WTI (Mar) $77.90 -$1.78, Brent (Mar) $84.90 -$1.76, Diff -$7.00 +2c.

USNG (Feb) $2.67 -17.2c, UKNG (Mar)* 149.58 +9.58p, TTF (Mar)* €58.65 +€0.95.

* Feb expiry.

Oil price

As I mentioned yesterday the oil price is watching all the meetings with interest. Expect no change from Opec, +.25 bp’s from the Fed and .5 bp’s from the BoA and the ECB.

Nothing from Sleepy Joe lately but the retail gasoline price is $3.489 on average which is up 7.4c w/w, up the full 26c m/m and a rise of 77.6c y/y. All that hard work is wasted….

Diversified Energy 

Diversified has announced the following operations and trading update confirming 2022 results are in line with market expectations. Diversified will release its 2022 full-year results and host an investor call on 21 March 2023.

Recent Operating and Financial Highlights

•     Annual production of 135 Mboepd (808 MMcfepd), up 14% vs. 2021

◦     4Q22 average of 134 Mboepd (805 MMcfepd), which included weather-related downtime

◦     4Q22 average of 138 Mboepd (826 MMcfepd) excluding weather-related downtime(a)

◦     December 2022 exit rate of 141 Mboepd (846 MMcfepd) excluding weather-related downtime(a)

•     Total Cash Expenses(b) per unit of $10.41/Boe ($1.73/Mcfe)

•     Full Year Cash Margins(c) of 50%

•     ~85% of 2023 production hedged(d) at an average natural gas price of $3.63/Mcf(e)(f)

◦     Represents ~27% price premium and ~70% increase in  coverage from year-end 2021

◦     Average hedge price ~3% above current NYMEX strip for 2023(g)

•     ~2.3x Net Debt / Adjusted EBITDA(h) leverage ratio as of 31 December 2022, pro forma for recent acquisitions

Recent Environmental, Social and Governance Highlights

•     Asset-Retirement Progress / Update on Next LVL Energy, DEC’s well retirement subsidiary:

◦     Next LVL continues to be awarded retirement contracts from third-party operators and state orphan well programs, with >150 wells contracted in 2023

◦     DEC retired 200 wells (incl. 72 by Next LVL) during 2022, up 47% vs. 2021 (136 wells)

•     Emission Reduction Initiatives:

◦     Conducted ~174,000 handheld emissions surveys of upstream Appalachian assets during 2022, completing upstream surveys ahead of original commitment

▪     Achieved no-leak rate on >90% of  surveys upon completion of site visit

▪     Completed 2+ surveys on ~95% of producing sites; no-leak rate of >95%

◦     Completed LiDAR aerial surveillance over ~11,000 miles of midstream assets

▪     75% of verified leaks repaired; progressing additional repairs

Rusty Hutson, Jr., CEO of the Company, commented:

“Once again, the team delivered another exceptional year for our stakeholders. In a year marked by volatility underpinned by significant geopolitical activities, we once again delivered on our strategic goals of generating strong cash flows, reducing emissions, and providing tangible value to our stakeholders.

“Protecting our cash flow and, in turn, our dividend and debt payments have always been core to our strategy. We opportunistically capture higher natural gas prices as we add additional hedge protection.  We begin 2023 again on solid footing, with ~85% of our natural gas production hedged at an average floor price of $3.63/Mcf, with downside protection ~27% better or $0.78 higher per Mcf compared to the values reported as of year-end 2021.    

“In 2022, we navigated a challenging inflationary environment while maintaining strong cash margins by vertically integrating the assets we acquire and realising synergies, including establishing our Next LVL asset retirement business.  Our investment in expertise and equipment positions us as one of the largest full-service well retirement and related activity providers in Appalachia.  Importantly, we safely and efficiently retired over 200 wells during the year and ahead of our 2023 target date to reach this milestone. Our progress highlights our long-standing commitment to be a responsible steward of our assets from acquisition to end of life, and we are now using our expertise to help third parties retire their wells, including orphan wells within certain states in which we operate.”

