March 19, 2024
NOT
FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART,
DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM ANY OTHER JURISDICTION
WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR
REGULATIONS OF SUCH JURISDICTION.
THIS IS AN ANNOUNCEMENT AND NOT A CIRCULAR OR EQUIVALENT
DOCUMENT AND INVESTORS AND PROSPECTIVE INVESTORS SHOULD NOT MAKE
ANY INVESTMENT DECISION ON THE BASIS OF ITS CONTENTS. A CIRCULAR IN
RELATION TO THE TRANSACTION DESCRIBED IN THIS ANNOUNCEMENT WILL BE
PUBLISHED IN DUE COURSE. THIS ANNOUNCEMENT CONTAINS INSIDE
INFORMATION
Diversified Energy Company
PLC
("Diversified," "DEC," or the "Company")
Final Year-End 2023 Results,
Accretive Acquisition, and Capital Allocation
Update
De-Leverages Balance Sheet,
Provides Flexibility, and Positions for Growth
Diversified Energy Company PLC (LSE:
DEC; NYSE: DEC) is pleased to announce its final audited results
for the year ended December 31, 2023.
Additionally, the Company is pleased to announce that it has
entered into a conditional agreement with Oaktree Capital
Management, L.P. ("Oaktree" or "OCM") for the strategic acquisition
of working interests in certain assets operated in the Central
Region ("Acquisition"). Further, the Company also announces a
revised capital allocation framework designed to strengthen the
balance sheet and provide sustainable shareholder
returns.
FY
2023 Final Results: Operating and Financial
Highlights
•
Record average net daily production:
821 MMcfepd (137
MBoepd)
◦ December
exit rate of 775 MMcfepd(a) (129.2 MBoepd)
◦
Peer-leading consolidated corporate production
decline rate of ~10%(b)
• Year
end 2023 reserves of 3.8 Tcfe (642 MMBoe; PV10 of $3.2
billion(c))
• Net income
of $760 million, inclusive of $688 million tax-effected, non-cash unsettled
derivative fair value adjustments
•
Adjusted EBITDA of $543
million(d) generating Free Cash Flow of $219 million(e)
• Adjusted
EBITDA Margin of 52%(f)
• Total
Revenue, inclusive of hedges, grew
2% to $1
billion(g), net of $178 million
in commodity cash hedge receipts that supplemented Total Revenue of
$868 million
• Year-end
liquidity of $139 million(h) and
Leverage (Net Debt-to-Adjusted EBITDA) of
2.3x(i)
• Commenced
trading on the New York Stock Exchange
•
Recommending a final quarterly dividend of $0.29 per
share
2023 Sustainability Highlights
• Achieved
2030 Scope 1 methane intensity goal (-50% from 2020) seven years
ahead of schedule
◦
33% reduction in Scope 1 methane intensity to 0.8
MT CO2e/MMcfe from 1.2 in 2022
◦
NGSI(j) Methane Emissions Intensity 0.11%
CO2e/MMcfe vs. 0.21% in 2022
•
Won ESG Report of the Year from ESG Awards
2023
• Awarded
OGMP 2.0's Gold Standard for emissions reporting for the second
consecutive year
• Increased
MSCI sustainability rating to AA leadership status
• The
Company anticipates issuing its 2023 Sustainability Report in April
2024
Highly Synergistic and Accretive Acquisition
of Oaktree Interest
Key Acquisition
Highlights
•
Consolidates working interest in existing DEC operated wells in the
Central Region by adding ~510 Bcfe of PDP reserves
at an attractive value of approximately a PV17 of PDP reserves
(PV10 value of $462 million)(k)
• Estimated gross purchase price of $410 million (approximately
$386 million net, including customary purchase price
adjustments)
• Favorable
per unit cost benefit resulting from no additional G&A
Expense
• Offsets
natural declines with expected 122 MMcfepd in additional production
(~80% Natural Gas)
◦ Provides a
~15% increase in overall Company production
• Provides
robust cash flow with 2024 Adjusted EBITDA of $126
million(l)
◦ Represents
~3.1x 2024 Adjusted EBITDA multiple
• Increases
Diversified's exposure to favorable Gulf Coast pricing and takeaway
capacity
• Creates
opportunity to layer additional hedges into a stronger commodity
price environment
Acquisition Details
The Acquisition represents a
continuation of Diversified's successful multi-year track record of
strategic asset purchases, whereby the Company will acquire
Oaktree's proportionate interest in the previously announced
Indigo, Tanos III, East Texas, and Tapstone acquisitions (the
"Assets") for an estimated gross purchase price of $410 million
(approximately $386 million net), which includes the assumption of
approximately $120 million in amortizing notes and a hedge book
with a positive mark-to-market of approximately $70 million.
