Diversified Energy Company (DEC) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Diversified Energy Company plc investor presentation. [Operator Instructions] These will be available via your Investor Meet Company dashboard, and we'll notify by EMA when these are ready for your review. Before we begin, I would like to submit the following poll. And if you give that your kind attention. I'm sure the company will be most grateful. And I'd now like to hand you over to CEO, Rusty Hutson, and CFO, Eric Williams. Good afternoon.

Good afternoon. Thank you very much for everyone's time today. We're going to run through the presentation. This is Rusty Hutson, I'm the CEO of the company. I'm going to start it off with some general notes around 2021, talk a little bit about how I see the state of the union. And then we'll talk a little bit about the operational overview and ESG and then I'll turn it over to Eric to discuss some of the financial metrics, and then I'll end it up with a 2022 outlook. If you would please turn to Slide 5, we'll start -- we'll begin here. 2021 was a really transformational -- another transformational year for us. The -- as I look at 2021, I take a look at it and say that the model that we introduced to the markets 5 years ago is absolutely working and responding the way that we anticipated it to when we went public 5 years ago. And really, as you look at this slide, these 4 or 5 things on here really -- our direct overview of the company and the way that we set it up and what we told our investors back in 2017 when we went public. We said we would buy. We would be an acquirer of low-decline mature producing assets. As we sit here today, we have the lowest decline rate in the U.S. public -- in our U.S. public peer base with a 9% consolidated decline rate, which is more than -- is half of most -- of the next lowest, which is 20%. So we've, obviously, kept true to that to what we committed to, which was long life, low decline assets, which is really the basis of our model. We said we wouldn't take price risk. We're more of a -- let's take the prices, those hedge. Let's make sure that we're solidifying the cash flows to operate the business to manage our leverage and to return and to pay a return to our shareholders through our dividend policy. As we sit here today, our production is 20 -- in 2022 is 90% hedged approximately, and we'll talk a little more about the hedging policy as we move through the presentation. We're a cash generation company. Our mantra is, if you don't have cash flow, you don't have a business. And so we built the business around cash flow and really over the last 5 years, being able to maintain a very strong margin regardless of the price environment that we're in as we ended '21, again, with a 50%-plus margin. And we're generating strong cash flow. You'll see as we go through this presentation today, and we'll talk a little bit about the uses of cash, but our free cash flow yield is over 20%, which is big and has been in that percentage now for several quarters. And so we're generating a lot of cash flows. And really, what that all sums up is in that top slide -- part of the slide, which is total shareholder return. Since inception, since we went public back in 2017, we have about 170 -- almost 180% total shareholder return over that period of time, regardless of the price environment, which you can see on here. And we've sustained our dividend and increased it over that period of time pretty substantially. And that's the model and how we build it since day 1. Flipping to Slide 6. Some of the highlights, as I look at 2021, we obviously -- as I said, it was a transformational year, but we entered into a new region of the country that we're calling our central region, which was very strategic to us because it gives us an opportunity, another basin per se to grow the business in the way that we have in the Appalachian and to duplicate what we've done there. We did 4 acquisitions in that central region, Texas, Louisiana and Oklahoma. All of them of high-margin assets, the same nature of asset that we talked about on the previous slide. So a very, very strategic set of acquisitions. And we -- our production volumes are at an all-time high. We averaged 119,000 BOE per day, but we ended the year at about 139,000 BOE per day, which is a record. We generated $343 million of hedged adjusted EBITDA which translated to a very high cash margin of 50%, and we delivered $252 million of free cash flow, which, to me, is tremendous because we don't develop assets. We only acquire existing production. We don't have the drill bit and the exploration costs that come along with it. So we -- a lot of our cash flow -- or a lot of our EBITDA, obviously, goes straight to cash flow. And then we continue to maintain a very low leverage -- pro forma leverage at 2.1x, which is comfortably within the range that we've stated to the markets of 2 to 2.5. On page -- or on Slide 7, just talking a little bit about ESG. Back in November at our Capital Markets Day, we committed to $15 million in 2022. And in emissions-related capital commitments, we are well on our way to -- on the road to not only to spend that, but to do the projects that come along with it. We'll talk a little more about that in the next few slides. But all of this is for high-impact projects. And you'll see in a week or so when we deliver our third annual sustainability report that you'll see the improvements in the lower intensity rates, the lower emissions that has come along with the projects that we've implemented. We've deployed our handheld mission detection devices. We've started our aerial surveys and our conversion and elimination of pneumatic devices. So we'll talk more about that. We've committed to a 50% reduction in Scope 1 and methane emissions by 2030. We did that back in November, I believe, with an intermediate goal of 30% reduction by 2026. And we've accelerated our net 0 emissions target to 2040 from our original ambition of 2050. And we'll -- again, we'll get into all of those in a little more detail in just a minute. Moving on to Slide 9, under the operation. I'm going to go through a few of these operational slides, and then I'll let Eric pick up at the end of these. Again, substantial progress on ESG commitments. We were really, really happy with the initial results of our reduction initiatives. We spent a lot of time in the last 12 months, improving the accuracy of our emissions reporting with our Project Fresh emissions inventory process. Lots of things going on there, a lot of things to do with pneumatic devices and not only identifying all of our pneumatic devices but also calculating true emissions off those pneumatic devices. We realized 18% and 6% reductions in GHG and methane emissions intensity metrics compared to 2020. We did go back and restate our 2020 original reported emissions after we were able to do a much more precise measurement of our pneumatic device emissions and other emissions. And we took that emissions intensity -- methane emissions intensity from 4.2 down to 1.6 on a restated basis. And then in '21, we had another 6% decrease down to 1.5%. So we're well on our way to doing -- to hitting our commitments that we've committed to the markets back in November. And you can see the GHG emissions intensity, same thing. We went from a 3.8% revised 2020 down to a 3.1%. So you can see that a lot of our projects are now making an impact on our reported numbers. To give you just a real quick overview, we talked in November about putting the emissions detection devices in the hands of our well tenders so that they could go on each and every well in the portfolio to do actual measurements of emissions on each well and all the equipment around it. So far in 2022, we have visited 14,000 sites with these measurement devices. At those sites, over 12,000 or 85% of those sites had no detectable emissions. So 12,000 out of 14,000 have 0 emissions. In our previous reporting, that would have shown as all 14,000 wells having emissions because under the IPCC rules and under the EPA guidelines, if you have no measurement, then you get an allocated emission that comes along with those wells of leach -- leak metric or whatever they call it. So we are now starting to measure which will give us even more not only accuracy but reductions in the overall emissions in the portfolio. Of those 15% that did have detectable emissions, 10% of them were repaired immediately with a wrench or other methods of maintenance on the location at the time that we took the measurement. So we're making significant progress with those detection devices, and that will continue throughout the year. You can see under the social, some of the things that we've done there, the external benchmark that we hit, up 69%. We've achieved 82% response rate. And then on our governance, we've enhanced the Board diversity, getting a 33% gender diversity goal as the market requires. So a lot of improvements and a lot of activity as it relates to ESG. Moving on to Slide 10, developing media long-term acquisition upside. We acquired a lot of assets over the last 5 years. And what's really crucial to us as we acquire is being able to take over the assets, utilizing the personnel that we're operating the wells prior to us buying them. We're bringing those personnel along with us. They're showing us the low-hanging fruit, the areas that need improvement, how we can enhance production, how we can save costs and money, which are all crucial to the business model. And we've continued to see that play out as we acquired into this new region in the integration of assets there. We're unlocking immediate upside through returning the central wells -- central region wells to production. There was a significant amount of wells in the Capstone acquisition that we did that were taken out of production by the previous owners back in 2020 when the prices were really low. And we're now realizing value by putting those back in production, cleaning up wells, fixing them, doing all the things under our smarter asset management program to create value. And then leveraging shell operations expertise, insights game from the Barnett Shale personnel have opportunities to improve our extend production in Appalachia and all the shale wells that we're doing there. So we're utilizing our personnel, our experiences and the people's skill sets to go across the organization across basins, across the asset types and to generate long-term value for our shareholders as we move forward. Moving on to Slide 11. Our Smarter Asset Management in action. This is just a few examples of some of the things that we've done to create value and how the Smarter Asset Management program plays out in our day-to-day operations. A midstream pipeline addition. We increased the volume of our gas rerouted for price optimization with addition to previously constructive midstream assets. We built a pipeline, and we were able to connect that pipeline to a better market -- better pricing -- market pricing pipeline that we could get better pricing out of the gas that we were selling. We've been able to work agreements to get pipeline fees eliminated. And these can be very substantial cost. And so you go in and renegotiate and are able to remove those fees is margin enhancement as we lower our cost to move our gas. We're rightsizing compression. One of the biggest things I've seen is we've acquired assets over the years is the inability of previous owners to recognize and to reduce compression size, which has a substantial cost to the business. And so getting in there rightsizing compression, eliminating compression when necessary and reducing the cost of moving the gas. And then the staffing model, making sure that we're improving our productivity using computers and technology to get better synergies in the business, reducing the amount of visits to wells, being able to model and provide material expense reductions and productivity gains from being able to manage the staffing model appropriately. And that's another big opportunity every time we buy assets. Flipping to Page 12, and then we will turn it over to Eric on the next slide. Just talking about the production reserve. We've seen significant talked about the production increase, 35% increase in the exit rate from 2020 to 2021, which is also net of any kind of decline rates in the portfolio. We have also seen a 27% increase in our reserve base from 2020 -- end of year 2020 with a PV-10 value at the end of 2020 of $1.9 billion. And as we sit here today, a $3.8 billion PV-10 value on our portfolio. And if you look at that, that's a substantial 50% increase year-over-year -- well, 100% increase year-over-year in just -- which is based on not only the production but also in the pricing metrics that we're seeing in the portfolio. So all in all, a very transformational year, more of the same from an operational perspective in how we operate the assets. And so I'm going to turn it over to Eric to talk a little bit about the ARO and some of the financial metrics.

