Diversified Touts Tanos Acquisition Following Close of Texas Assets

Diversified Energy Co. is continuing to integrate its Tanos Energy Holdings II LLC acquisition in Texas, which the company acquired in March for roughly $250 million.

Diversified reported exit rate production in March 2023 of 145,000 boe/d and delivered first-quarter 2023 production averaging 139,000 boe/d, both reflecting the partial impact of the Tanos II acquisition, the company said in a May 9 earnings release.

At the time of the acquisition, the Tanos II assets included PDP reserves of about 25 MMboe and a PDP PV10 of $312 million. Production averaged 17,000 boe/d, 76% natural gas.

Diversified continues to integrate these assets into its Smarter Asset Management programs and expects to fully complete the work in the second quarter. Diversified additionally said that the Tanos assets recently acquired had earned Project Canary’s Gold Rating.

The company said that its robust hedge portfolio has protected revenues from the “macro deterioration” in commodity prices that began in late 2022 and continues. Cash margins of 54% (56% unhedged) reflect Diversified’s hedge optimization efforts, lower commodity-price linked expenses and contribution from the “high-margin” Tanos II assets.

The company also added production during the quarter without additional administrative requirements from Tanos II, which effectively held base LOE per unit flat.

"Our team performed exceptionally well during the first quarter, once again delivering record production as we optimize our low-decline assets and add the complementary Tanos assets,” Diversified CEO Rusty Hutson Jr. said. “Concurrently and despite the challenging commodity price environment, we reduced per-unit expenses and increased our cash margins to approximately 54% thanks to our disciplined hedging strategy and greater liquids exposure.”

Hutson said that responsibly hedging more than 85% of natural gas production in 2023 — and approximately 80% in 2024 and 70% in 2025 — the company will continue to opportunistically add to its hedge portfolio where the price curve is higher.

“Consistent with our strategy, we continued our consolidation efforts through another accretive acquisition in our Central Region, which also contributed to our undeveloped acreage position,” Hutson said. “We continue to advance our initiatives to realize value from these assets through outright sales, advantageous joint ventures or other partnership constructs that will provide a catalyst to unlock upside to our net asset value and drive the opportunity for organic, no-cost production growth.”

The company remains focused on generating free cash flow to provide dividends and service amortizing debt while evaluating accretive growth opportunities that provide enhanced scale and synergies.

“We have built a sizable and resilient company and believe our intrinsic value per share significantly exceeds our current share price, offering a compelling value proposition for our current and future shareholders,” he said.