Diversified's average working interest in the Assets will increase
by approximately 100% as a result of the Transaction, highlighting
the Company's emphasis on efficient operation of high ownership
interest assets to maximize cash returns for the life of the
acquired assets.
The Assets include wells currently
operated by Diversified throughout the Central Region and are
expected to add production of 122 MMcfepd (80% natural gas),
representing an increase of 15% as compared to Diversified's
previously announced 2023 average daily production. With an
advantageous production-to-reserves ratio for the Assets of 11x,
the Company's corporate decline rate remains unchanged at
approximately 10% per year.
As part of the Acquisition,
Diversified will acquire certain hedging contracts from Oaktree
that will provide ongoing protection despite the recent downturn in
the gas market at volumes consistent with the Company's overall
hedging strategy while also maintaining strong long-term cash
upside potential from the Assets.
Consideration for the Acquisition
gross purchase price of $410 million (approximately $386 million
net) is subject to customary purchase price adjustments and is
expected to be satisfied through existing and expanded liquidity,
the assumption of Oaktree's proportionate debt of approximately
$120 million associated with the ABS VI
amortizing note, and approximately $90 million in deferred cash
payments to Oaktree.(m) Additional liquidity for
the Acquisition may be generated from non-core asset sales and the
potential issuance of a private placement preferred instrument. The
Company does not plan to issue common equity as part of the
Acquisition. The Acquisition has an effective date of
November 1, 2023.
Timetable and Conditionality
The Acquisition is classed as a
class 1 transaction under the Listing Rules of the Financial
Conduct Authority ("FCA") and accordingly it is conditional,
amongst other things, on the approval of DEC's shareholders, by
ordinary resolution, at a general meeting of DEC (the "General
Meeting").
The circular containing the notice
convening the General Meeting will be published in due course. In
addition, the Acquisition is subject to the satisfaction of other
conditions including receipt of regulatory approvals. It is
currently expected that completion of the Acquisition will occur in
the second quarter of 2024.
The
Path Forward- FOCUS
FIVE
In the year ahead, the Company is
taking a renewed focus on the principles on which Diversified was
founded: investing in strategic, accretive acquisitions, delivering
greater operational efficiencies, taking proactive steps to ensure
the sustainability of assets, keeping costs low and de-leveraging
the balance sheet - all while returning value to
shareholders.
Diversified has set in motion its
"Focus
Five" in order to demonstrate meaningful expansion of
free cash flow generation while growing the company in a
disciplined manner. That plan consists of the following core
objectives:
• Optimized
cash flow generation
• Cost
structure optimization
• Financial
and operational flexibility
•
Sustainability innovation
• Scale
through accretive growth
Updated Capital Allocation
Framework
Since first initiated in 2017,
Diversified has delivered more than $800 million in cash returns to
the Company's stockholders, including approximately $700 million in
cash dividends, along with approximately $110 million in share
repurchases, and the Board remains committed to maintaining a
sustainable and competitive shareholder return
policy.
The Company has undertaken a
reassessment of its capital allocation strategy to weigh the
intrinsic value of the current share price level against the
historical practice of returning capital through dividends.
The Board and executive management team have jointly
evaluated a number of potential scenarios to align the dividend
level with expected future capital allocation needs, peer trends,
current commodity prices, and current equity market
dynamics.
The result of this assessment is the
Board's realignment of capital allocation and is designed to best
position the Company to create long-term shareholder value through
the balanced combination of:
•
Systematic debt reduction
• Fixed
per-share dividend
•
Strategic share repurchases
•
Accretive strategic acquisitions
In conjunction with the asset
acquisition and following the Company's capital allocation policy
review, the Board has set the new quarterly dividend to $0.29 per
share which equates to $1.16 per year. This fixed quarterly
dividend payment will be sustainable for at least three years and
maintains a top quartile pro forma yield1, among FTSE350
and higher than a majority of US listed peers, while providing the
Company financial flexibility to reallocate approximately $110
million annually of capital towards the other elements within the
updated capital allocation framework. When combined with our
planned debt reduction through amortization of approximately $200
million in 2024, the capital allocation
framework will allow for an opportunity to meaningfully
reduce leverage and remain within the Company's stated target
leverage range of 2.0x to 2.5x. In addition, the Company will have
increased flexibility to conduct a strategic and regimented share
repurchase program, while also providing for the opportunity to
make accretive acquisitions. The updated capital allocation
framework will take effect with the recommended final dividend for
2023, payable in June 2024.
