Greetings and welcome to the Diversified Energy Maverick Natural Resources Acquisition Conference Call and Webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question-and-answer session will follow the formal presentation. We ask that you please ask one question and one follow-up in return to the queue. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Douglas Kris, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead, Douglas.
Good morning and thank you, Operator, and thank you, everyone, for joining us today for this special conference call to discuss Diversified's acquisition of Maverick Natural Resources. Joining me today on the call are Diversified's founder and CEO, Rusty Hutson, President and CFO, Brad Gray, and Rick Gideon, CEO of Maverick Natural Resources. We have also posted a slide deck to accompany our remarks today and will reference the slide numbers in our discussion. Before we get started, I will remind everyone that the remarks on the call reflect the financial and operational outlook as of today, January 27th, 2025. These outlooks entail assumptions and expectations that involve risks and uncertainties. A discussion of these risks and uncertainties can be found in our regulatory filings. During this call, we also make reference to certain non-GAAP and non-IFRS financial measures.
All of our disclosures around those items and additional forward-looking disclosures are found in our materials released today on our website and in our regulatory filings. I'll now turn the call over to Rusty.
Thank you, Doug, and thank you all for joining the call today. In the call today, we intend to provide further context about the acquisition of Maverick Natural Resources and its assets we are acquiring, how their operations and assets fit within our broader financial and operational model, and the significant sources of value we expect to deliver from this transaction. We will start on slide three. We are excited to announce the acquisition of Maverick Natural Resources, a portfolio company of the global energy firm EIG. We believe this acquisition will add accretive size and scale advantages and further align with our strategy of building a diversified gas and oil company to provide much-needed resources to grow our country's economy and energy independence.
Before I get into the specifics of the transaction, I want to remind you of one of the key elements of our strategy, which happens to be our namesake, diversification. Our strategy is one focused on optimizing existing long-life and often overlooked and undervalued U.S. energy assets. With this transaction, we are incorporating the following: commodity revenue diversification with exposure to premium oil prices, natural gas production supporting LNG exports, and growing technology and data center demand. Geographic and basin diversification with high-quality assets across multiple basins, including Appalachia, Oklahoma, Permian, and the Anadarko. Finally, a large wedge of low-decline PDP production, plus the expanded optionality to grow through development partnerships and bolt-on acquisitions.
We continue to leverage all these areas into business segment diversification by enhancing the long-term value for our stakeholders in adjacent opportunities like coal mine methane, opportunistic revenue generation with our vast land portfolio, and environmental stewardship of our assets through efficient end-of-life well retirement. Our focus remains firmly on safe, reliable, and efficient operations, utilizing our unique growth strategy that creates value-based, resilient, and consistent cash flow. The addition of Maverick provides the size and scale to further our progress in our strategy, and the combined company provides investors with a unique opportunity for value accretion that delivers reliable long-term shareholder returns. Turning to slide four, this acquisition has the potential to create significant value over and above the purchase price through the combination of high-quality assets with our proven competitive operating model, which leverages operational focus and expertise, scale, vertical integration, and technology.
We are acquiring liquids-rich exposure to premium markets that will help drive top-line revenue, adding Maverick's production, which averages 59,000 barrels of oil equivalent per day, with a commodity split between 34% oil, 24% NGLs, and 42% natural gas, further expanding our exposure to premium oil and LNG opportunities. The combined company will continue to maintain an enviable, peer-leading, low-decline production profile of approximately 10%, with an added resource of total proven reserves on a PV-10 basis of $2.1 billion. Maverick adds nearly 1 million acres, with the combined assets creating a multi-basin portfolio with size and scale, while also providing our entry to the Permian, where we can now apply our proven consolidation and operating model. Very importantly, we have the asset density to position Diversified as the premier operator in the Western Anadarko Basin in Oklahoma.
Maverick also offers immediate financial accretion through a strong, stable financial profile, which generated approximately $380 million in adjusted EBITDA for the 12 months ended September 30th, 2024. By remaining disciplined, we have made a powerful step forward, meaningfully growing our company by acquiring value-accretive, reliable PDP assets, and consistent cash flow at an approximate PV-19 value and 3.3 x EBITDA multiple. This transaction brings us solid assets at an accretive value. Turning to slide five, so with that backdrop, let me spend a few minutes talking about the specifics of this deal. We are acquiring Maverick Natural Resources for approximately $1.275 billion, which includes the assumption of net debt, issuance of approximately $345 million in shares of Diversified, and approximately $207 million in cash funded by a draw on our new integrated and increased RBL facility of $900 million.
