Diversified Energy Company PLC — 2023 Annual Report and Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. The Group is a U.S.-focused producer, transporter and marketer of natural gas, NGLs and oil, with operations in the Appalachian and Central regions. It reports under IFRS as issued by the IASB. PwC issued an unqualified audit opinion.
Financial and operating performance
| Metric | 2023 | Comparison / context |
|---|---|---|
| Revenue (IFRS) | $868 million | Down 55% from $1.919 billion in 2022, mainly reflecting lower commodity prices. |
| Revenue including settled commodity hedges | $1.046 billion | Up 2% from $1.024 billion in 2022. |
| Net income | $760 million | Versus a $621 million net loss in 2022; results include substantial derivative fair-value gains. |
| Adjusted EBITDA | $543 million | Up 8% from $503 million; non-IFRS measure. |
| Adjusted EBITDA margin | 52% | Up from 49% in 2022. |
| Net cash from operating activities | $410 million | Up 6% from $388 million. |
| Free cash flow | $219 million | Versus $218 million in 2022; company-defined APM, after capital expenditures and cash interest. |
| Production | 299,632 MMcfe; 821 MMcfepd average | Up 1% from 296,121 MMcfe; natural gas was 86% of production on an Mcfe basis. |
| Adjusted operating cost | $1.76/Mcfe | Down 1% from $1.77/Mcfe. |
| Debt and liquidity | $1.325 billion total debt; $1.285 billion net debt; $139 million liquidity | Debt declined from $1.498 billion and net debt from $1.435 billion. Liquidity includes cash and available Credit Facility borrowings net of letters of credit. |
| Leverage | 2.3x net debt / pro forma adjusted EBITDA | Within management’s 2.0x–2.5x preferred range. |
Natural gas average realized price excluding settled hedges fell 64% to $2.17/Mcf; including hedge settlements, it was $2.86/Mcf, down 4%. Commodity derivative settlements produced a $178 million gain in 2023, compared with an $896 million loss in 2022. Separately, the change in fair value of unsettled derivatives generated a $906 million gain, versus an $861 million loss in 2022. Total derivative gain was $1.081 billion. Interest expense rose 36% to $118 million, and income tax expense was $241 million.
Material changes and notable transactions
- Completed the Tanos II Central Region asset acquisition for approximately $262 million on March 1, 2023. The acquired assets contributed $46 million of revenue from acquisition through year-end.
- Issued approximately $163 million of equity in February to help fund Tanos II.
- Sold non-core acreage and non-operated interests. The filing reports approximately $66 million total consideration for certain divestitures; proceeds from divestitures in the cash flow statement were $96 million.
- Completed an ABS VII financing secured by Appalachian assets and sold an 80% equity interest in the associated entity for $30 million. The transaction generated a reported $18 million gain on sale and resulted in deconsolidation of the entity.
- Proposed a final 2023 dividend of $0.29 per share, following quarterly dividends of $0.875 per share. Management described the lower level as intended to support debt reduction, flexibility for other capital returns and growth. Total dividends paid in 2023 were $168 million; share repurchases were $11 million.
- Started trading on the New York Stock Exchange in December 2023, alongside the London listing.
- Proved reserves fell 24% to 3.85 Tcfe from 5.05 Tcfe. Management attributed the main downward revision to lower SEC reference commodity prices; divestitures and production also reduced reserves. Standardized Measure was $1.75 billion and PV-10 was $2.14 billion, both based on SEC pricing and subject to stated limitations.
Outlook, risks and contingencies
Management’s strategy emphasizes disciplined acquisitions, operating cost control, hedging, debt reduction, sustainability investment and shareholder returns. It states that approximately 83% of 2024 production and 76% of 2025 production were hedged for its viability assessment. The Directors concluded the Group can continue as a going concern for at least 12 months from approval of the report and assessed viability over two years, through March 2026.
On March 19, 2024, after year-end, the Group announced a conditional agreement to acquire Oaktree’s interests in several joint acquisitions for an estimated gross price of $410 million before customary adjustments. Proposed funding includes existing and expanded liquidity, assumption of approximately $120 million of associated debt and approximately $90 million in deferred cash payments; other funding sources may include asset sales or a preferred instrument. The transaction is subject to conditions, including shareholder approval.
- Commodity and hedging risk: Commodity prices are volatile; hedges support cash flow but limit upside, and derivative fair-value movements materially affect reported earnings.
- Debt and liquidity: Debt service, borrowing-base redeterminations, covenant restrictions and access to securitization or other financing are important. About $201 million of borrowings are classified as due within one year.
- Asset retirement: The discounted asset retirement obligation was $507 million; undiscounted estimated future cash outflows were $1.805 billion. Estimates depend on costs, timing, discount rates and well lives.
- Regulation and climate: Methane rules, environmental and pipeline requirements, potential methane fees, disclosure obligations and changing access to capital could increase costs or affect demand. The filing describes proposed and finalized rules and uncertainties around implementation.
- Operations and infrastructure: The Group relies partly on third-party pipelines and processing, and faces production, water disposal, weather, safety and equipment risks. Its scenario analysis identifies potential exposure to extreme rainfall and other physical climate hazards.
- Safety and impairment: TRIR increased 75% to 1.28, above the 2023 target of 1.03, although the motor vehicle accident rate improved 20%. The Group recorded a $42 million impairment charge on proved properties.
- Reserves and reporting: Reserve estimates depend on engineering judgments and assumed prices, costs and production. The filing identifies reserve estimates and related property valuation as a critical audit matter. Management also notes ongoing U.S. public-company compliance and internal-control obligations.
- The Group reported no material litigation expected to have an adverse effect and no material contingent liabilities. It stated that it was in compliance with debt covenants at year-end.
Most important facts for investors to verify
- How much of 2023 net income and operating profit reflects non-cash derivative remeasurement rather than realized operating performance; compare IFRS earnings with adjusted EBITDA and cash flow.
- The current hedge book, counterparty exposure, hedge coverage and realized prices, including the effect of hedges on cash generation and potential upside.
- Debt maturities, Credit Facility availability and covenants, ABS amortization requirements, and whether liquidity remains adequate after the proposed Oaktree acquisition.
- The acquisition’s final price, conditions, funding mix, expected contribution and impact on leverage and shareholder returns.
- The drivers of the 24% reserve decline and sensitivity of reserves, impairment headroom and PV-10 to commodity prices and operating assumptions.
- The sustainability of the revised dividend alongside debt reduction, acquisition spending and asset retirement obligations.
- Progress on safety corrective actions, environmental compliance costs and implementation of applicable methane and pipeline regulations.