1 Estimated pro forma dividend
yield relative to FTSE 350 constituents and US listed peers as
of February 12, 2024.
CEO
Rusty Hutson, Jr. commented:
"We finished the year with strong financial, operational, and
sustainability results, which reflect the continued execution and
success of our business strategy and the contributions of our
teams. Despite headwinds in the natural gas market, Diversified
grew annual adjusted EBITDA by approximately 8%, increased margins
by approximately 6%, and generated $219 million in free cash flow.
From a capital allocation perspective, we reduced our outstanding
debt by approximately 15% since our interim results while returning
$180 million in capital to shareholders in 2023 through dividends
and strategic share repurchases. The highly accretive transaction
announced today increases our Central Region opportunities and
reinforces our commitment to a highly disciplined growth
strategy.
"The gas market is sending a clear signal today; there is too
much supply in the marketplace. Producers have already started to
respond with reduced activity levels and production guidance. We
believe Diversified is one of the best-positioned operators to take
advantage of this lower commodity price marketplace. We are highly
hedged in 2024, and our production base has one of the lowest
decline profiles in the gas industry.
As
we navigate the path forward in this commodity price environment,
we are going on offense to be more opportunistic in our strategic
approach with a strengthened balance sheet and to capitalize on any
periods of near-term weakness. These times have historically
provided extreme valuation disconnects where disciplined businesses
have been afforded the ability to meaningfully grow production. We
have initiated our Focus
Five objectives, which I believe will help to further
differentiate the Company from its peers in unlocking corporate
value throughout 2024 and into the future.
"Upon rigorous assessment, we are recalibrating our fixed
dividend payout to align with current equity market dynamics, peer
trends, prevailing commodity prices, and expected future capital
allocations. We understand the importance of this decision to our
shareholders and do not take the decision lightly. By focusing our
capital allocation on a fixed dividend level that is competitive
with the industry and the market at large, we are prioritizing the
acceleration of our balance sheet de-leveraging, with over $200
million in debt repayments during 2024, creating financial
flexibility and a strong foundation to maximize long-term value
creation for our shareholder base.
"Diversified's differentiated stewardship business model will
thrive amid the backdrop of rising global energy demand,
consolidation in the U.S. energy markets, and enhanced expectations
for sustainably produced energy. Thanks to our approach - focused
on acquiring, improving, and retiring existing, long-life U.S.
energy assets, honed through two decades of field experience -
Diversified is the Right Company at the Right
Time to responsibly manage gas and oil production in
a manner that's consistent with environmental stewardship and our
focus on being a solutions-based business."
Termination of Previously Announced Tender
Offer
Further to the Company's
announcement on 15 February 2024 offering shareholders with an
opportunity to elect how they would receive the return of capital
of approximately US$42 million, in aggregate (the "Return of
Capital"), including having their shares purchased in a tender
offer for cash (the "Tender Offer") pursuant to the terms and
conditions in the circular published on 26 February 2024 in
connection with the Return of Capital (the "Circular"), the board
of directors of the Company has decided to terminate the Tender
Offer component of the Return of Capital. The decision was made due
to conflicting regulations in the United States and United Kingdom
and pursuant to the condition precedent to the Tender Offer in the
Circular that the Company has concluded, in its reasonable
discretion, that the Tender Offer is not in compliance with
applicable law in the United States. As a result of the
termination, no shares will be purchased pursuant to the Tender
Offer, and all shareholders holding securities in proper form as of
the record date will receive the cash dividend payment as announced
on 15 November 2023.
Posting of 2023 Annual Report
Diversified has published to the
Company's website its 2023 Annual Report. These documents can be
viewed or downloaded from Diversified's website at
https://ir.div.energy/financial-info.
Presentation and Webcast
DEC will host a conference call
today at 8:00am GMT (4:00am EDT) to discuss these results. The
conference call details are as follows:
A corporate presentation will be
posted to the Company's website before the conference call. The
presentation can be found at https://ir.div.energy/presentations.
