Malcy’s Blog: Oil price, Diversified Energy Company, PetroTal Corp. And finally…

WTI (June) $61.02 +$1.11, Brent (July) $63.91 +$1.07, Diff -$2.89 -4c.

USNG (June) $3.80 +21c, UKNG (June) 82.87p -3.22p, TTF (June) €35.645 -€0.17.

Oil price

Last week’s gains in oil were in anticipation of the US/China talks in Geneva over the weekend so when the market woke up to an actual deal the risk off mentality went into overdrive and oil has added another $1.50 today. 

There might even be more good news, with the Donald heading to the Middle East tomorrow and starting his visit in Saudi to see MbS expect more back slapping and deal doing…

Diversified Energy Company

Diversified has announced the following operations and trading update for the quarter ended March 31, 2025.

**Consolidated operational & financial results for the quarter include only two weeks of Maverick Natural Resources (“Maverick”) contribution**

Executing Strategic Objectives

• Closed transformational and accretive acquisition of Maverick Natural Resources
  • Approximately doubling revenues and free cash flow
• Strengthened balance sheet and increased liquidity
  • Credit facility borrowing base of $900 million with $451 million of current undrawn capacity and unrestricted cash; current leverage ratio of ~2.7x
• Retired $51 million of debt principal through amortizing debt payments during Q1 2025
• Returned over $59 million year-to-date to shareholders through dividends and share repurchases^(a)
  • Declared 1Q25 dividend of $0.29 per share
  • Repurchased ~1.5 million shares year-to-date in 2025, representing ~$19 million of share buybacks^(a)
• Advantageously added natural gas hedge volumes in 2026 through 2029 during recent strength in forward curve
• On track to exceed $40 million in targeted land sales during the first half of 2025
• Realized additional Coal Mine Methane (CMM) alternative energy credits with acquired assets from Summit Natural Resources
• Next LvL Energy collaborated with the State of West Virginia regulatory agencies to modernize well retirement procedures using a method that is environmentally sound, safe, and cost-effective

Maverick Integration

• Full field level integration anticipated by the end of the second quarter with technology, and administrative integration anticipated by the end of the third quarter 2025
• On track to exceed the annualized synergy target of over $50 million
  • High-graded staffing and reduced redundancies to capture efficiencies and cost savings
  • Contract savings providing impacts in compression and chemicals

Delivering Reliable Results

• March 2025 exit rate of 1,149 MMcfepd (192 Mboepd)^(b)
  • Recorded average 1Q25 production of 864 MMcfepd (144 Mboepd)
• Total Revenue, inclusive of settled hedges, of $295 million
• Operating Cash Flow of $132 million, and Net loss of $337 million, inclusive of non-cash unsettled derivative adjustments
• Achieved 1Q25 Adjusted EBITDA^(c) of $138 million and Free Cash Flow^(d) of $62 million
• Realized 47% 1Q25 Adjusted EBITDA Margin^(c)
  • 1Q25 Total Revenue, Inclusive of Settled Hedges per Unit^(e) of $3.78/Mcfe ($22.68/Boe)
  • 1Q25 Adjusted Operating Cost per Unit^(f) of $2.00/Mcfe ($12.01/Boe)
• Published the 5th annual Sustainability Report, “Winning Through Collaboration”

Rusty Hutson, Jr., CEO of Diversified, commented:

“Diversified is off to a great start in 2025, demonstrating the resilience of our business model in an otherwise volatile business environment while advancing our long-term strategy with the transformational acquisition of Maverick Natural Resources. Despite the broader macroeconomic and geopolitical challenges, we delivered solid operational results and continued growth in free cash flow.

We remain committed to effectively allocating capital. Thus far this year, Diversified has returned over $59 million to our shareholders through dividends and share repurchases, while we continue to deleverage naturally from principal paydowns of our debt. We believe our shares remain a compelling investment at current levels, and we will continue to take advantage of the current cycle and market dislocation to opportunistically repurchase shares.

At the same time, we have strategically invested in growing our business with our Maverick acquisition. We are highly focused on integration across all operations and functions of the organization, using the disciplined and methodical playbook we have historically executed to drive synergies and cost-saving initiatives that should provide margin expansion over time. We fully expect to exceed our annualized synergy target of $50 million.

Despite the current uncertain environment, the Diversified team, with our ONE DEC culture, continues to perform at a high level. Diversified has a proven track record of managing through challenging markets. I am confident that with our highly strategic initiatives, we will capitalize on opportunities and emerge from the current market as an even stronger company, ensuring continued growth and success.”

Off to a flying start is one way of putting it, I would suggest that DEC has indeed really hit the ground running this year as the company is running the existing business really well but that Maverick looks to me to be very like a dream acquisition much in the mould of previous deals done by the company.

The numbers for DEC continue to stack up, production growth is strong, in the quarter, revenue of $295m on 862 MMcfe/d and adjusted EBITDA of $138m gave a 47% margin which is firmly expected to rise back above 50% before long and these figures back that up.

