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    DEC
    Earnings call· Jun 2026(Q2 FY26)

    Diversified Energy Q2 FY26 earnings call DEC

    Aug 6, 2026 Source

    Executive summary

    Diversified Energy Company Q2 FY26 — Strategic Development Program Launch & Strong Cash Flow

    Diversified Energy announced strong Q2 FY26 results, highlighted by robust free cash flow generation and significant debt reduction. The company introduced a new operated development program, a strategic extension to optimize its extensive asset portfolio and offset production decline, without compromising its low-decline, low-capital-intensity business model. Management emphasized optionality and capital discipline in this new phase, aiming to bolster long-term cash flow durability.

    Highlights

    5

    • Repaid approximately $233 million in debt principal during H1 2026, strengthening the balance sheet.

    • Returned approximately $136 million to shareholders through dividends and share repurchases in H1 2026, representing an approximate 14% shareholder return on capital yield.

    • Achieved Q2 FY26 adjusted EBITDA of $240 million with a 52% margin, driven by strong operational performance.

    • Generated $126 million in additional cash proceeds from the Portfolio Optimization Program (POP) in H1 2026.

    • Maintained industry-leading low consolidated production decline rate of approximately 10%, significantly below the peer average of 31%.

    Concerns

    3

    • Adjusted free cash flow for Q2 FY26 was burdened by approximately $10 million of transaction costs.

    • Non-operated CapEx guidance for FY26 decreased from $115 million-$125 million to $25 million-$55 million due to reallocation and timing changes.

    • Production contribution from the new operated development program is not anticipated until 2027, despite capital deployment in 2026.

    Guidance & targets

    9
    CategoryTargetConfidence
    Total Production
    ~1.2 BCFE per day
    high materiality
    High
    Production Mix
    29% liquids, 71% natural gas
    medium materiality
    High
    Adjusted EBITDA
    $960 million to $1 billion
    high materiality
    High
    Adjusted Free Cash Flow
    ~$440 million
    high materiality
    High
    Total Capital Expenditures
    $225 million to $255 million
    high materiality
    High
    Operated Development Capital Expenditures
    $35 million to $50 million
    medium materiality
    High
    Non-Operated Capital Expenditures
    $25 million to $55 million
    medium materiality
    High
    Leverage Target
    2.0x to 2.5x
    high materiality
    High
    Operated Oklahoma Program Production Contribution
    Beginning in 2027
    medium materiality
    High

    Operational metrics

    30
    Debt Principal Repaid
    $233 million
    H1 2026

    Includes retirement of debt associated with non-core Barnett asset sale.

    Liquidity
    $678 million
    Q2 FY26

    Liquidity at the end of the quarter.

    Pro Forma Leverage
    2.45x
    Q2 FY26

    Within the stated target range of 2.0x to 2.5x.

    Shareholder Returns (Dividends + Buybacks)
    $136 million
    H1 2026

    Combined amount returned to shareholders.

    Shareholder Return on Capital Yield
    14%
    H1 2026

    Approximate yield at current levels.

    Cumulative Shareholder Returns and Debt Repayments
    $2.5 billion
    Since IPO

    Demonstrates track record of capital allocation.

    Adjusted EBITDA
    $240 million
    Q2 FY26

    Adjusted EBITDA for the quarter.

    Adjusted EBITDA Margin
    52%
    Q2 FY26

    Adjusted EBITDA margin for the quarter.

    Portfolio Optimization Program (POP) Cash Proceeds
    $126 million
    H1 2026

    Additional cash generated from monetizing non-core acreage and surface assets.

    Trailing 12-Month Commodity Revenue
    $1.9 billion
    TTM

    Run rate cash engine of the business.

    Trailing 12-Month Adjusted EBITDA
    $1.1 billion
    TTM

    Run rate cash engine of the business.

    Debt Structure
    76%
    Q2 FY26

    Efficient financing strategy for PDP assets.

    Daily Production Exit Rate
    1.3 BCFE per day
    June 2026

    Production exit rate for the month of June.

    Average Daily Production
    1.3 BCFE per day
    Q2 FY26

    Average production for the quarter.

    Total Commodity Revenue
    $504 million
    Q2 FY26

    Total commodity revenue for the quarter.

    Commodity Revenue per MCFE
    $4.23
    Q2 FY26

    Average realized price per MCFE.

    Trailing 12-Month Production
    1.2 BCFE per day
    TTM

    Run rate production for the business.

    Annual Run Rate Capital Allocation
    $250 million to $300 million
    Annual

    New capital allocation for the development program.