This new facility provides ample liquidity for the transaction and for our plans as we move forward into 2025. The combined entity will be owned 70% by existing Diversified shareholders, approximately 20% by EIG, and 10% by other Maverick unit holders. EIG will appoint two directors to the board out of a total of eight directors moving forward. We look forward to working closely with the highly regarded EIG Energy team and believe they will be a terrific partner in supporting our commitment to creating long-term shareholder value. It's worth noting that we first established this EIG relationship with the purchase of East Texas assets in 2024, where they became shareholders, with Diversified shares being utilized as a portion of the purchase price. Since then, we have grown their confidence in our experience, operational capabilities, and stewardship focus.
We expect the transaction to close during the first half of 2025 upon shareholder approval and customary regulatory clearance. Turning to slide six, this acquisition offers multiple value creation levers. I've touched on some of these points already, but let me expand on a couple of key points on this slide. In addition to the size and scale, the deal provides additional optionality for growth from capital deployment in an established joint venture partnership with a highly regarded operator. We have a terrific opportunity to increase our efficiency and drive synergies from a vastly expanded footprint in Western Oklahoma. Importantly, this is a leverage-accretive transaction. We will enhance our financial position with an upsized reserve-based lending facility, continue our prominence in the upstream ABS market through expansion of the investment-grade note structures, and provide accretive cash flow for future deleveraging and cost of capital advantages.
The acquisition is accretive on several metrics which are listed here. It will allow us to continue to deliver and unlock additional shareholder value while providing our investors with peer-leading shareholder returns anchored by a quarterly dividend that we intend to maintain at $0.29 per share. We will also provide the option to return additional capital to shareholders through continued deleveraging and share repurchases. Turning to slide seven, we have multiple drivers of cash flow growth. The combined company will benefit from a low-decline production profile, commodity diversification, a disciplined hedging program, and the potential for additional upside from anticipated operational and administrative synergies with this acquisition. As a result, you can see on the chart to the right of this page that the last 12 months' combined free cash flow totaled $345 million, a 57% uplift to Diversified's standalone results.
Turning to slide eight, we believe there are multiple sources of significant value creation from the high-level metrics achieved from this acquisition. The acquisition expands the combined company's footprint to five core operated basins and increases density while growing production to approximately 1.2 BCF of gas equivalent per day, while still maintaining a peer-leading 10% annual production decline rate for our PDP reserves. Revenues of the combined company are increasing almost 100% versus Diversified on a standalone basis. It's worth noting that these immediate transaction benefits are before giving any value to the multiple avenues for upside, including additional strategic bolt-on and tuck-in acquisitions, strategically monetizing undeveloped acreage, implementing targeted synergies, and leveraging joint development agreements to accelerate additional value creation. Turning to slide nine, we believe that commodity diversification is a proven strategy.
This acquisition increases our revenue from liquids, specifically oil, while further bolstering our significant natural gas production. As we continue to increase our weighting to liquids, our per-unit EBITDA contribution increases. We expect that commodity diversification is anticipated to drive a 26% increase in EBITDA per unit. I will now turn the discussion over to our CFO, Brad Gray, to discuss our post-transaction operational footprint and integration.
Thank you, Rusty. I'll start my comments on slide 10. This acquisition creates significant asset density in Oklahoma, and we're very excited about this aspect of the transaction. As a result of this acquisition, we have a great opportunity to become the premier operator in the Western Anadarko Basin. Those premier attributes include the following: a combined acreage footprint that is the largest acreage position in the Western Anadarko Basin at approximately 1.2 million acres; second, combined production at approximately 54,000 barrels of oil equivalent per day; and third, exposure to the emerging Cherokee Play, creating organic growth opportunities with our development partnerships. We intend to utilize our experienced employees, our institutional knowledge, our commercial relationships so that we can become a dominant force in the Oklahoma market. Moving to slide 11, this slide further illustrates the combined position in the Western Anadarko Basin.
As you can see on the bottom left corner, the resulting Diversified and Maverick combination creates the top producer in the basin, and while only slightly ahead of the number two producer, we are materially larger than the rest of the players in the region. Additionally, the map shown on this page creates a powerful picture of the significant acreage position resulting from this acquisition. As we have demonstrated over the past few years, our talented land teams have proven experience to help us optimize revenue generation from our acreage positions. Turning to slide 12, as we mentioned earlier, this acquisition expands our operating model into the Permian. We have been looking for an opportunity to make a prudent investment into this powerful basin, and we are excited to be entering the Permian with Maverick's talented team and its scalable position.