Thanks, Rusty, and thank you all for joining. I'll pick up on Page 13 and talk a little bit about the operations side of our asset retirement program, and then I'll come back to that again in the financial portion to talk about what that means with respect to cash flow over the longer term. But -- really proud of the progress that we've made on our asset retirement efforts. I'll start looking at the graph that you see in the bottom right-hand corner. And remind that about a year ago, we invested in our first internal plugging crew to begin to build in-house talent and expertise in this area because we know that over the long haul, we'd like to vertically integrate and bring this into just part of our overall business and apply the same Smarter Asset Management techniques which is just a disciplined approach to our operations, to retiring our own assets. And you'll see that last year, we plugged 136 wells and inclusive of the crews that we already stood up and grown internally and then at the end of the year, investing in an additional plugging company, we did about 1/3 of our plugging jobs over the course of the year with our internal efforts. And you'll see how that translates into cost savings over the longer term. Now that we've invested in next level energy that we talked about in the fourth quarter, we have a total of 6 teams. We're on our way to 6 teams that will give us the capacity to plug 200 wells per year, which is the amount that we've committed to plug beginning by 2023. So we're certainly on our way to be able to plug 100% of our own wells in the nearer term. And we will continue to expand our capacity here, targeting at least 10 to 12 crews total, which will provide us the capacity to plug anywhere from 350 to 400 wells. And so what that will give us is that excess capacity not only allows us significant vertical integration and will allow us to build relationships with other parties, including the states as we plug wells for others, which will enhance our ability to learn how we plug different types of wells over different types of states that will enhance our own internal efforts. But importantly, it will allow us to generate cash flow off of that excess capacity that not only will offset our internal cost but also diversify and provide additional sources of revenue in an area that I think we all see is growing significantly, given the amount of federal money that's been flowing into the states to begin to retire orphan wells. So really excited where this is going. You can see that the 4 points we really highlight is across those 33 jobs that we did internally. We were able to plug those using in-house talent for 30% less than what we paid for a third party to come in and flow for us. And our third-party costs were already significantly lower than our peers. Because of the way that we manage the overall program, using our internal employees to fully prepare site and have it very much optimized and ready for that rented equipment and talent to come on site and complete the job. So a 30% incremental saving off of already low cost is really an exceptional start, and I'm excited to see where that will go. As I said, given that the investment that we've made in Next LVL Energy, we have the internal capacity now to plug our stated commitment of 200 wells per year. Importantly, remember that we operate across over 10 states now. So we may not have our crews across that entire footprint to plug every well. So we may continue to use some third-party services. And we'll continue to do that in a very optimized fashion using our own internal team to prepare those sites. But over time, we'll have a broader and broader footprint of our internal teams and continue to do more and more of own work. And as I said, not only this has provided us the opportunity to generate additional revenue and offset our costs, importantly, it does act as an inflation offset and buffer by eliminating the third-party margin and labor cost creep that you can see with third parties. I'll transition now to 15 as we move more into the financial update, and this is really more of a placeholder slide to remind that we did publish a very fulsome and comprehensive 2021 annual report and accounts that you can pull from our website, and that provides, of course, all of our IFRS financial statements and required disclosures along with various alternative performance measures and the required reconciliations back to IFRS. We also include those in the appendix of this presentation. So I would encourage you to take a look at those as you go. But you can see an important milestone, as Rusty talked about, 2021 was a transformational year. We did over $1 billion of gross acquisitions. About 2/3 of those we split with Oaktree, our financial partner into our joint operating agreement. But we operate all of those assets because we're operating them on behalf of Oaktree as well. So that significant footprint will afford us the ability to begin to grow scale primarily in the central region, just as we did in Appalachia that I think you'll see will translate into even enhanced financial performance over the long term as we seek to replicate that Appalachian success. To that end, I'll talk a little bit just broadly on Page 16. We used to talk about our overall cost structure and how that complemented margins. But with the entry into the Central region, that dynamic has changed a bit because the central region -- while it does have notionally higher operating costs, it also has access to better and more premium priced end markets for the sale of its commodities. And so what you see in the graph is that both cost per unit, but also realized price per unit are moving up in tandem, allowing us to maintain that 50% margin over both years. And so you can certainly see that given that we're in the early innings of central region, before we've had the opportunity to really prosecute our smarter asset management work to optimize that cost structure using the same techniques that we have in Appalachia. I believe that we'll be able to further widen that margin over time. But even so, you see that consistent 50% margin, 54% last year, 50% this year. But what I'd really point out is what we've built the business to do, as Rusty said, is generate consistent cash flow regardless of how volatile the commodity is. And if you think about where we were just a couple of years ago with natural gas prices on a realized basis at $2 or less, seeing the front end of the curve today at over $5.50 is tremendous. And so while we have through our hedging program locked in a number lower than that, we're hedged at about $3.20 this year in 2022, is a level that given our cost structure allows us to generate a very healthy margin to make sure that the dividend that we've built the company to deliver for investors, it's very much safe and secure. And so you can see that last year, our hedge program added 16 points to our cash margin. And this year, it gave back 15, but year-over-year, very stable to navigate for commodity cycles. So something we're very, very proud of. We are leaning into the current curve. Certainly, we like the average into the hedge program. As Rusty said, we're 90% hedged this year, but we added about 15% of that over the nearer term and the values that we were layering in on those incremental hedged volumes, we're at 50% premiums to the portfolio average at that time. And we've been building a larger position in 2023 as well. And the nearer term prices that we've been layering in are 30% higher than the average portfolio at the time. So certainly, looking to capture that. And then even if you look out over the longer term, I was looking this morning. If you look out through 2034, you can see that natural gas is up over 50% on the back end of the curve. It used to just crest at about $3.25. And today, on the back end is at about $5.5. So significant improvement, and that's certainly something that we will now be able to reach forward and pull forward through our long-dated reserve portfolio. Turning to 17. We talked about that asset retirement progress that we have made and highlighted that by shifting from using third-party services to using in-house talent and beginning to vertically integrate, we're seeing early times a 30% reduction and the cost of plugging those wells. And that's significant. I'd like to point out that, that's using today's techniques and today's technology but certainly believe that as we see significant capital now flowing into the space with