Greetings, and welcome to the Diversified Energy Third Quarter 2024 Results Conference Call. At this time all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Douglas Kris, Senior Vice President, Investor Relations and Corporate Communications. Thank you. You may begin.

Good morning, and thank you, everyone, for joining us today, and welcome to our third quarter 2024 results conference call. With me here today are Diversified's Founder and CEO, Rusty Hutson; and President and CFO, Brad Gray. Before we get started, I will remind everyone that the remarks on the call today reflect the financial and operational outlook as of November 12, 2024. These outlooks entail assumptions and expectations that involve risks and uncertainties. A discussion of these risks can be found in our regulatory filings. During this call, we also make reference to certain non-GAAP and non-IFRS financial measures. All of our disclosures around those items are found in our earnings materials on our website and in our regulatory filings. I'll now turn the call over to Rusty.

Thank you, Doug, and thank you all for joining the call today. For those of you following along with our third quarter 2024 results slide deck that we posted to our IR website this morning, I will cover a few slides and then turn the call over to Brad to discuss a few highlights from our financial results. After Brad, I will provide some closing thoughts before opening the call for your questions. Starting on Slide 3, our third quarter results reflect our continued focus on building a strategic, resilient energy producer. The heart of our process is simple. It's energy optimized. We are a differentiated energy producer that seeks to optimize existing long-life and often overlooked and undervalued U.S. energy assets. We seek to drive shareholder returns in a unique way by minimizing traditional AMP risk by optimizing our low-decline production and by being good stewards of our capital while driving meaningful and consistent cash flow. We execute this strategy with a modern field management process that extends production life to deliver enhanced returns and a process that leverages technology and data-driven analytics. We utilize our wholly owned well retirement company and leading-edge emissions technology to control the life of our wells until retirement, reducing emissions and demonstrating our commitment to stewardship for our stakeholders across 10 states, two distinct operating areas and multiple producing basins. The right company, right time mindset for these types of assets delivers consistent free cash flow and returns to shareholders and serves a fundamental role in sustaining the U.S. energy markets. We have been steadfast in executing this strategy since our IPO, driving strong financial and operational performance. We have maintained a reliable production profile with low corporate decline rates, successfully scaled through acquisitions, delivered consistent cash flow and returned meaningful capital to…

Thank you, Rusty. We'll move to Slide 12, and I'll share the highlights of our financial and operational results for the quarter. Average net daily production came in at approximately 830 million cubic feet equivalent per day. And I do want to restate that Q3 represents the first quarter where over 50% of our produced volumes were generated in our Central region. Since May 2021 in just three short years, we have diversified the production base and have put the company in a great position to participate in both LNG exports and data center needs. Total revenue was $239 million. And notably, we realized $130 million in year-to-date hedge gains, illustrating the importance of a disciplined hedging strategy. Adjusted EBITDA for the third quarter was $115 million, which represents an approximate 50% adjusted EBITDA margin and a 7-year continuation of our 50%-plus cash margins. Free cash flow for the quarter came in at $47 million, our net debt stood at approximately $1.6 billion. And notably, our lending syndicate for our credit facility recently reaffirmed our borrowing base at $385 million. We'd like to thank the members of our commercial lending syndicate for another efficient borrowing base redetermination process, and we truly value their partnership. In summary, strong execution of our strategy from all teams during the third quarter drove our positive results, enabling strong free cash flow generation and allowing us to continue to prioritize returning capital to shareholders and paying down debt. Turning to Slide 13, an important aspect of our long-term growth is the low capital intensity of our asset base, which is around 11% and significantly below industry peers. Our annual maintenance capital expenditures of approximately $50 million help us to optimize and maintain production while also helping to deliver operational efficiencies under our Smarter Asset Management…