Our new assets have basin-leading decline rates, and Maverick's efficient operational cost structure in the Permian will yield consistent high-margin cash flows. We also gain opportunities to use our proven bolt-on acquisition model to add growth in a basin that, while dominated by development, has an expanding opportunity set for core PDP growth. Importantly, we believe there is additional opportunity for growth with joint venture development partnerships to extract value from undeveloped locations. Now, turning to slide 13, in addition to the high-quality developed assets we are adding to our portfolio, there is also room for attractive undeveloped optionality. For example, we see the opportunity for a variety of options with our expanded acreage position. A few of these opportunities are as follows.
First, a high-return capital deployment option, which will supplement our acquisitions due to the significant undeveloped acreage position, including a meaningful position in the emerging and exciting Cherokee Play. Second, an established joint development opportunity with an experienced Oklahoma operator, which will generate revenues from our non-operated working interests. Third, a potential for additional accretive undeveloped acreage sales. And fourth, retaining industry-leading capital intensity rates of approximately 70% lower than our peer average. Moving to slide 14, this acquisition further highlights our unique infrastructure platform as an accretive consolidator, which has allowed us to make $585 million in acquisitions during 2024, where we added no incremental G&A.
Our field and corporate infrastructure, which ranges from significant operating scale to having a full support suite of corporate expertise, is underpinned by our best-in-class IT and OT technology to drive efficiency and to drive a seamless flow of information from the wellhead to the boardroom. The skills of our very talented employees, matched with our safe and efficient technology stack, and our belief in driving cash margins through vertical integration are all very valuable assets and truly differentiate us from the industry. Moving to slide 15, we have a proven approach and ability to identify and achieve synergies in our acquisitions. Our stewardship operating model, which is supported by our smarter asset management practices, is all about optimizing the assets we acquire through production optimization and expense efficiency. We use every lever at our disposal to increase margins, returns, and free cash flow from our investments.
With this acquisition, we will accelerate synergies as a result of increasing asset density and field operations by integrating processes and systems into our One DEC platforms and consolidating applicable corporate functions. Moving to slide 16, at current valuations, we expect the EBITDA multiple for the combined entity to land at approximately four times, which is a 30% discount to our historical average. This is also a 45% discount to the average peer multiple. With the increased scale from this acquisition, the resilient and diversified revenues, the opportunities for organic development, the synergies, and our smarter asset management enhancements that we expect to achieve, we intend to drive a tangible increase in EBITDA that offers a unique opportunity for a multiple re-rate.
So to wrap up my comments, I'll add that we believe this transaction is a terrific fit with our strategy to deliver de-risk, consistent cash flow to our shareholders. And I'm excited to work with our talented teams and the great team at Maverick to get this deal closed and efficiently integrated. Rusty, back to you for your concluding remarks.
Thanks, Brad. Let me wrap up before we take some questions. On slide 17, as a result of this acquisition, we will be able to maintain our flexible capital allocation strategy by increasing our financial strength, which includes increased revenue and free cash flow, lower leverage, further diversification of commodity revenues, and an expanded asset base providing us many opportunities to drive higher returns. We will continue to prioritize free cash flows with the flexibility to allocate across the highest and best uses of capital to create long-term shareholder value.
Our priorities will continue to be the following: pursuing systematic debt reduction with an anticipated reduction in borrowings by over $300 million of amortization payments in 2025, providing a meaningful and sustainable capital return structure with the combined company to pay an annual fixed dividend of $1.16 per share, pursuing high-return organic opportunities and bolt-on additions at accretive multiples, and conducting strategic and regimented share repurchases. Finally, moving to slide 19, our acquisition of Maverick is a powerful step forward in reinforcing our leadership in the industry as the right company to manage these assets now and into the future. We believe we are making these investments at the right time for Diversified, for Maverick, and for all of our stakeholders, which include energy consumers here in the United States and our allies abroad.
This strategic transaction allows us to grow and scale with a diversified, low-risk business model while also being financially accretive. It reduces our total leverage ratio and positions us to accelerate future deleveraging efforts. We also gain best-in-class operational efficiencies with an expanded geographic footprint. With enhanced cash flow, achievable synergies, and liquids weighting that strengthens our margins, we create a must-own natural gas operator and substantial equity upside through a multiple re-rate. The bottom line is we have created a highly scalable and highly investable platform that generates significant free cash flow and is well-positioned for future growth. Thank you for your interest in our company and in this transaction. We believe this transaction is a win for our employees, our customers, our shareholders, and our partner, EIG.