Footnotes:
(a)
|
As previously announced via RNS on
January 30, 2024; Does not reflect the impact of the ABSVII asset
divestiture announced on January 2, 2024.
|
(b)
|
Corporate decline rate of ~10%
calculated as the change in production from Q4 2022 to Q4 2023;
excluding any intraperiod acquisitions or divestitures. Q4 2022
reported production of ~134 Mboepd vs. Adjusted Q4 2023 production
of ~122 Mboepd (reported Q4 2023 production of 129.5 Mboepd less
~10 Mboepd of production for Tanos acquisition & adding ~3
Mboepd of non-op production divested)
|
(c)
|
Based on the Company's year-end PDP
reserves and using 10-year NYMEX strip, as at December 31,
2023.
|
(d)
|
Calculated as earnings before
interest, taxes, depletion, depreciation and amortization, and
includes adjustments for items that are not comparable
period-over-period, non-cash items such as gains on the sale of
assets, acquisition related expenses and integration costs,
mark-to-market adjustments related to our hedge portfolio, non-cash
equity compensation charges and items of a similar
nature.
|
(e)
|
Calculated as net cash provided by
operating activities less expenditures on natural gas and oil
properties and equipment and cash paid for interest.
|
(f)
|
Calculated as Adjusted EBITDA
(defined within footnote (c)), as a percentage of Total Revenue,
Inclusive of Hedges. Adjusted EBITDA Margin includes the direct
operating cost and the portion of general and administrative cost
it takes to produce each Boe.
|
(g)
|
Calculated as total revenue recorded
for the period, inclusive of the impact of derivatives settled in
cash.
|
(h)
|
Calculated as the availability on
the Company's Revolving Credit Facility ("SLL") and inclusive of
cash on hand and letters of credit as of December 31,
2023.
|
(i)
|
Net Debt-to-Adjusted EBITDA, or
"Leverage" or "Leverage Ratio," is measured as Net Debt divided by
Pro Forma Adjusted EBITDA; Pro forma adjusted
EBITDA includes adjustments for the year ended December 31,
2023 for the Tanos II Acquisition to pro forma its results
for the full twelve months of operations. Net Debt calculated as of
December 31, 2023 and includes total debt as recognized on the
balance sheet, less cash and restricted cash; Total debt includes
the Company's borrowings under the Company's Revolving Credit
Facility ("SLL") and borrowings under or issuances of, as
applicable, the Company's subsidiaries' securitization
facilities.
|
(j)
|
Using the Natural Gas Sustainability
Initiative ("NGSI") protocol, calculates methane intensity using
methane emissions from production assets only (therefore, excluding
gathering & boosting facilities) divided by total gross
production.
|
(k)
|
Reserves values calculated using
effective date of November 01, 2023 and 10-year NYMEX strip as of
March 08, 2024; calculated using historical expense assumptions and
does not include the impact of any projected or anticipated
synergies that may occur subsequent to acquisition
|
(l)
|
Based on engineering reserves
assumptions for the Assets using historical cost assumptions and
NYMEX strip as of March 8, 2024 for the 12 month period ended
December 31, 2024; includes the estimated impact of settled
derivative instruments; does not include the impact of any
projected or anticipated synergies that may occur subsequent to
acquisition
|
(m)
|
Deferred cash payments of
approximately $90 million to Oaktree to be paid over an 18-month
term with an 8% annual interest rate.
|
For Company-specific items, refer also to the Glossary of
Terms and/or Alternative Performance Measures found in
Diversified's 2023 Annual Report
For further information, please
contact:
Diversified Energy Company PLC
|
+1
973 856 2757
|
Doug Kris
|
dkris@dgoc.com
|
www.div.energy
|
|
|
|
FTI
Consulting
|
dec@fticonsulting.com
|
U.S. & UK Financial Public
Relations
|
|
About Diversified Energy Company PLC
Diversified is a leading publicly
traded energy company focused on natural gas and liquids
production, transport, marketing, and well retirement. Through our
differentiated strategy, we acquire existing, long-life assets and
invest in them to improve environmental and operational performance
until retiring those assets in a safe and environmentally secure
manner. Recognized by ratings agencies and organizations for our
sustainability leadership, this solutions-oriented, stewardship
approach makes Diversified the Right Company at the Right Time to
responsibly produce energy, deliver reliable free cash flow, and
generate shareholder value.
