or a little less maybe in 25 and forward. So that will continue because we underpin the business through that hedging program for the long haul. You can see as it relates to our peer average, you know, we're at 85% hedged on an average basis across the rest of our peers that they're at about 44%. And I think the key to that will show as 24 continues to remain low in terms of pricing, that our peers' leverage will continue to elevate over the period of time. This gives us the ability to pay down our debt and continue to lower our leverage profile as 24 goes on. On page 7, one of the things that we did in December that you saw us announce was an innovative asset sale where we were able to essentially bundle up an asset, and essentially sell it to institutional investors for a much higher multiple than we would have been able to sell it to a third party. We sold that asset for 5.7 times, even that multiple. In December, we had a liquidity impact or uplift, I should say, of $90 million, and we delivered the business with this structure. We retained a 20% minority interest in that asset But at the end of the day, we were able to reduce debt, be able to sell the asset for a much higher multiple, and this is a structure that we can continue to use moving forward as long as the institutional investors are there to acquire those assets out of the structure. So a very innovative asset sale that provided liquidity, reduced debt, and helped us to reduce leverage as we entered 2024. With that, I'm going to turn it over to Brad to run through some additional financial metrics, and then I'll come back on and talk about the acquisition in 24.