Steady not spectacular half for Diversified

Just last year, gas was seemingly stuck trading at more or less the same average price as for the past decade. That has all changed, but Diversified Energy (DEC) has not forgotten the previous malaise just because prices have exploded.

But this also means the company’s underlying profit metrics are not as spiky as others in the sector, as its production (around 90 per cent gas, the rest oil) is heavily hedged. As a result, the consensus forecast for cash profit this year is actually less than last year, at $498mn (£412mn), although this is still significantly higher than the five-year average.

The quarterly dividend is up slightly on last year at 4.25¢ a share, and the interim adjusted cash profit is 48 per cent ahead of last year at $224mn, off the back of 29 per cent higher production and higher realised prices, post hedging. 

Diversified owns tens of thousands of wells in the US, largely across the Appalachian basin and Central Region. The company added 3,700 barrels of oil equivalent per day (boepd) in the first half, through a $50mn Texas deal, and last month bought another 9,000boepd in production from ConocoPhillips (COP) for $240mn. Pro-forma production including the latter acquisition is 147,000boepd. 

Despite the hedging there will be an impact from the higher gas prices. The company said higher sales would come through in the “the second half of 2022 and into 2023 when the increase in our hedged floor price…will be more impactful”. 

This isn’t the barnstorming result seen from the majors and some North Sea producers. But Diversified can still hang with that crowd through its 10 per cent-plus dividend yield. Buy. 

Last IC View: Buy, 116p, 22 Mar 2022