Tennyson Securities has released a comprehensive analysis of Diversified Energy Company’s performance in the first quarter of 2024, providing insights into the company’s steady progress and strategic advancements.
Q1 2024 Trading Statement Highlights
- Production Rate: Diversified Energy Company (LON:DEC) maintained a consistent production rate of 121 thousand barrels of oil equivalent per day (kboepd).
- Free Cash Flow: The company reported a free cash flow (FCF) of $74 million, marking a notable 31% year-over-year increase.
- Cost Management: DEC achieved a strategic reduction in unit costs by 7%, sustaining cash margins at 48%.
Key Developments
- Black Bear Gas Processing Facility Optimisation
- Analyst Tim Hurst-Brown highlighted the optimisation of the Black Bear gas processing facility in Louisiana, acquired by DEC in April 2022 for $10 million.
Following a low-capital expenditure upgrade and gas reroute, the facility’s efficiency significantly improved. - The company now projects a fourfold increase in the processing of equity gas to 66 million cubic feet per day (mmcf/d), reducing reliance on third-party processing and compression fees.
- These enhancements are expected to improve the annualised cash margin by approximately $9 million, constituting about 3% of the group’s Q1 FCF.
Upcoming Developments
Oaktree Acquisition
- Diversified Energy anticipates completing the Oaktree acquisition in Q2 2024, which is expected to boost group production by 17%.
- This acquisition is poised to significantly enhance H2 cash flow, particularly as US gas prices show signs of recovery. NYMEX strip prices have risen by 5-20% since February, with optimistic forecasts.
Inclusion in the Russell 2000 Index
The imminent inclusion of DEC in the Russell 2000 index by June 28 is expected to attract substantial interest from passive funds, potentially boosting share performance.
Tennyson Securities emphasises that the financial results reflect a robust strategic approach to operations and cost management. The forward-looking initiatives, particularly the integration of Oaktree’s assets and the operational leverage from Black Bear, position Diversified Energy Company for potential upward trajectories in the upcoming periods.
Diversified Energy Company plc (LON:DEC) is an independent energy company engaged in the production, marketing, transportation and retirement of primarily natural gas and natural gas liquids related to its U.S. onshore upstream and midstream assets.