Important Notices
The information contained in this
announcement is inside information as stipulated under the UK
Market Abuse Regulation. Upon publication of this announcement,
this inside information is now considered to be in the public
domain. The information contained in this announcement is for
information purposes only and does not purport to be complete. The
information in this announcement is subject to change.
This announcement is an announcement
and not a circular or equivalent document and prospective investors
should not make any investment decision on the basis of its
contents. The Circular in relation to the Acquisition will be
published in due course. Nothing in this announcement constitutes
an offer of securities for sale in any jurisdiction.
Stifel, Nicolaus Europe Limited
("Stifel") is authorized and regulated in the United Kingdom by the
FCA. Stifel is acting exclusively as sponsor for the Company and no
one else in connection with the Acquisition and will not regard any
other person as a client in relation to the Acquisition or the
contents of this announcement and will not be responsible to anyone
other than the Company for providing the protections afforded to
clients of Stifel nor for providing advice in relation to or in
connection with the contents of this announcement, the Acquisition
or any matter referred to in this announcement.
No person has been authorized to
give any information or to make any representations other than
those contained in this announcement and, when published, the
Circular and, if given or made, such information or representations
must not be relied on as having been authorized by the Company.
Subject to the Listing Rules and the Disclosure Guidance and
Transparency Rules of the FCA, the issue of this announcement shall
not, in any circumstances, create any implication that there has
been no change in the affairs of the Company since the date of this
announcement or that the information in it is correct as at any
subsequent date.
Completion of the Acquisition is
subject to the satisfaction of a number of conditions as more fully
described in this announcement. Consequently, there can be no
certainty that completion of the Acquisition will be
forthcoming.
This announcement may contain
certain forward-looking statements, beliefs or opinions, with
respect to the financial condition, results of operations and
business of the Company, the Assets, and the Group following the
Acquisition. These statements, which contain the words
"anticipate", "believe", "intend", "estimate", "expect", "may",
"will", "seek", "continue", "aim", "target", "projected", "plan",
"goal", "achieve" and words of similar meaning, reflect the
Company's beliefs and expectations and are based on numerous
assumptions regarding the Company's present and future business
strategies and the environment the Company and the Group will
operate in and are subject to risks and uncertainties that may
cause actual results to differ materially. No representation is
made that any of these statements or forecasts will come to pass or
that any forecast results will be achieved. Forward-looking
statements involve inherent known and unknown risks, uncertainties
and contingencies because they relate to events and depend on
circumstances that may or may not occur in the future and may cause
the actual results, performance or achievements of the Company or
the Group to be materially different from those expressed or
implied by such forward looking statements. Many of these risks and
uncertainties relate to factors that are beyond the Company's or
the Group's ability to control or estimate precisely, such as
future market conditions, currency fluctuations, the behavior of
other market participants, the actions of regulators and other
factors such as the Company's or the Group's ability to continue to
obtain financing to meet its liquidity needs, changes in the
political, social and regulatory framework in which the Company or
the Group operate or in economic or technological trends or
conditions. Past performance of the Company cannot be relied on as
a guide to future performance. As a result, you are cautioned not
to place undue reliance on such forward-looking statements. The
list above is not exhaustive and there are other factors that may
cause the Company's or the Group's actual results to differ
materially from the forward-looking statements contained in this
announcement Forward-looking statements speak only as of their date
and the Company, its respective parent and subsidiary undertakings,
the subsidiary undertakings of such parent undertakings, and any of
such person's respective directors, officers, employees, agents,
affiliates or advisers expressly disclaim any obligation to
supplement, amend, update or revise any of the forward-looking
statements made herein, except where it would be required to do so
under applicable law. You are advised to read this announcement
and, once published, the Circular in their entirety for a further
discussion of the factors that could affect the Company's future
performance. In light of these risks, uncertainties and
assumptions, the events described in the forward-looking statements
in this announcement may not occur. No statement in this
announcement is intended as a profit forecast or a profit estimate
and no statement in this announcement should be interpreted to mean
that the financial performance of the Company for the current or
future financial years would necessarily match or exceed the
historical published for the Company.
The contents of this announcement
are not to be construed as legal, business or tax advice. Each
shareholder should consult its own legal adviser, financial adviser
or tax adviser for legal, financial or tax advice
respectively.
Percentages in tables have been
rounded and accordingly may not add up to 100 per cent. Certain
financial data have also been rounded. As a result of this
rounding, the totals of data presented in this announcement may
vary slightly from the actual arithmetic totals of such
data.