the federal government contributing capital to help states flood orphan wells, you're similarly seeing additional capacity stood up across the industry, and that competition for those dollars will drive innovation and new efficiencies that we don't yet see today. And we've seen that same cycle play out through the drilling and completion aspects of our industry back when commodity prices fell in 2014 and breakevens were closer to $80 per barrel of oil. But through innovation and will power, the industry got those breakevens to as low as $20 per barrel. And so I certainly believe that, that same type of renaissance can take place in ARO. But even if it didn't, even if all we could do was take our internal teams and realize that same 30% savings across our entire portfolio over time, that translates that $1.7 billion of undiscounted gross asset retirement liability which -- for those of you who have followed us for some time, we have a supplemental presentation on our website that goes through our asset retirement in a lot of detail, talking about how we think about what wells to retire, when a well is ready for retirement. And then the costs associated with retiring that well. And then how that undiscounted asset retirement obligation rolls through to our audited financial statements as an asset retirement obligation on our balance sheet. But you'll see an undiscounted value of $1.7 billion. 30% savings translates into $500 million of incremental shareholder value, that given that our model is already accounted for CapEx and taxes and G&A is a dollar-for-dollar return either through enhanced dividends or through reinvestment to the business. So this is really, I think, a significant milestone for us to have the amount of internal plugging capacity that we have able to plug about 200 wells per year, targeting that 350 to 400 well capacity which will give us the added ability to continue to learn and ultimately deliver this value for shareholders. Moving on to 18. Just talked about the way that we think about sustaining our business and doing that through organic cash flow generation. Certainly, over the last 5 years, as we've been listed in London, the first couple or first 3 as a name-listed company and the last 2 as a premium-listed company. We've issued equity along the way to transform this business. When I joined almost 5 years ago in 2017, our EBITDA was around $11 million a year on the back of our second acquisition, going to about $30 million a year. And you can see that we've increased that by over 11x during 2021, delivering $343 million of EBITDA. So tremendous growth, and we've used equity along the way. But we've always partnered that, and we'll turn to this in a moment, partnered it with low-cost debt financing as well to make sure that we generate healthy returns for our investors. But as we now have a significant base of cash flow, we had the opportunity to not only sustain the business but to grow the business within our means and without additional equity. And that's what this slide is intended to illustrate. If you take that $343 million, just using last year as a base, and you peel off the cash taxes, interest, what amount of CapEx we have, mostly on our midstream system and other cash costs. You're left with $252 million of free cash flow, which is a 40% free cash flow margin, very, very healthy that we then use for 2 primary purposes to distribute a tangible return to our shareholder in the form of a dividend, and that was $130 million this year, leaving about an equal portion available to reinvest into the business. And that could be in the form of debt paydowns, which ultimately generates and builds additional liquidity that we could deploy on nondilutive growth in the future or to just simply buy an acquisition or do a combination of the 2. But you can see a very healthy amount of cash that allows us to sustain that dividend and sustain the business over the long term. And we've done that with a backdrop and if you remember the very first slide that Rusty showed, a backdrop of a continuously enhanced dividend per share. Because if we are going to -- or have requested an equity contribution along the way, we've only done that when on a per share basis, we're able to generate additional cash flow and ultimately grow that dividend, having done so for 10 consecutive raises since our IPO. Moving to 19. As I said, when we have raised equity, we've always partnered it with low-cost financing. And over time, that -- the content of that financing has changed a bit. When we began, it was nearly 100% RBL or revolving credit facility debt, that was very low cost, but it had drawbacks that were related to redetermination. So you didn't always know what your credit line would be. And so we knew that long-term assets needed to be paired with proper long-term financing. And so looking across the land -- financing like high yield was just not of interest to us. We felt that it wasn't suited for the PDP natural delevering profile that we like to maintain. So in 2019, we initiated the asset-backed securitization. So we were the first operated asset-backed securitization financing in our industry, and have since begun to really grow that portion of our leverage profile. So essentially, what we now have is just 2 components of our long-term debt. You have our revolving credit facility and then you have amortizing term loans or asset-backed securitizations that make up the other. And you can see that over time, we've allocated the mix a bit differently. And we're really a target, I'd say where we left 2020, it's where over the long term, you'd see us sit with about 70% of the amortizing structures and keeping anywhere from 15% to 30% in the RBL. And the reason we do that is because we generate so much cash, we like to have some on the RBLs that we can pay that down with our liquidity as opposed to just building cash on the balance sheet that has -- that can have negative carry in a low interest rate environment. But at the end of the day, what we do is we're ultimately looking to match that low-risk, low coupon, if you recall, sub 5% coupon against our asset base that is naturally delevering, it's fully amortizing. So you see that glide path to reducing debt over time. And we've maintained that consistent, you see in the yellow boxes, 2-ish times leverage across that period of time, which, given how hedge protected it is and given how low our declines are is a very, very comfortable leverage. But ultimately, as we refinanced, if you'll recall, in the first quarter of this year, $525 million of our credit facility borrowings into those securitizations, the long-term amortizing, you see that the mix went to 90% ABS, just 10% on the RBL. But importantly, because the advance rates on those asset-backed securitizations are higher than the advance rates on the assets we get under the RBL, you see nearly a significant increase in our liquidity, going from $261 million to $412 million. So talking about what we do with that liquidity, I'll wrap up on 20. And just point out that, that liquidity positions us for a significant amount of nondilutive growth as we look to go forward. If you took full year averages, you can see that 2020's liquidity was million, nearly 94%, almost 100% increase, taking us up to $412 million. And if you look back at the central region acquisition that we did, those were on average between 2.5 and 3x. So we were able to buy at lower cash flow multiples in this price environment. And because our stated leverage limit is 2 to 2.5x, we're able to use more leverage and have less need for either organically generated cash or certainly equity contributions along the way to sustain and grow this business. And so if you took that $412 million and you think about paying a 3x multiple that amount of liquidity could essentially buy you about $140 million of EBITDA, which is significantly more than our average corporate decline of about 8.5% is the amount of EBITDA that's rolling over with that. So if you think about $343 million of EBITDA last year, 10% of that would be $35 million. So we're south of that from a decline perspective, and yet this liquidity could purchase $140 million. So significantly more EBITDA acquisition capacity then our very low decline rate would have rolled over. So very excited about where we sit with respect to looking forward into 2022 and the opportunity to sustain and grow the business. And I will hand it back over to Rusty for a couple of closing comments before we do Q&A.

