Release Date: March 17, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Diversified Energy Co PLC (NYSE:DEC) achieved significant debt reduction, paying down approximately $205 million in 2024.
• The company returned approximately $105 million to shareholders through dividends and $20 million through share repurchases.
• DEC executed over $2 billion in acquisitions, including the transformational Maverick Natural Resources acquisition.
• The company maintained a consistent average cash margin of over 50% since its IPO, showcasing high capital efficiency and effective hedging.
• DEC's expansion into coal mine methane capture and environmental credits is expected to grow free cash flow by over 300% in the next 24 months.

Negative Points

• The volatile natural gas market poses challenges for maintaining consistently high cash margins.
• DEC's share price has been impacted by macroeconomic headwinds, leading to undervaluation concerns.
• There are uncertainties regarding the exact revenue splits from the new data center project joint venture.
• The company faces bureaucratic constraints in third-party plugging, affecting asset retirement revenue.
• DEC's acquisition strategy involves risks and uncertainties, particularly in integrating new assets and achieving projected synergies.

Q & A Highlights

• Warning! GuruFocus has detected 9 Warning Signs with DEC.

Q: Is organic growth in the plans, or do you still see low-cost PDP acquisitions as the most sensible strategy? A: (CEO) We still see our business growing through accretive acquisitions. While we will invest in non-operated working interest participation acquired through the Maverick transaction, our primary goal remains to grow the business through acquisitions. We believe there are still many opportunities in the market, and our business model will continue to focus on accretive acquisitions.

Q: Can you elaborate on how cash flows from the data center project JV will come back to Diversified? A: (CFO) The projects have the ability to stack multiple revenue streams, which is very positive. We will definitely be selling the gas to the project, and we have the energy source, which puts us in a unique position. However, the specific splits of each project's revenue have not been developed yet.

Q: What is the capacity for share repurchases, and how much could you lean in if liquidity allows? A: (CEO) We have purchased about 3% of our 10% authorization from last year's AGM. We still have approximately 7% under that authorization until the next AGM in early April. We see our shares as undervalued due to macro events, and we plan to be active in repurchasing shares. We will seek another 10% authorization at the AGM.

Q: What does adding a formal COO role mean for the company with the larger asset base? A: (CEO) The addition of Maverick's CEO as COO brings a unique skill set to our executive team. He has multi-basin experience and an engineering background, which will help refresh and find new ways of doing things. This addition strengthens our executive management team.

Q: Can you provide more color on the assumptions driving the free cash flow guidance of $420 million for 2025? A: (CFO) We maintain a 10% corporate decline rate and expect new production from the JV CapEx. Our hedging strategy has allowed us to increase prices through additional hedges in 2025, contributing to the adjustments in our numbers.

Q: What are the unit LOE, midstream, and transport costs for Maverick in 2024? A: (CFO) We have not published specific cost information related to Maverick. However, we have identified synergies that we will deliver, and as we start posting results on a combined basis, those results will start blending in.

Q: Where are the environmental credit sales booked in the P&L? A: (CFO) The environmental credit sales are booked in other revenue within our P&L. We booked approximately $8 to $10 million of environmental credits in 2024.

Q: What is the outlook for third-party plugging this year? A: (CEO) We expect a pickup in third-party asset retirement revenue, which will offset existing well plugging on our side. We anticipate returning to a more normal number in 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.