    Operated Oklahoma Program Identified Locations
    450
    Future

    Highly economic locations identified for the operated program.

    Operated Oklahoma Program Wells Planned
    19 gross / 17 net
    Sept 2026 - Sept 2027

    Wells planned for the initial phase of the operated development program.

    Operated Oklahoma Program Net Capital
    $145 million
    Annualized

    Annualized net capital for the operated program.

    Operated Oklahoma Program Average Lateral Length
    11,000 feet
    Future

    Average lateral length for wells in the operated program.

    Operated Oklahoma Program Production Split
    15% oil, 35% NGLs, 50% natural gas
    Future

    Expected production split, providing meaningful liquids exposure.

    Operated Oklahoma Program Inventory
    >20 years
    Future

    Remaining inventory for the operated program at current pace.

    Non-Operated Anadarko Basin Wells Drilled
    150
    To date

    Wells drilled in the non-operated program with MUBER.

    Non-Operated Anadarko Basin Remaining Locations
    145
    Future

    Remaining inventory for the non-operated program with MUBER.

    Non-Operated Anadarko Basin Program IRRs
    >60%
    To date

    Tangible, realized results from the non-operated program.

    Base Production Decline Rate
    10%vs. peer average 31%
    Annual

    Industry-leading consolidated production decline rate.

    Capital Intensity (CapEx as % of Adj. EBITDA)
    25%vs. peer group 40-110%+
    Go-forward

    Lowest in the group by a wide margin, even with development program.

    Free Cash Flow Conversion (Adj. EBITDA to FCF)
    47%vs. peer average 28%
    Q2 FY26

    Strong conversion rate, with some peers having negative FCF.

    Industry KPIs

    4
    MetricValueDetails
    D c efficiency rig activity11,000 feetfeet
    Realized price differential$4.23USD/MCFE
    Basin level production volume1.3 BCFE per dayBCFE/day
    FCF shareholder distributions$136 millionUSD

    Deals & partnerships

    6
    CaminoAcquisition of assets, including acreage with undeveloped locations in Oklahoma.

    One of three acquisitions for over $2 billion in headline value within the last 12 months. The Camino acquisition specifically provided the acreage that enabled the operated drilling program.

    SheridanAcquisition of assets.

    One of three acquisitions for over $2 billion in headline value within the last 12 months.

    Barnett and Arkansas assetsStrategic sale of non-core, lower margin assets.$147 million

    The sale also included the retirement of associated debt. Part of the ongoing portfolio optimization process.

    MUBERParticipation in non-operated development program.

    Located in the Oklahoma Anadarko Basin, with 150 wells drilled and 145 remaining locations (approx. 3 years of inventory).

    Continental ResourcesParticipation in non-operated development program.

    Located in Texas on the Central Basin platform, targeting the new emerging Barnett, Miss, and Woodford (BMW) trend. Initial drilling expected in Q4 2026.

    Private operatorParticipation in non-operated development program.

    Located in New Mexico on the Northwest Shelf. Initial drilling beginning in Q3 2026.

    Capital programs

    4
    Operated Development Program (Oklahoma)underway
    Period spend: $35 million to $50 million
    Start: September 2026

    Benefit: Offset corporate production decline, grow bottom line cash flow

    Initial phase of the operated development program for H2 2026. This program has 450 identified locations and is expected to drill 19 gross / 17 net wells from Sept 2026 to Sept 2027.

    Non-Operated Development Program (Oklahoma Anadarko Basin)underway
    Spent to date: 150 wells drilled

    Benefit: 145 remaining locations (~3 years inventory), IRRs exceeding 60%

    Partnership with MUBER. Expected to meaningfully replace base production decline.

    Non-Operated Development Program (Texas Central Basin Platform)underway
    Start: Q4 2026

    Benefit: Access to new emerging BMW trend (Barnett, Miss, Woodford)

    Partnership with Continental Resources. Initial drilling expected in Q4 2026. Expected to meaningfully replace base production decline.

    Non-Operated Development Program (New Mexico Northwest Shelf)underway
    Start: Q3 2026

    Partnership with a private operator. Initial drilling beginning in Q3 2026. Expected to meaningfully replace base production decline.

    Risks & headwinds

    3
    Commodity Price VolatilityNear-term

    Natural gas prices at $2.68 (at time of call)

    Mitigation: Flexibility in the operated development program to slow down if prices deteriorate; ability to retain unhedged exposure for upside.