Thanks, Eric. Appreciate it. 2022, we're really excited about the year. We -- obviously, we're already 3 months in, which is crazy. But as we look at this year, we see a backdrop that's pretty exciting. We see a commodity price environment that has set up for some pretty substantial increases in revenue. We're seeing a market that is prepped and ready for divestiture. We're seeing a lot of activity out there in the markets. So we're really excited about the backdrop in which that we're entering the year. Some of the main things that, as I sit here as CEO, what I want to accomplish and what I look at as we plan for 2022, we want to continue to maintain focus on our execution in our field operations. We believe that there are some projects out there that we can utilize organic cash flow to make happen, that will have high internal rate of returns. And so we're going to focus on a few of those this year. And I'm pretty excited about that because we do see some midstream projects and such that would have nice impacts on our revenue and on our margins. We're going to attack emissions. We talk about aggressively driving reductions in absolute emissions. I just call it attack emissions. We're going to get after emissions this year. We're going to continue to roll out the handheld devices and measure the wells and the equipment around the wells. We've started our over flyovers and have begun to identify emissions there. Although so far, it's been smaller emissions. We have found some in other people's pipelines that we're communicating to them. But at the end of the day, these are ways for us to cover a lot of ground in a very short period of time with these flyovers. And then we, obviously, are working hard on the pneumatic devices so that will continue throughout of 2022. We will continue to monitor the acquisition landscape. We're seeing a lot of activity in the markets, which gets me really excited because we're sitting here with a lot of liquidity right now at $400 million. I've told our internal group, we want to have $600 million to $700 million of liquidity. Because I believe this year, the opportunity set in front of us is vast and a lot of things for us to look at to determine whether or not we want to participate, and we're going to execute on some of those. And so we're ready to do that. So enhancing liquidity and reinvesting that free cash flow is the way that we get returns for our shareholders. And so we're going to focus on that heavily this year, continue to look at ways to capture higher pricing in this environment. We're at 90% hedged. But as we look at '23 and forward, Eric was referencing it earlier, a great price environment, and we're starting to see for the first time in a while for the price curve as it relates to natural gas start to inch up in the back years and start to show some progress there, which is for the first time in a while that we're seeing that. So we're pretty excited about that. We're going to look at ways to take advantage of that. And then the last, we'll continue to focus on our plugging. We think that, that is a big -- we can take something that most people would look at and say, okay, you've got a lot of wells to plug over a long period of time. But we're going to take that and turn it around and say not only are we going to manage our ARO liability over a period of time, we're going to help the states and others to manage their orphan well programs and the government money and the federal money that they're getting, and we're going to make revenue stream off of it that we can then turn into margin for the business. So we're excited about everything. And I will conclude my remarks there and turn it over for any kind of questions that you may have.

