Hi, this is Pietro Pitts, international managing editor at Hart Energy, here at DUG Haynesville talking to Brad Gray with Diversified Energy Co.

PP: So Brad, what differentiates your company from other companies in the sector right now?

Brad Gray, executive vice president and COO, Diversified Energy Co.: We are a different company in the space versus the traditional E&P model. We focus on acquiring low risk, low decline, predictable production, existing producing assets. Our investment thesis and our business model is really based upon paying shareholder returns. And so in order to do that, we don't want to take the development risk. We want to buy assets that we know we've got a predictable income stream, we've got predictable production, so that we know what the production's going to be, we can set our expenses very efficiently and we can generate a high margin. And over the last six years, we've been able to produce a cash margin anywhere between 50% and 54%, which allows us to take our additional cash flow, as opposed to putting it back in the ground as a traditional E&P player, we have the ability to invest in the business through further acquisitions and to provide our shareholders with a cash return.

PP: And so you're a company that's based out of Birmingham, Alabama, but you are listed in the London Stock Exchange. Could you talk about the plans in the future to maybe get listed in the U.S. as well?

BG: The London Stock Exchange has been great for us. We've raised over $1.2 billion since our initial IPO [initial public offering], where we raised $50 million. And it's been the catalyst to allow us to grow and execute our PDP [proved developed producing] acquisition strategy. We do believe that there's an opportunity for us to access a larger pool of capital here in the United States. The U.S. energy investor really understands us. They understand our model, and the U.S. in energy investor has wanted the traditional E&P companies to not outspend their cash flow. We're much more similar to that because we do provide a cash return. And so the U.S. market is just so much larger than the London Stock Exchange. It's going to give us the ability to access new pools of capital, which will allow us to continue to grow.

PP: And you’ve spent about almost $2.8 billion on over 20 acquisitions in the last five or six years. So do you continue to see that trend growing in the future?

BG: To be in the oil and gas business, to grow, you're either developing or you're acquiring because we all have declining assets. So yeah, we believe that we have an opportunity to be the consolidator of existing producing assets here in the United States. And so in order to do that, we need both a combination of capital in the form of equity and in debt.

PP: So you've pushed out of the Appalachian into the southern region. Do you see that as a key region for you going forward?

BG: Well, we do, yeah. With the being in the Appalachia Basin, it was a great region, is a great region for us. 65% of our production is still there, but we were restricted to some of the pricing and revenue and net realization from a pricing standpoint in that market. Coming into what we call our central region and getting closer to the Gulf Coast markets, the basis differentials are better, the regulatory environment is very supportive, the access to the LNG markets, as well as just the petrochemical industrial complex of North America. We think it's going to be great for natural gas here in the years to come.

PP: With volatility and oil prices, gas prices. I see you guys are really hedged a lot. Could you talk about that strategy?

BG: Yeah, hedging is a very critically important part of our business. Because we provide our shareholders with a return of cash in the form of a dividend, it's very important for us to lock in our cash flows. We cannot take that commodity price risk. Our investors don't want us to. They want to be ensured of their dividends coming back to them. And so we just have to take commodity price risk off the table. With the last six years, having a 50% to 55% cash margin, that was all facilitated by locking in our cash flows, and then on the expense side, running a very efficient operating model that allowed us to produce that cash. But without the hedging, you can't really run a business if you don't know what your revenue's going to be. It's just taking too much risk.

PP: Thank you, Brad Gray. So we've had a talk today at DUG Haynesville. If you have any questions or want more information about the company, visit hartenergy.com.

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