Thanks, Brad. Let me finish up on a couple of thoughts with Slides 20 and 21 before we take questions. On Slide 20, as I discussed at the start of today's call, at Diversified, we pride ourselves on our differentiated business strategy focused on solutions that optimize existing often undervalued energy assets in a unique way that minimizes traditional E&P risk, delivers consistent free cash flow and serves as an important role supporting the U.S. energy markets. Ultimately, we believe this makes Diversified the right company at the right time. We are changing the way stakeholders think about the business of managing mature producing assets. Turning to Slide 21, importantly, with a business model focused on this part of the life cycle of the producing assets, Diversified has the opportunity to please multiple stakeholder groups and the ability to manage these assets for the next 100 years. It's the concept of "And" where we can ultimately create shareholder value and be proper stewards of the environment. During the third quarter, we made significant progress in advancing our strategy with an ongoing focus on our four key pillars: acquire, optimize, transport and retire. We maintained low corporate decline rates for the quarter. We also further strengthened our balance sheet, reducing our debt principal by an additional $154 million during the quarter, which importantly creates additional equity value for our shareholders, as Brad highlighted. We continue to enhance our scale through bolt-on acquisitions, including the acquisition of the high-quality East Texas assets that I discussed earlier. And we delivered on our commitment to return capital to shareholders with $105 million in dividends and share repurchases executed and announced year-to-date or roughly 17% of our current market capital in direct shareholder returns. Our strategic focus on adding adjacent businesses and cash flow streams to the Diversified portfolio, which started with our next level well retirement business and continues with unlocking value from undeveloped acreage and now our coal mine methane capture opportunities. This new initiative truly aligns Diversified as the right company at the right time, enabling us to deliver reliable natural gas produced with an improvement in the environmental impact. We continue to believe that Diversified represents a compelling investment opportunity. We are excited about the prospect of transforming the valuation of the business through continued execution of our strategy, and we thank our shareholders for their continued support. Before I turn the call over to the operator for Q&A, I'd like to take a minute to recognize our employees for their outstanding achievements and contributions during the quarter. Without their excellent work in the field and in the corporate office, these results would not be achievable. With that, I'd like to turn it over to the operator for the Q&A portion of today's call. Operator?

Thank you. We will now be conducting a question-and-answer session. [Operator instructions] The first question is from Bert Donnes from Truist Securities. Please go ahead.

Good morning, team. Thanks for taking my question.

Good morning.

Good morning, Bert.

Hey, morning guys. On the coal mine methane update, I just wanted to maybe dig a bit deeper, keeping in mind, you probably can't give out that many details. But does the $8 million to $10 million of EBITDA, does that translate into free cash flow? And is that a good run rate going forward? Or is there may be an avenue to grow that EBITDA or free cash flow? And how dependent is that on legislation updates? Or is it just operational?

Yes, Brad, go ahead and answer that question. Would you please?

Sure. Bert, we do believe that there's an opportunity to further develop that. As we indicated, this is a new area of revenue for us. And so we're in the process of developing that now, but we're excited about it on a go-forward basis. We don't believe that there'll be any significant, if any, impact related to any potential change in federal guidelines or regulation.

Yes, thank you. And then the second one is just on the asset retirement progress. It looks like you're on track to hit your '24 goals. Could you maybe just describe any changes you expect to make as a result of the recent election results? Is there anything at the state or federal level we should know about that changes it? Or is it just kind of everything is steady as she goes?

Yes, Bert, I would say that it's steady as she goes. Our commitments to the states in which we operate on a number of retirements on an annual basis, we will continue with. We're actually doubling the requirement. We're doing 200 per year, and that's double commitments that the states require of us. And we'll continue to do that. I think that the election obviously provides some additional upside really from that standpoint in terms of -- we're hopeful that with the change in the administration that some of the regulations such that come along with the asset retirement that there could be some improvements there that would allow us to do more and do it in a less expensive manner. So we think it's a positive for the retirement business, not necessarily against it. And so we're excited about it. We think that it's steady as she goes. We'll continue to retire the wells like we normally do. But we're hopeful that the new administration does bring in some changes to regulations.

Well said. Thanks guys.

The next question is from David Round from Stifel. Please go ahead.

Thank you. Good morning, guys. Just on the asset sales, I mean, it's good to see a regular stream of sales coming through. I was interested in looking ahead to next year and whether you're able to say anything about expectations, where you think asset sales could end up next year. And I suppose if we're being honest, I think, obviously, we'd all love to see an acceleration in sales. Is there anything in particular that you think could trigger a material step-up in sales?

Yes, David, what I would say there is that it's an opportunistic type revenue stream. And what I mean by that is it really follows -- we've got this big acreage position in different basins and different regions of the country. It really follows the activity of the drilling companies that are out there drilling wells on different basins and different leaseholds. And so this year, we've been pretty successful in Oklahoma. Oklahoma has really opened up, a lot of drilling going on there. New formations, the Cherokee, for example, which is a new formation that's really become pretty popular. And so we've been able to leg in and sell some acreage to some of the larger operators in that basin. So it's really opportunistic type acreage sales. The beauty of it is, is that all of our acreage is held by production. So we can be patient and we can wait on these operators to prove out areas and for the areas to become popular and economic. And when they are, they come to us looking for subleases and such, and that's when we make the best deals on the acreage. So I think it's just being opportunistic having the acreage is the big thing. We haven't paid anything for it in most cases. So it's all upside and being able to take advantage of the opportunity set when they come to us wanting to sublease our acreage. And I would say that's it. I mean we're just going to sit back and wait and be opportunistic with it.