If I could, just to complement what Rusty said, I'm looking at the natural gas curve and I think him talking about the outlook, we used to say we believe that we lived in a $2.50 to $3.50 gas sort of range around world and not [indiscernible] past events and what we're living through has changed that paradigm a bit. And so right now, you've got $5.67 for the rest of this year, $4.40 next year, $3.72 the next year, $3.70 the next year, $3.75 the next year. So every year is above the top end where previously, we really would have felt the longer-term outlook for natural gas had with the increasing dialogue around increasing liquification exports, which will provide broader end markets for U.S. natural gas, I think, we're incredibly excited about the long-term natural gas prospect. And while oil, you certainly see it over $100 per barrel today that price curve over the long term is still very backwardated. $95 for the rest of this year, $84 next year, $77 next year, $73 shopping to $70, and it stays in backwardation. Because I think there's certainly a longer-term optimism that natural gas is that bridge fuel to more and more renewables over time, which is going to bode very well for natural gas prices. And certainly, as we have additional unhedged volumes out in the longer term, is value that we'll look to capture and continue to push our reserve values higher. And I'd just remind, too, the reserve values that Rusty went through, importantly, unlike many E&Ps that you may be familiar with, ours are -- it's a PDP-only reserve value. And we've got millions of acres of held-by-production land with untapped additional reserve potential that is all incremental upside to that PDP, what's already producing today value. So a tremendous amount of value. I think that we've built into the business. We're excited about where the commodity sits and our ability to be part of the transition through wisely stewarding the resource that the industry has already spent capital developing. So with that, I will now hand it back to you for Q&A.