Talking about strong, it is worth mentioning quite how strong the balance sheet is and how the company is continuing to distribute to its shareholders. It has strengthened the balance sheet and increased liquidity and has a credit facility borrowing base of $900 million with $451 million of current undrawn capacity and unrestricted cash giving current leverage ratio of ~2.7x. In addition it has retired $51 million of debt principal through amortising debt payments during Q1 2025.

In terms of distribution the company are very supportive, even generous to its shareholders, a fixed dividend of $0.29 per share gives a market beating yield at a cost of $59m ytd and have repurchased 1.5m shares so far at a cost of $19m.

So it comes as no surprise that the company genuinely think that the shares are cheap compared to its peer group. In a slide showing ‘transformative value proposition’ the company note that they are at a 34% discount to the peer group multiple and that synergies of $50m plus the ‘liquids margin enhancement’ drive the potential of additional EBITDA and earnings multiple increase above the average. The EV/EBITDA metrics do indicate that a rerating is due with which I concur.

So, given the high gas and liquids proportions of the mix, the advantageous hedging on the forward curve and the nature of the Oklahoma barrel split make a rerating an attractive proposition. Expect the rewards of the accretive Maverick acquisition to pay back substantially and maybe with another one to follow. 

Operations and Finance Update

Production

The Company recorded exit rate production in March 2025 of 1,149 MMcfepd (192 Mboepd)^(b) and delivered 1Q25 average net daily production of 864 MMcfepd (144 Mboepd). Net daily production for the quarter continued to benefit from Diversified’s peer-leading, shallow decline profile.

The production for the quarter reflects the contribution of only two weeks of Maverick Natural Resources, which closed March 14th, 2025.

Margin and Total Cash Expenses per Unit

Diversified delivered 1Q25 per unit revenues of $3.78/Mcfe ($22.68/Boe) and Adjusted EBITDA Margin^(a) of 47% (55% unhedged). Notably, these per unit metrics reflect an increase in both revenues and expenses from the incorporation of greater liquids-related production of Maverick Natural Resources. The Company’s per unit expenses are anticipated to improve as the Company implements its playbook to achieve long-term, sustainable synergies and cost savings. For example, General and Administrative expenses remained relatively consistent with prior period levels, despite the higher per unit costs of Maverick, supporting our progress on cost savings and synergy capture.

(1) 1Q25 excludes $0.04/Mcfe ($0.24/Boe) and 1Q24 excludes $0.05/Mcfe ($0.36/Boe) of other revenues generated by Next LVL Energy.
(2) 1Q25 excludes $0.03/Mcfe ($0.22/Boe) and 1Q24 excludes $0.07/Mcfe ($0.39/Boe) of expenses attributable to Next LVL Energy.
Values may not sum due to rounding.

Opportunistic Layering of Additional Hedges at Premium Contract Prices

Diversified has strategically taken advantage of the recent strength of the natural gas price curve to add to the Company’s 2026-2029 hedge portfolio and layering additional NYMEX volumes at an average floor price of ~$3.68/MMBtu, which is reflected in the financial derivatives positions as of April 30, 2025.

Environmental Update

Asset Retirement Progress and Next LVL Energy Update

Next LvL Energy partnered with the State of West Virginia regulatory agencies to implement advanced testing protocols and improved technology to help modernize and upgrade well retirement procedures. Through the combined efforts of real-world situation testing and oversight, the State of West Virginia has enacted new asset retirement regulations, with the resulting framework achieving an environmentally sound, safe, and cost-effective methodology.

Through the end of the first quarter, the Company has retired a combined 76 wells consisting of operated assets, state well retirements, and contracted retirement activity for third-party operators. Diversified is well-positioned to meet or exceed its retirement goal of 200 wells per year, with 57 operated wells retired as of March 31, 2025. The Company continues to drive stakeholder value via the realization of contractual partnerships to retire assets that eliminate orphaned or abandoned wells in our region and provide revenue to offset the cash costs associated with the retirement of Diversified’s wells.

Combined Company 2025 Outlook

The Company is reiterating its previously announced Full Year 2025 guidance. Following the recently completed acquisition of Maverick, Diversified expects to realize significant operational synergies associated with a larger, consolidated position in Oklahoma and the ability to improve the overall cost structure of the Maverick assets while continuing to prioritize returns and Free Cash Flow generation.

The following outlook incorporates a nine-month contribution from the recently acquired Maverick assets.

(1) Includes the value of anticipated cash proceeds for 2025 land sales.

Diversified has also announced that the Board has declared an interim dividend of 29 cents per share in respect of 1Q25 for the three month period ended March 31, 2025.

Diversified will pay the dividend in U.S. dollars while continuing to make available to shareholders a sterling election. For those shareholders who wish to receive their dividend payment in sterling, and who have not yet completed a currency election form, the Company has made available a dividend election form on its website at https://ir.div.energy/dividend-information. Shareholders who wish to receive sterling should submit the currency election form to Computershare Investor Services no later than September 5, 2025.

Diversified will announce the sterling value of the dividend payable per share approximately two weeks prior to the payment date.

This announcement contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No. 596/2014 on Market Abuse (“UK MAR”), as it forms part of the UK domestic law by virtue of the European Union (Withdrawal) Act 2018.