“We recognize that energy-company stakeholder expectations continue to evolve and now include energy security and affordability in harmony with expectations around ESG, and Diversified remains committed to and has a track record of responsibly and sustainably producing our assets. Our investments in emissions measurement and tracking technologies were integral to Diversified being awarded the Gold Standard from the United Nations Oil and Gas Methane Partnership. As one of only five U.S.-based companies to receive that achievement, we are proud of this accomplishment and its affirmation of the team’s commitment to our stated emission reduction-related goal.”

Today with our more than 1,500-people-strong organization, we achieved strong financial and operational results. I would like to thank this group of talented individuals for their dedication as we continue our work in 2023 and beyond.” 

Yet again Diversified has demonstrated its ability to deliver trading results in-line with best market expectations and at a time when adverse conditions in energy markets make that a very solid achievement. 

Production numbers speak for themselves, FY 2022 was 135 Mboepd (119) with the 4Q number being 134 but hit slightly by Storm Elliot but still exiting at 141 Mboed, a very solid figure. Full year cash margins were yet again some 50% which were aided by the hedging book, with over 85% of 2023 at $3.63/Mcf, a substantial premium to end 2021 and c.3% above 2023 strip prices. 

These numbers translate into a very strong free cash flow which of course leads to the ability to pay out regular and increasing dividends to shareholders, something I addressed in my note a couple of weeks ago.*(Malcys blog 9th Jan 2023 see malcysblog.com archive.) Here I suggested that the chart in the current presentation to my eyes says it all and when I first saw it I understood why the company have coined it as ‘the Money Slide’.

It illustrates that even when the long term commodity price environment is being more ‘conservative’ the large amount of FCF generation from the aforementioned business model not only pays down the debt, retires all 72K wells (and retires some of those that are still economic) but also has the ability to pay the target base dividend for over 50 years AND still have ~$2bn of cash left over that can also be paid to shareholders. So it really does come back to FCF generation as that is ~7X the current market cap.

The hedge strategy shows that when Natural Gas prices fall they are offset by the higher hedged production portfolio( c.90%+) and as a result steady, reliable cash flow which delivers ~50% cash flow and that in itself pays a meaningful and growing dividend at the moment giving shareholders a 20%.

So, finally what I like most about DEC is that it gives investors a certain strength and a unique offering through its model which does not mimic E&Ps and accordingly is not exposed to large capex inflation and no notable service cost inflation for the company.

This ‘exceptional’ year to quote the CEO has again delivered and I see no reason why it can’t repeat the process. The team keep a tight rein on costs, deliver to the environment and investors alike. It seems that there has been a while since an acquisition so maybe the teams have been on the move on that front, it would certainly help the further generation of revenue, cash flow and dividend payments to shareholders, three cheers for that.


Operations Update


In 2022, Diversified once again delivered record annual production of 135 Mboepd (808 MMcfepd), an increase from the prior period of 14%.

Supported by the Company’s low, industry-leading annual declines of ~8.5% and continued growth in the Central Region, the Diversified’s stable production profile continues to be a key component of our strategy to generate consistent, reliable cash flows that underpin our ongoing stakeholder returns.


Net Production (Mboepd)





Average Annual Production





Margins and Total Cash Expenses per Unit

The Company maintained robust Cash Margins(c) of 50% in 2022, reflecting the impact of Diversified’s investment in Central Region assets that feature favourable end-market pricing and the improved commodity price environment during 2022, largely offsetting year-over-year increases in Total Cash Expense(b) per-unit. These expense increases were largely driven by the full-year inclusion of higher variable costs in the Central Region related to commodity price linked production taxes and certain processing costs impacted by the elevated commodity price environment during the year.

General inflationary pressures led to higher base Lease Operating Expense and Midstream Expense in 2022, while increases in Production Taxes were directly linked to the elevated commodity prices experienced during the year.

