Diversified Energy Company PLC (LSE:DEC, OTCQX:DECPF) chief executive Rusty Hutson described “another year of consistent operational excellence” and said the company’s performance was driven by its low-risk, long-life, low-decline asset acquisition model.
Financial results for the 12 months ended 31 December confirmed a 19% rise in production for 2021, at an average rate of 119,000 barrels oil equivalent per day, and a 24% increase in revenue to US$687mln (adjusted to account for US$321mln of commodity price hedges).
Total revenue amounted to US$1bn, up 147% on the prior year.
DEC paid 31% more in dividends during the year, paying out US$130mln to shareholders, and it has confirmed a final quarterly dividend for 2021 at US$0.0425 per share.
“Our differentiated and value focused business model once again delivered an exceptionally strong free cash flow of US$252 million, representing a robust 40% free cash flow margin and an impressive 20% free cash flow yield supporting our durable dividend,” Hutson said in a statement.
He added: "To protect our profitability and dividend payments through commodity price cycles, we employ disciplined operational excellence to maximise revenue and reduce expenses while using long-term hedging to limit our exposure to price risk.
“This strategy once again served us well, delivering yet another year of 50% cash margins and supporting the steady cash generation that underpins our ability to insulate the dividend from commodity price swings.”
DEC noted that it has added to its hedging in the rising commodity price environment which has positioned the company for margin expansion in the coming years – with 2022 and 2023 hedges at a 50% premium to last year’s pricing.
Hutson highlighted that some 90% of DEC’s anticipated 2022 production volumes are hedged to give it strong visibility of free cash flow generation, positioning the company for non-dilutive growth.
The company’s acquisitive strategy continued through 2021 with five transactions and Hutson anticipates that higher commodity prices may stimulate deal activity.
“With over US$400mln in liquidity following our ABS [asset-backed securitisation] transactions, we are well positioned to enlarge the company's long-life, low-decline asset base without the need for additional equity at a time many quality assets are coming to market,” Hutson said.
"I am excited about our prospects in 2022 and beyond as we evaluate strategically-aligned opportunities while remaining firmly grounded in our commitment to protect our strong balance sheet.”
Separately, analysts at Peel Hunt highlighted that Diversified Energy revised down its 2020 group methane emissions by 62%, driven by the use of more physical measurements. In addition, the 2021 group methane emissions intensity is down a further 6% on the revised 2020 figure, Peel Hunt said in a note to clients on Tuesday.
The analysts said the company’s earnings broadly met expectations as they reiterated a 160p price target and “buy” rating. The shares advanced 1.9% to 117.2p
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