Okay. And I mean, obviously, that's on the sales side. You've also talked about sort of potentially joint development here. I mean where does that rank? What's the likelihood that we might see a joint development of some of this acreage as another way to monetize it?

Yes. I mean we've seen some opportunities. We acquired assets last year in '23, which we had some undeveloped -- we had some drilled uncompleted wells. We're in the process of completing those. We have opportunities all the time. Even some of the transactions we do, we keep a small non-operated working interest in upside where we can -- we have the rights or the option to participate alongside of a developer on that acreage that we sold. We've seen some of that in East Texas. And so we have Marcellus. We have an operator and capabilities of investing alongside a Utica Marcellus producer. So we have those opportunities out there. For us, it's about the best use of our capital at the appropriate time. And with natural gas prices as low as they've been over the last 18 months, we just haven't seen that being the greatest use of our cash. So in most of those cases, we just sold the acreage and moved on. But there's always that opportunity. And I think as we look to the future, some of the basins out there, more liquids-rich basins sometimes can provide the better opportunities. And so we're always being opportunistic from that standpoint. But again, it just comes back to best use of capital at that time. And if it's a good deal for us to invest alongside of somebody in a joint venture, we will. If it's not, we don't mind selling the acreage and getting clear out of it and using that cash for something that's more meaningful for us.

Got you. That's clear. Thanks Rusty.

[Operator Instructions] The next question is from Simon Scholes from First Berlin. Please go ahead.

Yes, good morning. I've got two questions. So you've mentioned that you expect to generate $8 million to $10 million in EBITDA from the coal mine methane capture and environmental credit sale business this year. I was just wondering how much of that has already come in the first nine months? Second, I mean, Rusty, you were referencing the Cherokee formation, which seems to have become popular recently. I was just wondering what's driving the popularity of that basin over and above other basins.

Yes. Let me speak to the Cherokee one, and then I'll let Brad speak to the coal mine methane revenue. The Cherokee is a -- I won't call it a new formation. It's always been out there. But what we're seeing across the whole industry here in the U.S. is an inventory grab. People are looking for new inventory, drilling opportunities, economic drilling opportunities and some of these that have been kind of forgotten in the past and nobody has really been paying much attention to because, for example, the Permian or the Bakken or whatever have been so active. Now everybody is looking and searching for that next new inventory. And so we're seeing Oklahoma become very, very active again. There was a period of time where nobody was focused on that in Oklahoma. That's when we actually entered Oklahoma, and we were able to get in there at a very, very good valuation. Well, now you're seeing people come in and really start to look for inventory. And so especially if it has high liquids cut. So for example, the Cherokee, I believe, is one-third, one-third, one-third; one-third oil, one-third natural gas liquids and one-third natural gas. Well, those have in a low gas price environment, we obviously have better economics than a natural gas asset. So I think it's not necessarily that it's a brand-new basin or a brand-new formation. It's just that it's become popular because people are searching for that next inventory outside of the Permian or other popular oil plays. And so I think that's what you're seeing here. It's just a search for inventory. And we're seeing it across our whole portfolio. I mean that's why some of our acreage that has not been that active or that popular in the last few years, all of a sudden is becoming popular again. So I think it's just really around the inventory that people are searching for. Brad, do you want to answer that question around coal mine methane?

Yes, sure. Simon, about 80% we've realized year-to-date, 80%-85%. And as we've mentioned, that is real EBITDA and cash flow. We do believe that, as I mentioned earlier, there is real opportunity for expansion of that as we further develop our inventory. And as I think you're aware, we have a substantial acreage position and mineral-like position in the Appalachia Basin. And so we think that bodes well for this business line for us.

Okay, well thanks very much.

This concludes the question-and-answer session. I would like to turn the floor back over to Rusty Hutson for closing comments.

Yes. Thank you, operator. Just want to say thank you to all the folks on the phone today. We appreciate your time, and we look forward to continuing to perform and do all the things that we said we would do, and I appreciate everybody's time and attention today. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.