Use
of Non-IFRS Measures
Certain key operating metrics that
are not defined under IFRS (alternative performance measures) are
included in this announcement. These non-IFRS measures are used by
us to monitor the underlying business performance of the Company
from period to period and to facilitate comparison with our peers.
Since not all companies calculate these or other non-IFRS metrics
in the same way, the manner in which we have chosen to calculate
the non-IFRS metrics presented herein may not be compatible with
similarly defined terms used by other companies. The non-IFRS
metrics should not be considered in isolation of, or viewed as
substitutes for, the financial information prepared in accordance
with IFRS. Certain of the key operating metrics are based on
information derived from our regularly maintained records and
accounting and operating systems. We have not presented
reconciliations of the non-IFRS measures included in this
announcement because the comparable IFRS measures will not be
accessible until the Company's audited financial results for the
year ended December 31, 2023 are complete. The Company has
included the comparable IFRS measures and reconciliations of the
non-IFRS measures in its release of full-year results, published on
Tuesday, March 19, 2024.
Non-IFRS Disclosures
Adjusted EBITDA
As used herein, total revenue,
inclusive of settled hedges, includes the impact of derivatives
settled in cash. We believe that total revenue, inclusive of
settled hedges is a useful because it enables investors to discern
our realized revenue after adjusting for the settlement of
derivative contracts.
|
Year
Ended
|
|
December
31, 2023
|
December
31, 2022
|
December
31, 2021
|
Net
income (loss)
|
$
759,701
|
$
(620,598)
|
$
(325,206)
|
Finance costs
|
134,166
|
100,799
|
50,628
|
Accretion of asset retirement
obligations
|
26,926
|
27,569
|
24,396
|
Other (income) expense
|
(385)
|
(269)
|
8,812
|
Income tax (benefit)
expense
|
240,643
|
(178,904)
|
(225,694)
|
Depreciation, depletion and
amortization
|
224,546
|
222,257
|
167,644
|
(Gain) loss on bargain
purchases
|
-
|
(4,447)
|
(58,072)
|
(Gain) loss on fair value
adjustments of unsettled financial instruments
|
(905,695)
|
861,457
|
652,465
|
(Gain) loss on natural gas and oil
properties and equipment(1)
|
20
|
93
|
901
|
(Gain) loss on sale of equity
interest
|
(18,440)
|
-
|
-
|
Unrealized (gain) loss on
investment
|
(4,610)
|
-
|
-
|
Impairment of proved
properties
|
41,616
|
-
|
-
|
Costs associated with
acquisitions
|
16,775
|
15,545
|
27,743
|
Other adjusting
costs(2)
|
17,794
|
69,967
|
10,371
|
Non-cash equity
compensation
|
6,494
|
8,051
|
7,400
|
(Gain) loss on foreign currency
hedge
|
521
|
-
|
1,227
|
(Gain) loss on interest rate
swap
|
2,722
|
1,434
|
530
|
Total adjustments
|
$
(216,907)
|
$
1,123,552
|
$
668,351
|
Adjusted EBITDA
|
$
542,794
|
$
502,954
|
$
343,145
|
(1) Excludes $24.2 million and $2 million in proceeds received for
leasehold sales during the years ended December 31, 2023 and
2022.
(2) Other adjusting costs for the year ended December 31, 2023
were primarily associated with legal and professional fees related
to the U.S. listing, legal fees for certain litigation, and
expenses associated with unused firm transportation agreements.
Other adjusting costs for the year ended December 31, 2022
primarily consisted of $28 million in contract terminations which
may allow the Group to obtain more favorable pricing in the future
and $31 million in costs associated with deal breakage and/or
sourcing costs for acquisitions.
