Diversified Energy Company

Greetings and welcome to the Diversified Energy Third Quarter 2024 Results Conference Call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Douglas Criss, Senior Vice President, Investor Relations and Corporate Communications. Thank you, you may begin.

Good morning and thank you everyone for joining us today and welcome to our third quarter 2024 results conference call. With me here today are Diversified's founder and CEO, Rusty Hudson, and President and CFO, Brad Gray. Before we get started, I will remind everyone that the remarks on the call today reflect the financial and operational outlook as of November 12, 2024. These outlooks entail assumptions and expectations that involve risks and uncertainties. A discussion of these risks can be found in our regulatory filings. During this call, we also make reference to certain non-GAAP and non-IFRS financial measures. All of our disclosures around those items are found in our earnings materials on our website and in our regulatory filings. I'll now turn the call over to Rusty.

Thank you, Doug, and thank you all for joining the call today. For those of you following along with our third quarter 2024 results slide deck that we posted to our IR website this morning, I will cover a few slides and then turn the call over to Brad to discuss a few highlights from our financial results. After Brad, I will provide some closing thoughts before opening the call for your questions. Starting on slide three, our third quarter results reflect our continued focus on building a strategic, resilient energy producer. The heart of our process is simple. It's energy optimized. We are a differentiated energy producer that seeks to optimize existing long life and often overlooked and undervalued U.S. energy assets. We seek to drive shareholder returns in a unique way by minimizing traditional MP risk, by optimizing our low decline production, and by being good stewards of our capital while driving meaningful and consistent cash flow. We execute this strategy with a modern field management process that extends production life to deliver enhanced returns and a process that leverages technology and data-driven analytics. We utilize our wholly owned well retirement company and leading-edge emissions technology to control the life of our wells until retirement, reducing emissions and demonstrating our commitment to stewardship for our stakeholders across 10 states, two distinct operating areas, and multiple producing basins. The right company, right in our own mindset for these types of assets delivers consistent free cash flow and returns to shareholders and serves a fundamental role in sustaining the US energy markets. We have been steadfast in executing this strategy since our IPO, driving strong financial and operational performance. We have maintained a reliable production profile with low corporate decline rates, successfully scaled through acquisitions, delivered consistent cash flow and return meaningful capital to our shareholders while in parallel unlocking equity value for our shareholders through ongoing debt reduction efforts. Finally, within our quarterly release, we have introduced our expansion into coal mine methane capture and the sale of environmental credits. We are excited about this adjacent market opportunity that has started to contribute to our bottom line and look forward to reporting more in the coming quarters and years. in summary strong execution of our strategy during the third quarter drove our positive results enabling strong free cash flow generation and allowing us to continue to prioritize returning capital to shareholders turning to slide four throughout the year we have talked about our focus on four key deliverables systematic debt reduction returning capital to shareholders through dividend distributions and through share repurchases and growing the company through accretive and strategic acquisitions. You can see here our progress so far in 2024. Debt principal reduction totaled approximately $155 million year-to-date. Additionally, we returned approximately $85 million to shareholders in the form of dividends and approximately $20 million in strategic share repurchases through the first three quarters of 2024. And we did this while continuing to focus on our growth initiatives with approximately $585 million in announced acquisitions so far this year. We maintain flexibility in our capital allocation strategy to ensure we deploy capital to the highest value opportunities, which includes pursuing strategic bolt-on acquisitions. Taken together, we believe our capital allocation strategy balances investment in the business and growth initiatives while enabling a tangible shareholder return framework, all of which creates long-term value for our stakeholders. With significant progress achieved through the first three quarters, we remain on track to deliver on our goals for the year and will remain focused on these key strategic pillars. Turning to slide five, you can see here a very consistent average cash margin of over 50% since our IPO. This is something that we frequently highlight. these high cash margins are the result of our differentiated operations including high capital efficiency and an effective hedging program in addition our proven track record of strategic bolt-on acquisitions has both increased our scale and positively impacted our per unit cost which also contributes to our high cash margins so while a very volatile natural gas market has made it increasingly difficult for most companies to maintain consistent high cash margins and has