Proved developed producing (PDP) consolidator Diversified Energy has assets coming and going across the Lower 48, getting top dollar for its non-PDP carve-outs and newly reduced prices for acquisitions, it said in an investor call.
“I love that commodity prices have come off quite a bit, both oil and natural gas,” said Rusty Hutson, the E&P’s co-founder and CEO.
“As you guys know, that's typically a pretty good environment for our acquisition strategy. As we see those commodity prices come off, we can start to search for value out there again.”
Meanwhile, Diversified sold $70 million of leasehold in the first half, up from the anticipated $40 million of divestments.
Brad Gray, president and CFO, said it was simply due to buyers offering more than expected per acre.
“As some of the developers are looking to put positions together, they need some of the blocks to put their drilling programs in place,” Gray said.
The sales were primarily in the western Anadarko Basin, where Diversified is the largest leaseholder.
Hutson said Diversified is looking at which acres are worth more if sold than if operated.
“I'm being surprised by the level of interest, but also in the level of value that some people are willing to pay for some of these acreage positions as they look to generate more inventory to drill,” he said.
Diversified is keeping its door open. “We're pretty confident that there will be more [deals]. I just don't know what that amount is going to be at this point.”
He added, “A lot of it comes from just people calling and saying, ‘Hey, you got this acreage position over here that we'd like to make an offer on.’
"And then when we put it out [for sale] and we start to make [the bidding] competitive, it's amazing where those prices for those positions go. And so we've been pretty successful doing that.”
A securities analyst asked if buyers were also looking for deep rights underlying Diversified’s property in the western Anadarko.
Hutson said, “We’ve seen a lot of interest in the western Anadarko in different formations, different acreage areas.”
Internal analysis will show the value “to us if we do something with it ourselves or whether it's better off in the hands of someone else.”
The E&P is currently armed with $2 billion to spend in a joint-investment deal with Carlyle Group to buy PDP property and operate it.
Large opportunities are flowing in.
“We’ll definitely do deals here in the near term with Carlyle,” Hutson said. “There's a lot of momentum there.”
Gray added valuations of possible deals are moving along. “We've been very encouraged and pleased with the level of engagement from Carlyle.
“They've been at the table with us evaluating potential transactions and are very engaged. So as Rusty said, we're confident that we'll be able to put some money to work here in the future.”
Deep rights, data-center demand
Diversified operates in the western Anadarko Basin, northwestern Permian Basin, Haynesville and Cotton Valley, which contribute 65% of its 192,000 boe/d.
The balance is from its Marcellus property, resulting in an output mix of 73% gas, 14% oil and 13% NGL.
Earlier this year, it bought EIG’s Maverick Natural Resources, picking up the Permian entry in a $1.25 billion deal consisting of $207 million in cash, 21.2 million Diversified shares and $700 million of debt assumption.
The package also came with western Anadarko leasehold alongside Diversified’s pre-existing portfolio there, targeting the Cherokee formation. That part of the deal is a joint venture.
Hutson said, “We definitely have a fairly large Permian Basin position now that we're currently evaluating to see if there's opportunities there to do something similar.”
Meanwhile, Appalachian gas has a new spark as power utilities and data center developers look for more electrons—particularly dispatchable power, which is derived from gas, coal and nuclear, rather than intermittent power from wind and solar.
EQT Corp. announced deals last month to supply 1.5 Bcf/d to two new power projects in Pennsylvania.
The total incoming demand has lifted in-basin gas prices, Hutson said.
Gray said profiting from the price upside may largely be the extent of Diversified’s participation except for small-scale, off-grid power generation in Appalachia.
“I think the biggest impact for us is just purely on pricing alone,” Gray said.
Discussions are underway to resurrect the Constitution Pipeline and Northeast Supply Enhancement (NESE) projects that will ship more Appalachian gas into New England.
“There's no doubt that the demand for natural gas in Appalachia is going to increase substantially,” Gray said.
“We think there are ways for us to get involved on a smaller scale, but also reap the benefits of what the demand that's coming to market is going to do for pricing.”