Diversified Energy shares have slumped today after the energy company published its full-year results for the year to the end of December 2023 this morning.
While the company reported growth for both its top and bottom lines, investors have been spooked by management’s comments on the group’s capital allocation policy.
For the year, Diversified Energy reported total revenue, inclusive of commodity hedges of $1.05bn (£830m) up three per cent year-on-year. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) hit $542m (£426m), up eight per cent year-on-year.
Alongside the results, the group also announced it had signed an agreement with Oaktree Capital Management, which will see it buy Oaktree’s proportionate interest in the previously announced Indigo, Tanos III, East Texas, and Tapstone acquisitions for a gross purchase price of $410m (£322m). Diversified Energy said the deal would boost its production by 15 per cent.
The company’s results also contained its new capital allocation framework. In a blow to income investors, Diversified Energy said it would rebase its dividend. It declared a final dividend of $0.29 (23p) per share, down two-thirds from its post-consolidation distribution.
Diversified Energy said: “In conjunction with the asset acquisition and following the company’s capital allocation policy review, the board has set the new quarterly dividend to $0.29 per share which equates to $1.16 (91p) per year.”
The firm added: “This fixed quarterly dividend payment will be sustainable for at least three years and maintains a top quartile pro forma yield, among FTSE350 and higher than a majority of US listed peers, while providing the Company financial flexibility to reallocate approximately $110m (£87m) annually of capital towards the other elements within the updated capital allocation framework.”
Diversified Energy’s chief Rusty Hutson said: “The gas market is sending a clear signal today; there is too much supply in the marketplace. Producers have already started to respond with reduced activity levels and production guidance.
“We believe Diversified is one of the best-positioned operators to take advantage of this lower commodity price marketplace. We are highly hedged in 2024, and our production base has one of the lowest decline profiles in the gas industry.”
Hutson added: “As we navigate the path forward in this commodity price environment, we are going on offense to be more opportunistic in our strategic approach with a strengthened balance sheet and to capitalize on any periods of near-term weakness.”