Total Revenue, Inclusive of Hedges and Adjusted EBITDA
Margin
As used herein, total revenue,
inclusive of settled hedges, includes the impact of derivatives
settled in cash. We believe that total revenue, inclusive of
settled hedges is a useful because it enables investors to discern
our realized revenue after adjusting for the settlement of
derivative contracts. Adjusted EBITDA margin is measured as
adjusted EBITDA, as a percentage of total revenue, inclusive of
settled hedges. adjusted EBITDA margin includes the direct
operating cost and the portion of general and administrative cost
it takes to produce each Mcfe. This metric includes operating
expense, employees, administrative costs and professional services
and recurring allowance for credit losses, which include fixed and
variable costs components. We believe that adjusted EBITDA margin
is a useful measure of our profitability and efficiency as well as
our earnings quality because it measures the Group on a more
comparable basis period-over-period, given we are often involved in
transactions that are not comparable
between periods
|
Year
Ended
|
|
December
31, 2023
|
December
31, 2022
|
December
31, 2021
|
Total revenue
|
$
868,263
|
$
1,919,349
|
$
1,007,561
|
Net gain (loss) on commodity
derivative instruments(1)
|
178,064
|
(895,802)
|
(320,656)
|
Total revenue, inclusive of settled hedges
|
$
1,046,327
|
$
1,023,547
|
$
686,905
|
Adjusted EBITDA
|
$
542,794
|
$
502,954
|
$
343,145
|
Adjusted EBITDA margin
|
52%
|
49%
|
50%
|
1. Net gain (loss) on commodity derivative settlements represents
cash (paid) or received on commodity derivative contracts. This
excludes settlements on foreign currency and interest rate
derivatives as well as the gain (loss) on fair value adjustments
for unsettled financial instruments for each of the periods
presented.
Free Cash Flow
As used herein, free cash flow
represents net cash provided by operating activities less
expenditures on natural gas and oil properties and equipment and
cash paid for interest. We believe that free cash flow is a useful
indicator of our ability to generate cash that is available for
activities other than capital expenditures. The Directors believe
that free cash flow provides investors with an important
perspective on the cash available to service debt obligations, make
strategic acquisitions and investments and pay dividends
|
Year
Ended
|
|
December
31, 2023
|
December
31, 2022
|
December
31, 2021
|
Net
cash provided by operating activities
|
$
410,132
|
$
387,764
|
$
320,182
|
LESS: Expenditures on natural gas and
oil properties and equipment
|
(74,252)
|
(86,079)
|
(50,175)
|
LESS: Cash paid for
interest
|
(116,784)
|
(83,958)
|
(42,673)
|
Free cash flow
|
$
219,096
|
$
217,727
|
$
227,334
|
Net
Debt and Net Debt-to-Adjusted EBITDA ("Leverage")
As used herein, net debt represents
total debt as recognized on the balance sheet less cash and
restricted cash. Total debt includes our borrowings under the
Credit Facility and borrowings under or issuances of, as
applicable, our subsidiaries' securitization facilities. We believe
net debt is a useful indicator of our leverage and capital
structure. Net debt-to-adjusted EBITDA, or "leverage" or "leverage
ratio," is measured as net debt divided by adjusted EBITDA. We
believe that this metric is a key measure of our financial
liquidity and flexibility and is used in the calculation of a key
metric in one of our Credit Facility financial
covenants.
|
As
of
|
|
December
31, 2023
|
December
31, 2022
|
December
31, 2021
|
Credit Facility
|
$
159,000
|
$
56,000
|
$
570,600
|
ABS I Notes
|
100,898
|
125,864
|
155,266
|
ABS II Notes
|
125,922
|
147,458
|
169,320
|
ABS III Notes
|
274,710
|
319,856
|
-
|
ABS IV Notes
|
99,951
|
130,144
|
-
|
ABS V Notes
|
290,913
|
378,796
|
-
|
ABS VI Notes
|
159,357
|
212,446
|
-
|
Term Loan I
|
106,470
|
120,518
|
137,099
|
Other
|
7,627
|
7,084
|
9,380
|
Total debt
|
$
1,324,848
|
$
1,498,166
|
$
1,041,665
|
LESS: Cash
|
3,753
|
7,329
|
12,558
|
LESS: Restricted cash
|
36,252
|
55,388
|
19,102
|
Net
debt
|
$
1,284,843
|
$
1,435,449
|
$
1,010,005
|
Adjusted EBITDA
|
$
542,794
|
$
502,954
|
$
343,145
|
Pro
forma adjusted EBITDA(1)
|
$
549,258
|
$
574,414
|
$
490,978
|
Net
debt-to-pro forma adjusted EBITDA(2)
|
2.3x
|
2.5x
|
2.1x
|
1.
Pro forma adjusted EBITDA includes adjustments for
the year ended December 31, 2023 for the Tanos II Acquisition to
pro forma its results for the full twelve months of operations.
Similar adjustments were made for the year ended December 31, 2022
for the East Texas Assets and ConocoPhillips
acquisitions.
2.
Does not include adjustments for working capital
which are often customary in the market.