PetroTal Corp

PetroTal has reported its financial and operating results for the three months ended March 31, 2025. All amounts herein are in United States dollars unless stated otherwise.

Selected financial and operational information outlined above should be read in conjunction with the Company’s unaudited consolidated financial statements and management’s discussion and analysis (“MD&A”) for the three months ended March 31, 2025, which are available on SEDAR+ at www.sedarplus.ca and on the Company’s website at www.PetroTal‐Corp.com.

Key Highlights

•      Average Q1 2025 sales and production of 23,286 and 23,281 barrels of oil per day (“bopd”), respectively, both record highs for PetroTal;

•      Generated Adjusted EBITDA⁽¹⁾ and Net Income of $71.9 million ($34.29/bbl) and $30.9 million ($14.72/bbl), respectively;

•      Free Funds Flow⁽¹⁾ of $48.2 million ($23.02/bbl), PetroTal’s second best quarter since inception;

•      Capital expenditures of $23.6 million, a substantial QoQ decrease as the Bretana drilling campaign wound down in January;

•      Total cash of $113.6 million at end of the period, essentially flat to the prior quarter, and an increase of $28 million compared to the same period last year;

•      Arrangement of term loan facility with a syndicate of Peruvian banks, with commitments of up to $65 million;

•      Mark to market value of production hedges increased to $14.2 million as of May 7, 2025, and;

•      Declared a quarterly dividend of $0.015/sh, payable to shareholders on June 13, 2025.

(1)      Non-GAAP (defined below) measure that does not have any standardized meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures presented by other entities. See “Selected Financial Measures” section.

Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:

“PetroTal’s first quarter results reflect a strong contribution from our 2024 development drilling program. I am proud of our entire team for delivering another record quarter of production. We have successfully been running near 100% of our transportation and facility capacity and are taking full advantage of high river levels during the ongoing rainy season.

Our financial results remain strong as well, with PetroTal showing healthy improvements in quarterly EBITDA and free cash flow. Notwithstanding the recent decline in oil pricing, we are continuing with preparations for some important development projects over the remainder of 2025, including erosion control. PetroTal has hedges on approximately 40% of its remaining 2025 production volumes and remains well-capitalized to execute its development program.

I would like to conclude by assuring investors that PetroTal is prepared to respond to declines in oil pricing by reducing capex and opex as necessary. Balance sheet flexibility and peer leading returns on investment have always been key pillars of the investment thesis for PetroTal. If oil prices remain low as we get closer to resuming our drilling program in the third quarter of 2025, we may consider deferring or cancelling planned activity to better align production growth with a supportive commodity price environment and maximize return on investment for our shareholders. We will update market guidance, as required, at the appropriate time should such a decision be taken. Thank you for your ongoing support.”

Another set of excellent quarterly results bolstered by a record quarter of production, again, as the company racks up a near 100% capacity delivered by themselves during the high river levels of the rainy season. These near perfect conditions protected the company from slightly lower realisations leading to a modest increase in operating costs as a result of some local operational issues.

What I like most is the cash generation at PetroTal, free funds flow of $48.2 million ($23.02/bbl) was PetroTal’s second best ever quarter and led to net cash of $113.6m, flat on Q4 2024 but up $28m on Q1 2024. With a sensible hedging programme any short term commodity weakness tends to be negated and it shows in these figures.

Having said that it is one of PetroTal’s key strengths is that of flexibility, something that it has become used to in operational and financial matters over the years and which continues to this day. The company remain in a position to to a larger degree than most control its own destiny, this flexibility in both capex and opex gives it the ability to step back from all or parts of its drilling programme if it feels that waiting for ‘a more supportive price environment will maximise return on investment for shareholders’.

With today’s dividend of 1.5c per share PetroTal’s management continue to exhibit a more than fair distribution policy and at the same time are ensuring that the infrastructure is maintained via its erosion control process. For certain income and in my view potential capital gain I remain very positive on PetroTal. 

Selected Financial Highlights

1.        Approximately 88% of Q1 2025 sales were through the Brazilian route vs 89% in Q4 2024.

2.        Royalties include the impact of the 2.5% community social trust.

3.        Non-GAAP (defined below) measure that does not have any standardized meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures presented by other entities. See “Selected Financial Measures” section.

4.        Net operating income represents revenues less royalties, operating expenses, and direct transportation.

5.        Adjusted EBITDA is net operating income less general and administrative (“G&A”) and plus/minus realized derivative impacts.

6.        Market capitalization for Q1 2025, Q4 2024 and Q1 2024 assume share prices of $0.475, $0.39, and $0.58 respectively on the last trading day of the quarter.

7.        Free funds flow is defined as adjusted EBITDA less capital expenditures. See “Selected Financial Measures” section.

8.        Includes restricted cash balances.

9.        Net Surplus (Debt) = Total cash + all trade and net VAT receivables + short and long term net derivative balances – total current liabilities – long term debt – non current lease liabilities – net deferred tax – other long term obligations.

And finally…

Way too boring to even write about…