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Diversified Energy Company(DEC) - 2024 Q4 - Annual Report
DECDiversified Energy Company(DEC)2025-03-17 13:55
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Financial Performance - The company reported an operating loss of 43millionfortheyearendedDecember31,2024,comparedtoanoperatingprofitof43 million for the year ended December 31, 2024, compared to an operating profit of 1,161 million for the year ended December 31, 2023, indicating a significant decline in performance[360]. - The mark-to-market valuation adjustment on derivative financial instruments resulted in a change from a 906milliongainin2023toa906 million gain in 2023 to a 189 million loss in 2024, highlighting increased volatility in financial results[360]. - As of December 31, 2024, the company had 284millionoutstandingonitsCreditFacility,withrisinginterestratespotentiallyincreasingthecostofservicingthisdebtandadverselyaffectingprofitabilityandliquidity[356].−Thecompany’scashgenerationandliquidityremainadequate,allowingittooperatewithinexistingfacilitiesforatleast12monthsfromthedateofthereport[423].−Thecompany’sabilitytopaydividendsiscontingentonperformance,financialcondition,andmarketfactors,withnoguaranteeoffuturepayments[406].RiskManagement−Thecompany’sEnterpriseRiskManagementprogramemphasizesproactiveidentificationandmitigationofriskstoachievestrategicobjectives[248].−Thecompany’sriskmanagementframeworkincludesregularassessmentsofprincipalandemergingriskstomaintainstability[254].−Thecompanyactivelymonitorsdebtlevelsandliquidity,updatingtheBoardquarterlyonfinancialpositions[261].−Thecompanyfacesrisksrelatedtocounterpartydefaultsinhedgingactivities,whichcouldmateriallyaffectfinancialresultsandcashflows[362].−Thecompanyisexposedtorisksfromclimatechange,includingincreasedoperationalcostsduetoregulationsaimedatlimitinggreenhousegasemissions[300].RegulatoryandCompliance−ThecompanyissubjecttosignificantregulatoryoversightandreportingobligationsasanewlylistedU.S.company,whichmaystrainresourcesandincreasecosts[395].−Regulatorycompliancecostsareexpectedtoincreaseduetostringentenvironmental,health,andsafetyregulations,potentiallyimpactingfinancialconditionandoperationalcosts[367].−Themaximumcivilpenaltiesforpipelinesafetyviolationshaveincreasedto284 million outstanding on its Credit Facility, with rising interest rates potentially increasing the cost of servicing this debt and adversely affecting profitability and liquidity[356]. - The company’s cash generation and liquidity remain adequate, allowing it to operate within existing facilities for at least 12 months from the date of the report[423]. - The company’s ability to pay dividends is contingent on performance, financial condition, and market factors, with no guarantee of future payments[406]. Risk Management - The company’s Enterprise Risk Management program emphasizes proactive identification and mitigation of risks to achieve strategic objectives[248]. - The company’s risk management framework includes regular assessments of principal and emerging risks to maintain stability[254]. - The company actively monitors debt levels and liquidity, updating the Board quarterly on financial positions[261]. - The company faces risks related to counterparty defaults in hedging activities, which could materially affect financial results and cash flows[362]. - The company is exposed to risks from climate change, including increased operational costs due to regulations aimed at limiting greenhouse gas emissions[300]. Regulatory and Compliance - The company is subject to significant regulatory oversight and reporting obligations as a newly listed U.S. company, which may strain resources and increase costs[395]. - Regulatory compliance costs are expected to increase due to stringent environmental, health, and safety regulations, potentially impacting financial condition and operational costs[367]. - The maximum civil penalties for pipeline safety violations have increased to 257,664 per day, which could lead to significant financial implications for the company if compliance issues arise[324]. - The company may face litigation risks, including actions by royalty owners and personal injury claims, which could have a material adverse effect on its business[384]. - The company is subject to potential legal liabilities and costs associated with environmental regulations, which could adversely affect financial results and operational capabilities[366]. Strategic Initiatives - The company’s core business strategy aligns with sustainability initiatives, focusing on acquiring reliable, long-life producing wells[258]. - The company has established a climate risk strategy to navigate environmental regulations and climate change concerns[258]. - The company’s strategy includes optimizing or refurbishing producing assets to maximize operational efficiency while avoiding significant expenses associated with new equipment purchases[312]. - Successful integration of acquired businesses, such as Maverick, is critical for realizing anticipated financial benefits[342][344]. - The Group's sustainability goals include GHG emission intensity reduction targets, which are regularly reviewed by the Board[434]. Governance and Board Structure - The Board consists of seven Directors, including the Group's CEO and six Non-Executive Directors, with five deemed independent under the UK Corporate Governance Code[435]. - Female representation on the Board increased from 29% in late 2019 to 43% as of December 31, 2024, with three out of seven Board members being female[438]. - The Audit & Risk and Remuneration Committees are fully independent, ensuring effective oversight of the Group's operations[438]. - The Board holds regularly scheduled meetings each year, with additional meetings as necessary for important matters[441]. - Directors must stand for re-election annually in accordance with the UK Corporate Governance Code[442]. Market and Economic Conditions - Volatility in natural gas, NGLs, and oil prices could materially and adversely affect the company's business and financial condition, with historical high and low Henry Hub natural gas spot prices in 2022 reaching 9.85and9.85 and 3.46, respectively, and in 2023 reaching 3.78and3.78 and 1.74[274]. - Economic downturns in industries served by the company could reduce demand for natural gas and oil, adversely impacting liquidity and results of operations[299]. - The ongoing geopolitical instability, particularly the conflict between Russia and Ukraine, has led to market disruptions and volatility in commodity prices, which could adversely affect the company’s operations[325]. - Inflationary pressures could increase operating costs and impact profitability, although recent inflation rates have not significantly affected operations[328]. - The company is actively monitoring geopolitical conflicts, including those in Ukraine and Israel, which could have substantial impacts on the global economy and its business[327]. Operational Risks - The company relies on third-party infrastructure for operations, and any failure to access necessary equipment and transportation systems could materially impact business results[273]. - The company may experience delays in production and transportation due to reliance on third-party systems, which could negatively affect financial performance[283]. - Production risks, including premature reservoir decline and geological uncertainties, could adversely affect the company's ability to produce at expected levels[284]. - The availability of pipeline and storage capacity systems is critical for the company’s operations, and disruptions could impact the delivery of natural gas, NGLs, and oil to commercial markets[311]. - The company may face challenges in attracting and retaining skilled personnel due to increasing industry-wide demand, which could hinder business expansion and strategy execution[316]. Financial Obligations and Debt - The company has 284millionoutstandingonitsCreditFacilityasofDecember31,2024[328].−TheborrowingbaseundertheCreditFacilityiscurrentlysetat284 million outstanding on its Credit Facility as of December 31, 2024[328]. - The borrowing base under the Credit Facility is currently set at 900 million[351]. - Future acquisitions may be limited by existing debt agreements and covenants, potentially hindering growth opportunities[348][349]. - The company may incur additional indebtedness or sell assets to manage financial obligations, which could limit operational flexibility and growth opportunities[358]. - The company may experience significant adjustments to decommissioning cost provisions, which could adversely affect future financial results[296].