Total Unit Cash Expense(b)








Base Lease Operating Expense1

$      3.51

$      0.59

$     2.76

$   0.46

     28    %

Midstream Expense





   4       %

Gathering and Transportation





     29    %

Production Taxes





       108       %

Total Lease Operating Expense1

$      8.85

$      1.47

$     6.73

$   1.12

     31    %

General & Administrative Expense (Adj.)(i)





     30    %

Total Unit Cash Expense1

$    10.41

$      1.73

$     7.95

$   1.32

     31    %

Cash Margin(c)



Amounts may not sum due to rounding

1 2022 excludes $(0.21)/Boe ($(0.04)/Mcfe) of expenses attributable to Next LVL Energy

Capturing Rising Commodity Prices in the Hedging Programme

Diversified enters 2023 with significant hedge protection to sustain stable revenues and cash margins that strategically minimize the risk of commodity price volatility. The Company’s recent hedge optimisation activities have increased the Diversified’s weighted average floor by 27% and 3% since the previously disclosed positions at 31 December 2021 and 26 October 2022, respectively.

Consistent with its stated coverage targets and the long-term hedge profile of Diversified’s amortising debt, the Company continues to opportunistically add hedge protection for 2024 and thereafter.

The table below reflects the results of recent enhancements for 2023(e)(f).

Wtd. Avg.

Hedge Price at

31 December ’22

Wtd. Avg. Hedge Price at

31 December ’21

% Increase in Wtd. Avg.

Hedge Price

Wtd. Avg. Hedge Price at

26 October ’22

% Increase in Wtd. Avg.

Hedge Price







The table below represents the Company’s full-year hedge positions by commodity for 2023:

GAS (Mcf)

NGL (Bbl)

OIL (Bbl)

Wtd. Avg. Hedge  Price(e)(f)

~ % of Production Hedged(d)

Wtd. Avg. Hedge  Price(f)

~ % of Production Hedged(d)

Wtd. Avg. Hedge  Price(f)

~ % of Production Hedged(d)








ESG Update

Asset Retirement Update

Following Diversified’s vertical integration of its asset retirement capabilities through investment into its wholly-owned Next LVL well retirement subsidiary, the Company safely retired 200 wells in 2022, including 72 wells by Next LVL. Accordingly, Diversified achieved its goal of retiring 200 wells per year ahead of its goal to begin doing by 2023.

In addition to achieving this important milestone, Next LVL has largely completed its integration of the retirement companies it acquired in 2022. Next LVL will open its regional headquarters in Bridgeport, West Virginia, in early February 2023 as it continues to win additional revenue-generating well retirement contracts for 2023. To date, Next LVL has been awarded >150 contracts to retire state orphan wells and wells for third-party operators.

Progress on Emissions Reductions Initiatives

Upstream Efforts

During 2022, Diversified completed ~174,000 unique voluntary emissions surveys of Appalachia upstream wells, including more than 58,000 well repeat surveys. Diversified completed these emissions-related surveys more than nine months ahead of its committed plans. Importantly, the surveys demonstrated that ~90% of its wells had no-leaks upon initial inspection, which increased to 95% upon reinspection, demonstrating the effectiveness of the Company’s Smarter Asset Management (“SAM”) programmes and alignment with its ESG commitments. Building on these results, the Company expects to expand handheld device implementation to Central Region operations in 1Q23.

As previously reported, Diversified expects to report a further reduction in greenhouse gas emissions of approximately 10% in direct relation to completed handheld emissions surveys.

Midstream Efforts

Through its partnership with Bridger Photonics, the Company progressed in 2022 its aerial midstream assets surveillance by evaluating ~11,000 miles or ~60% of its owned Appalachian midstream assets, subsequently repairing ~75% of confirmed leaks at a minimal cost and actively progressing the remaining repairs.

As part of its 2022 aerial surveillance program and commitment to the broader community, Diversified shared with third-party midstream operators ~250 potential leaks the Company identified on their assets to aid in those operators efforts to reduce their own emissions. Additionally, the Company voluntarily surveyed ~800 miles related to natural disaster recovery efforts.


And finally…

In the FA Cup the hammers beat the Rams 0-2 and earned themselves a trip to the Theatre of Dreams in the 5th round. Fixtures we know about have dream tie at Ashton Gate where the Robins welcome the Noisy Neighbours and at the Potters the visitors will be the Seagulls.

Tonight in the Haribo Cup semi final the Saints go to the Magpies 0-1 from the first leg.

And no surprise why I forgot about England’s performance in the cricket on Sunday, after cratering in the first game England put up a reasonable score  in game two then bowled canteen stuff and the Proteas helped themselves.