    Transaction CostsQ2 FY26

    $10 million

    Mitigation: Burdened adjusted free cash flow for the quarter.

    Reallocation of Capital and Timing ChangesFY26

    Non-operated CapEx decreased from $115M-$125M to $25M-$55M

    Mitigation: Primarily due to reallocation from non-op to operated development, timing, and changes in working interest levels.

    What to watch in Q3 FY26

    4

    Production impact from Operated Oklahoma Program

    Q3/Q4 FY26
    CurrentCapital being deployed, production contribution beginning in 2027
    TargetMore precise production numbers for 2027

    Why it matters

    This will quantify the initial success and contribution of the new strategic development program to the company's production profile.

    I will tell you it's meaningful. And so we're pretty excited about it. But a lot of that's going to depend on, you know, we're standing up the rig, we're getting it moving as we speak when those wells come online. So I would rather give you a much more precise number later, you know, at the end of the third quarter most likely than to try to do that today.

    Q&A highlights

    6

    How large could the operated development program potentially get, given the extensive acreage footprint?

    The program could grow as large as desired, with 450 locations in Oklahoma representing over 20 years of drilling inventory at a one-rig pace. The focus is on optionality and controlling the pace and returns, allowing for flexibility based on commodity prices and capital efficiency. The company also has acreage positions in Permian and Appalachia for future consideration.

    “Well, I mean, look, we have 450 locations in Oklahoma. Rick said it earlier, we had 20-some years of drilling. You know, obviously it could grow as big as we want it to be, but it's really about the optionality for us.”

    asked by Neil Dingman · answered by Unknown Speaker

    2 min read6 chapters

    Detailed Narrative

    01

    Introduction of Operated Development Program

    Diversified Energy announced a significant strategic extension to its playbook by introducing an operated development program, primarily in Oklahoma. This program aims to allocate $250 million to $300 million of annual run rate capital, split approximately 50% to operated development, 30% to non-operated programs, and 20% to core PDP maintenance capital. The company emphasizes this is not a strategic pivot but a natural extension to optimize undeveloped locations acquired with little ascribed value, enhancing long-term cash flow and financial stability.

    02

    Disciplined Capital Allocation and Financial Strength

    The company highlighted its disciplined capital allocation priorities, including systematic debt reduction, return of capital to shareholders, and accretive strategic acquisitions. In H1 2026, Diversified repaid approximately $233 million in debt and returned $136 million to shareholders. Pro forma leverage stood at 2.45 times, within the target range of 2.0x to 2.5x, with over $678 million in liquidity, positioning the company in its strongest fiscal position in 25 years.

    03

    Q2 FY26 Operational and Financial Highlights

    For Q2 FY26, Diversified reported an average daily production of approximately 1.3 BCFE per day and a June exit rate of 1.3 BCFE per day, maintaining its low production decline. Total commodity revenue was $504 million, and adjusted EBITDA reached $240 million with a 52% margin. The Portfolio Optimization Program (POP) generated $126 million in H1 2026, and the strategic sale of non-core Barnett and Arkansas assets for $147 million further enhanced profitability.

    04

    Operated Oklahoma Program Details

    The operated Oklahoma program has identified approximately 450 highly economic locations, based on $65 oil and $3.25 natural gas prices. The plan for September 2026 through September 2027 involves drilling approximately 19 gross (17 net) wells with an average working interest of 90%. Net capital for this period is estimated at $145 million, with an average lateral length of 11,000 feet. The production split is expected to be 15% oil, 35% NGLs, and 50% natural gas, providing meaningful liquids exposure.

    05

    Non-Operated Development Programs

    Diversified is actively participating in three non-operated programs. In the Oklahoma Anadarko Basin, a partnership with MUBER has seen 150 wells drilled with 145 remaining locations and IRRs exceeding 60%. New programs include participation with Continental Resources in Texas (Central Basin platform, Q4 2026 drilling) and a private operator in New Mexico (Northwest Shelf, Q3 2026 drilling). These programs are expected to meaningfully replace base production decline.

    06

    Capital Efficiency and Free Cash Flow Conversion

    The company highlighted its superior capital efficiency, with a capital intensity (CapEx as % of adjusted EBITDA) of approximately 25% on a go-forward basis, including the new drilling program, significantly lower than the peer average of 40% to over 110%. This translates into strong free cash flow conversion, with Diversified converting approximately 47% of adjusted EBITDA into free cash flow, compared to the peer average of 28%.

    AI-generated summary of the company’s earnings call. Not investment advice.