necessitated other operators' moderation of production and activity levels, we've been able to deliver these results due to the outstanding work of our teams out in the field. Turning to slide six, a key area of focus that supports our strategy of growing through acquisitions is technology-driven optimization and efficiency. As part of our modern field management philosophy, we have developed scalable platforms and have invested in flexible, innovative, and efficient systems. This enables process efficiency and reliability across our assets and improves our operational performance as we scale, ultimately driving sustainable value creation throughout the business. Turning to slide seven. Over the past seven years, we have built an infrastructure platform that is built to harness the power of vertical integration and scale and leverage best-in-class technology. As the only public executing a strategy focused on acquiring and managing mature producing assets, we are uniquely suited with this platform to grow our business in a highly accretive manner. We own the cost structure and are less subject to inflationary and third-party costs. As an example, year-to-date we have closed approximately $585 million in acquisitions, growing our production by over 15% with no incremental G&A. We believe that this corporate infrastructure asset is highly valuable and can allow the company to grow production two to three times our current levels with no meaningful G&A additions. Turning to slide eight, as I mentioned earlier, we continue to execute strategic bolt-on acquisitions, building on our proven track record of acquiring quality assets that lack the focus of their owners at attractive valuations. Here we provide additional detail for our three recent acquisitions. Oak Tree which closed in June, Crescent Pass with assets primarily at East Texas which we closed in August, and the acquisition of a package of additional East Texas assets which we closed just two weeks ago. I'd like to discuss in a bit more detail the recently announced East Texas acquisition which we're very excited about. These assets contain a significant PDP component of approximately $68 million. Additionally, the current PDP net production is 21 million cubic feet per day and is showing fairly shallow declines, as we expected, and it can complement to our industry-leading low corporate declines in capital intensity. Importantly, the acquisition's estimated next 12 months EBITDA of $19 million represents a 3.5 times cash flow purchase multiple, reflecting an attractive valuation of PV18 for the PDP assets and excludes any value from the undeveloped acreage. The assets are also in close proximity to our previously acquired East Texas assets, which presents an opportunity to realize operational synergies from the transaction. Overall, this transaction demonstrates our continued ability to grow in an incredible way with high quality assets that fit into our existing footprint. With over 50% of our production now in the central region, We have strategically reshaped our operating geography to have a meaningful exposure to LNG demand. As we've discussed previously, our strategy has been to buy good assets, implement our operating procedures and processes to improve operational and environmental performance, and ultimately get more out of the assets because of our focus and scale generating significant value for diversified. Both the Crest Pass and East Texas Transaction and we will continue to evaluate similar opportunities in the future that have potential to drive additional long-term value for diversifying in our shareholders. Turning to slide nine, we recently announced a multi-year contract with a Gulf Coast LNG exporter. This supply agreement highlights one of the reasons moving into our central region was so critical. The market recognizes the reliability of our loaded-clad production base. With the recent growth we have seen in this operating region, we see LNG agreements as a growing opportunity set. Additionally, it highlights the benefits of the vertically integrated business model, with our marketing team always focused on expanding commercial opportunities and increasing cash flow. Turning to slide 10, we have previously mentioned how the acquisition evaluation framework we applied does not ascribe any value to the end-of-year acreage. On this slide, I want to highlight the underlying value of that undeveloped acreage. I would note that we have historically received this acreage basically for free. Today, we have approximately 8.6 million net acres within our operating footprint, and this acreage is essentially all held by production. Of those 8.6 million net acres, 65% is undeveloped. This acreage represents significant untapped value. Over the last several quarters, we've begun to realize additional value through acreage sales, including the sale of approximately 23 million of non-core, undeveloped acreage divestitures across our operational footprint during the first three quarters of this year. We expect to execute additional sales throughout the remainder of the year, and we remain focused on unlocking the significant untapped value of our undeveloped acreage. To realize this value, we are focused on a variety of strategies, including outright sales, organic development, advantageous joint ventures, drill codes, and non-operating divestitures. Importantly, this untapped potential value serves as a source of capital for debt reduction, shareholder return of capital, and accretive bond loan acquisitions. With that, I'll turn it over to Brad to discuss our financials in additional detail.