[Operator Instructions] Rusty, Eric, as you can see, we received a number of questions, both that came in ahead of today's event as well as a number that have come through throughout today's presentation. Firstly, can I thank all investors for submitting their questions. And Rusty, Eric, if I may, I wanted to start off the Q&A session with these. Two questions, both similar in theme. The first one read as follows. When does the company expect to move forward with a U.S. share listing? And the second question reads, considering the current downturn in U.S. market indices, do you think there is the perfect year for you to listen a major U.S. market index and ride the bounce back next year whilst gaining exposure to funds?

Yes. No, it's a great question, and I'll let Eric opine on it also. But we're in the process, as we sit here today, we finished up our second annual PwC audit. We've been working extremely hard on the process of what we need to do to get the U.S. ADR listing, which we anticipate will occur midyear this year. So we're working hard on that. It's obviously a very important for us to be able to open up a new shareholder or a new institutional shareholder opportunity set for us and really the logical next step for us is to get those U.S. investors into our shares. And to do that, we need that ADR to get a more broad-based shareholder -- U.S. shareholders. And so we're working hard on that. Eric, you can maybe give them just a little specifics around the process.

Yes. And I'd clarify that with respect to timing, we're rowing in that direction, but certainly haven't set definitive timing as to when we can complete that process. It is something that on the back end of the full year results, we're much more well positioned to progress forward. Having had PwC engaged for the last 2 years, and having proactively done our audits to the U.S. PCAOB standard level that would be necessary to move forward with the appropriate filing. So it is a top priority because we do believe that we have a business model and a result quite candidly with 180% TSR over the last 2 years, since our IPO, rather, and significant tangible shareholder return that the U.S. markets are looking for. So we believe that it will be a nice complement to an incredible base of shareholders that we had in the U.K. And so it is something that we'll turn our attention to and work to progress this year.

That's great. The next question that we have here reads as follows. How has the U.S. policy environment around methane emissions and overall energy production changed since the start of the Ukraine war and the run-up in oil and gas prices?

Well, I would say that I don't know if the U.S. -- the way that the U.S. policies have really changed much. One thing I will tell you, we're being listed in London, we're ahead of the game as it relates to ESG, methane emissions and all those different factors versus the U.S. peers. The U.S. is getting acclimated and starting to roll out emission standards. But at the end of the day, it's -- I don't know if it's changed much. I will say that I think that there has become much more awareness around the fact that U.S. natural gas is not a bridge fuel or a transition fuel. It is part of the transition, and it will always be part of the transition. We put out a -- one of my friends, Toby Rice at EQT, one of our hash tags, or hash tag, unleash U.S. LNG, we believe that U.S. natural gas and the LNG market is the biggest green initiative on the planet and has the potential to displace more coal production and coal electricity generation than anything else out there. So we believe that U.S. natural gas is the future. And obviously, Europe is getting the need for more of that, trying to get away from Russian natural gas. And we believe that the U.S. is in a very good place. Really, if you look at natural gas prices in the U.S., it's always been a domestic price market. And so it's always been lower than international prices. As we export more and more of the product, we believe that that's going to move up and start to more closely mirror the international benchmarks. And so we believe and we love the fact that it's not just a transition fuel. It is a fuel for the future.

That's great. I know you touched on this throughout the presentation, but a question that we have here reads as follows. What's your plans for the $400 million of liquidity that now have -- that you now have posted to recent ABS financings?

Yes. No. We -- obviously, it's -- there was a reason for that liquidity. And we -- and like I said, I'd like to see it above 600, I think, we'll get there. But at the end of the day, it's purely for growth purposes. As we sit here in this market, we're evaluating a lot of different things. We're capable of executing on some pretty large deals potentially this year. And so that's essentially the use for it, and we're going to continue to -- the 2 main factors we're going to be all over liquidity this year. We're going to be constantly looking for ways to improve and increase our liquidity position so that we can take advantage of these big opportunities when they come. So that would be the main and primary purpose of the liquidity.

The next question that we have here reads as follows. You mentioned that you will evaluate strategically aligned opportunities. Are there any opportunities in the near term in this regard?

