Diversified Energy Company PLC (LSE:DEC, NYSE:DEC) this week announced the acquisition of Cotton Valley assets in East Texas.
These established assets are described as being strategically located with low decline rates.
It sees that the low decline rates of the newly acquired assets will help the company maintain production levels and secure long-term cash flows.
Speaking with Proactive, chief executive Rusty Hutson Jr explained that the proximity of the new wells allows the company to realize significant cost savings and operational efficiencies.
Proactive: Welcome back inside our Proactive newsroom. Joining me now is Rusty Hutson Jr., CEO of Diversified Energy Company. Rusty, it's good to see you again. How are you?
Rusty Hutson, Jr.: Doing very well, thanks.
Proactive: You've made a pretty strategic acquisition. Before we get into the details, tell me a bit about the actual asset itself and what it has on it.
Rusty Hutson, Jr.: It's a very similar asset to the others we currently produce and operate in East Texas. These Cotton Valley assets are mature and produce at very low decline rates, which is important for our portfolio. Strategically, it's located around our existing operations, providing synergies and cost-reduction opportunities.
Proactive: Had you been looking at this one before, and did it just come up for sale?
Rusty Hutson, Jr.: Yes, it's one we've had our eyes on for a while. It's a smaller "bolt-on" asset, but we knew it would eventually come up for sale, and we determined it would be a good fit.
Proactive: You mentioned that it's almost next door to your current project. How does this proximity help you leverage synergies and achieve more with limited capital?
Rusty Hutson, Jr.: It's a prime example of what we do as a company. Acquiring these assets allows us to develop geographical concentration, doing more with less—more assets, fewer people. This reduces "windshield time" for well tenders and lowers costs in areas like compression and pipelines. Essentially, we can operate more efficiently with existing assets.
Proactive: Can you talk about the decline rates and their significance?
Rusty Hutson, Jr.: Decline rates are crucial, especially for a company like ours that grows through acquisition. Lower decline rates mean we spend less to maintain or increase production levels, securing long-term cash flows. This particular asset has industry-leading decline rates, which benefits our financial stability and operational efficiency.
Proactive: Last time we spoke, you emphasized the importance of acquisitions for your company's growth. Is that still your message to shareholders?
Rusty Hutson, Jr.: Absolutely. Our goal is to acquire assets at valuations accretive to our shareholders. A key aspect of this transaction was using our US listing to offer shares as part of the purchase price, a first for us. This ability to use equity as currency is significant for our future acquisitions, ensuring we continue to deliver value to our shareholders.
Proactive: Rusty, thanks so much for the update and congratulations on the new asset.
Rusty Hutson, Jr.: Thank you very much. Appreciate it.