Well, without saying a whole lot, yes. I mean there's always -- we're evaluating acquisitions, we're evaluating opportunities consistently. And we did 4 acquisitions last year. Three of them back to back to back in May, June time line. So they typically come pretty quickly and sometimes they come all at once. And so -- and that's probably been the biggest challenge is the number of deals in the market and trying to evaluate them all at the same time. You have to be picky, and you have to look at the ones that are going to have the best value for our shareholders over the long term. And so -- and sometimes that can be disguised. You have to really look at deals and say, all right, where they're at, the type of deals they are, what's the multiples. Lot -- and the beauty of this market that we're in right now, some of the things that we value deals and the metrics that we used previously aren't really what we're looking at now because we have a different pricing environment. We have to look at things a little differently. So we could see deals at any time, I guess, is the answer to that question.

Yes. And I'd just say that you saw us take an Appalachian asset that was small at the beginning of our journey and grow that into a significant footprint that allows us to get more and more efficient, drive cost out of the system, really insulate ourselves from inflationary pressure by being vertically integrated. And we see that same opportunity now sitting in the central region. We've done, as Rusty said, 4 different deals over the course of the second half of last year, which gives us presence over a significant portion of that target area that now we can begin to infill. And so those don't have to be big transactions. Those could be some of the smaller, very nice bolt-ons that we'll tuck in and begin to leverage the existing team that we have to drive cost down and improve those margins. But also importantly, we've demonstrated that our model is very transient. And so if there are assets of scale or areas of additional opportunity, we're fortunate that we can look really anywhere that we see value and then we work to retain the existing teams. So we really -- we would remind that when we talk about strategically oriented or align, we're an asset profile company. We like the long life, low decline type of an asset that tucks into the portfolio that we can hedge and protect those cash flows over the long term. And for sure, we certainly see a lot of opportunity in this environment. And so as Rusty said, it is about being very selective as to what we pulled in.

That's great. The next question that we have read as follows. What do you see is the greatest risk to the business?

The greatest risk to the business. Yes, I mean, it's always to me stay away from high leverage, don't overlever the business. Don't get caught up in -- let's do a deal regardless of how it impacts the balance sheet. We don't ever want to be in that position. I've made a commitment to our management team and also to our employees that, guys, we will never overlever the business. We're going to keep our balance sheet strong so that we can always be in a position of strength and be on the offense. And then operationally, you always want to make sure that -- you're taking on assets, you're acquiring assets and that you're managing them appropriately, making sure that you're operating the assets in a way that's being a good steward and then managing the obvious common emissions and those kind of things being proactive and being all over. So I think that those are probably the biggest risks. And what we try to do is be out on our front foot, knowing what those risks are and manage them appropriately.

The next question we have here read as follows. How will you cope with the significantly increased inflation expectations which are developing?

Yes. No, I think, it's a great question. The good news about our company is that we're very vertically integrated. And so we don't really -- we're not exposed to a lot of the inflationary pressures that some of the developers and the ones that are drilling because they're using third-party services. We pretty much manage most of our business internally. We use very, very little third-party services. That's one of the reasons why we went out and started to acquire these plugging companies, the next level that we acquired late last year and then we've started to put our own plugging crews on the ground. Because we didn't want to get caught up in that. We want to make sure that we're managing our ARO liability and our near-term liability in a way that keeps the cost down as low as possible. And we found that doing it ourselves was the way to do that and then also managing against any inflationary pressure that may come with all this federal money being given to the states. And they're going to have to ramp up and try to get rid of and plug their orphan wells. So that's the way we manage the business. We don't have a lot of third-party services. So most -- and we really, to this point, haven't seen a lot of employee compensation inflation either. So we're watching it. We're tracking it. We're not completely immune to it, but at the same time, we're in a lot better position than most because we are very vertically integrated.

Yes. And just to complement that to provide a little color for you. Yes, obviously, where you see wage inflation, it tends to be in the more urban areas around the cities in our business, given that our wells are situated in more rural areas. We're not competing against the talent that cities are. And we talked about Capital Markets Day. One of the things we're really proud of from a social perspective on ESG is that our average employee in addition to great benefits that we provide, including 100% of employee health care is that our wages are nearly twice the state average in the states that we operate, focus on Appalachia, which does provide us a natural barrier to that. Because we're already very well compensating our teams. And then much of our footprint doesn't sit around areas that are being actively developed and therefore, where you may see some activity by offset operators. So that natural, as Rusty said, vertical integration is insulating us from that service cost reflation that tends to affect those who are developing because the first cost that rise of the drilling rigs and the completion crews. But we do -- the maintenance we do to sustain our low decline production is captured in our LOE, which is generally labor. So that's why I think we feel certainly more comfortable than most in this inflationary environment.

The next question that we have here relates to higher energy price, and it reads as follows. Is the cost of acquiring new assets increasing a lot as a result of higher energy prices?

Well, intuitively, you would say that it should. But what I would say is that because of the type of deals that we look for, so we're a PDP buyer. We're buying existing production. We're not buying any undeveloped acreage or allocating value of our deals to the undeveloped asset, which is much more sensitive to not only the existing price environment, but where the existing -- or where the price environment goes from here. So what's very important to us is that we are buying assets based on existing prices but we're hedging it aggressively in the first 12 months, especially, which is locking in the value that we've allocated to the deal. So the actual price of the deals, which is based on strip price has come up some, but we're managing that by hedging the price especially in the front months, which is where most of the price increase sits as we sit here today. Now what I will tell you is that the increase in the purchase price has been limited -- you would think it would be more, but it's been limited by the inability of buyers to access capital. And so you can think an asset's worth as much as you want, and it may even really be that. But at the end of the day, if you can't find anybody that can get capital to pay that price, then it really doesn't matter. Things are only worth what people can pay for it. So we think that between the price environment and our ability to hedge, the deal price or the deal allocated values in that first 12 months in our ability to access capital gives us an advantage that some others may not have. Because I'm telling you, capital is still not easy to come by and that you said the question earlier about our liquidity and what we're going to do with it. That's why we've been so aggressive on increasing the liquidity so that we are ready and able to execute and transact where others may not have that capability. So all in all, I think, the prices have come up a little bit. We're managing that because we can hedge. But at the end of the day, they're probably not up substantially because of the inability of people to access capital.

I know we're just coming up to the hour, but maybe if we could just tackle these final two questions that have come for your listeners. The first one we have here reads as follows. Regarding in-house well retirement teams, is a 30% saving you talk about applicable across the whole ARO?

Yes. No, it's a great question. And today, it's not. As I talked about, last year, we did about 1/3 of our jobs using our in-house talent. That was primarily focused on West Virginia, where we stood up our first crews. Given the acquisition of Next LVL Energy, you should expect to see us begin to do more of that work across some other states with a longer-term goal of building out that 350 to 400 team capacity, well plugging capacity that we could then use across our entire portfolio, our entire footprint. That will take place over time. So in the interim, we'll continue to use a mix of third-party services based on where the well retirements take place and our own. And if we had excess capacity where we're sitting today, even at 200 wells per year, we may outsource part of that where our crews are and then use third-party services elsewhere. And so over time, that's why I was making the point that we believe we can begin to achieve that 30% savings across the entire portfolio. The early time that was focused on West Virginia. And importantly, this isn't just me talking about lower cost translating into lower asset retirement. If you look at our annual reports and accounts, which, of course, are audited, I believe, it's Page 164 is where we have the asset retirement footnote, obligation footnote. And on the subsequent page, there's a footnote that talks about the revisions to our estimates. And most of that was the acquisitions that we brought on additional acquisitions, and therefore, that came with some additional asset retirement obligation. But importantly, about $30 million of the balance sheet liability was reduced because of those lower costs that we actually incurred plugging our own wells over the course of that year. And if you looked at our undiscounted, I talked about it previously, it was $1.7 billion. If you pulled our reserve report, those numbers -- that $1.7 billion in Appalachia is $1.4 billion on a net basis does with an incremental addition of $200 million from the Central region. So our total liability, including the central region is now at under $1.7 billion at $1.6 billion. So you're seeing that number even on the audited basis, begin to come down but certainly gives us a lot of confidence given the early time progress from using our in-house crews that it will continue to trend lower. But over the next couple of years, you should expect to see a hybrid where we'll use our own capacity alongside selected third parties. But importantly, remember, we do partner with those third parties to make that process as efficient as possible because the most expensive aspect of using a third party is time. Because you're essentially renting their talent and you're renting their equipment. And so if we send our team in first to make sure that the road to the site is well prepared, that the site has been grown ready for the equipment to show up, when that equipment shows up, it goes right to work, and then we're able to get them in and out very quickly. That's how we achieve our lower costs, lower than our peers because in many cases, they're paying for just a turnkey solution, that third party is doing all that work that we already supplement, and those costs are just captured in our standard LOE alongside our asset retirement. So really excited about where we'll continue to see those numbers trend lower.

And perhaps just time for one last question to conclude the Q&A session. Have you ever considered an international acquisition strategy? Or are you very much U.S.-focused for the foreseeable future?

We're totally 150% U.S.- focused. We have no international desire any desire to go outside the continental U.S. It's simple.

Eric, rusty, that's great. And thank you for addressing all of the questions that have come through from investors this afternoon. Of course, if there are any further questions submitted today, we will make these available immediately after the presentation has ended, and ladies and gentlemen, we'll publish those responses where it's appropriate to do so on the Investor Meet Company platform. And we'll notify it by e-mail when these are ready for your review. Eric, Rusty, perhaps if we'll redirect investors to provide you with their feedback, which I know is particularly important to the company. Can I please ask you for a few closing comments just to wrap up with? Thank you.

Yes. No, we, again, appreciate everybody's time today. We're really excited with the way that '21 ended. We see a tremendous opportunity in 2022 as we move forward, both from a pricing perspective and the long-term natural gas environment. Like I said before, hash tag, unleash U.S. LNG. And we see an opportunity set in terms of being able to grow the company in a substantial way as we enter and exit 2022 and really set ourselves up for a next decade of tremendous growth and opportunity. So we again, thank you all for your time. And if you have any further questions, feel free to reach out to our Investor Relations group.

That's great. Rusty, Eric, thank you very much indeed for taking the time to update investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations? It will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team of Diversified Energy Company plc, we'd like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.