I'm excited to work with Rick and our teams to integrate the Maverick assets into our great company, and I want to congratulate him and the entire Maverick team on building and safely operating a terrific company. With that, I'll now open the floor to questions.
Thank you. Now, I'll be conducting a question-and-answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, and as a reminder, please ask one question and one follow-up, then return to the queue. Our next question is coming, our first question is coming from Bert Donnes from Truist Securities. Your line is now live.
Hey, good morning. Congrats on the deal, guys. It certainly seems very well and adds a good bit of diversification, which I think investors will appreciate. My question's on the potential for upstream activity with the JV that's in place. Could you maybe just walk us through how that works? When do potential locations get picked? Is there a set amount you need to spend, or is it just based on pricing each year you'll kind of decide? Or is this something that you see as a constant program going forward?
Yeah, thanks, Bert, just for us to see. I'll start as Brad wants to add any comments. It's a great JV partnership that the Maverick team had already entered into, and I think the way it was kind of set up was they combined their acreage with a large operator in the Cherokee, and then the other large operator is the operator of drilling and completions, and then we have a participation right alongside of them on every well. I think they're running three rigs or so, maybe even four at this point in the Cherokee, and I think the way it works is you just get an AFE, and you just participate alongside of them as you move forward, and I think that the CapEx that we have planned and Maverick had planned for the year is mostly dedicated to that Oklahoma-Cherokee play.
It's pretty powerful what's transpired there in a short period of time in terms of the Cherokee and how it's kind of, I've used the term grown up. It just came out of nowhere, and it's been a really, really powerful new play there in Oklahoma that's gotten a lot of attention. We're very excited about it. We think it's going to give us an opportunity to have that organic growth mechanism alongside a very, very established and well-known operator.
Perfect. And then for my follow-up, just on the Permian position, should we view this as a foothold that you plan to expand on, or is this just something maybe that came along with the Anadarko assets and you're happy to get them? And maybe, are you able to add more Permian at these prices, or is there a higher bar out there? Thanks.
No, I think it's something that we've had our eyes on in terms of the Permian for a while. It just has been so expensive to try to find a foothold, and this gives us a foothold that we can kind of expand off of. I would say we'll probably look at smaller positions, bolt-ons, those types of things along the way to kind of grow that position there in the Permian. We like it. It's similar to the Cherokee Play that we were talking about. There's opportunities to JV and participate in that area also, but this gives us two great plays to look forward to in the future as far as it relates to organic growth and to marginalize those decline rates over time, and so we're pretty excited about it. We think we can grow it through smaller bolt-on acquisitions.
Never throw out the larger ones if they come available, but we think this is a great foothold for us to start with.
And, Bert, I'll add, definitely an opportunity to implement our consolidation model that we've been fortunate and successful in Appalachia and now in our central region. But also, the acreage position that we are taking there in the Permian does have some very attractive development positions. So not only will we be looking for other opportunities to build scale, but we'll be looking for opportunities to develop the acreage position there with other partners. So just like we have in the Western Anadarko Basin from a JV perspective, we believe there'll be a very good opportunity there in the Permian.
Great update. Thanks, guys.
Thank you, Bert.
Thank you. Next question is coming from Tim Rezvan from KeyBank Capital Markets. Your line is now live.
Good morning, folks, and thank you for taking my questions. I'd like to start on the synergy topic. You mentioned the word several times in the presentation, but we didn't get any numbers behind that. So obviously, cost of debt capital and G&A are sort of the obvious options, but can you give any parameters on what you think is out there in terms of numbers in 2025 and beyond?
Hey, Tim. Good morning. Thanks for your question. We do believe that the synergy opportunity is significant. We haven't posted what those numbers are at this point. We'll be working through that with our integration efforts. But we do see two areas that are somewhat common sense. With the expanded footprint that we talked about in the Western Anadarko Basin, we see opportunities for real expense synergies, whether it be from suppliers or just operational-type expenses there, consolidation of assets, and things like that. We believe that's a real opportunity. And then clearly, when you're merging two corporate entities together, there's the traditional type of back-office-type synergies that we'll do.
We did highlight the fact that we've got a very scalable platform that we built up over the last seven, eight years, and we think that that's going to bode well for us in the ability to extract synergies from those types of areas.
Okay. Okay. I guess we'll stay tuned on that front. And then I wanted to ask on the capital structure, the debt you're assuming. I'm guessing that's all sort of RBL borrowings. And is that sort of the goal, to kind of pay that down? And how do you think about the type of debt you want, given that Maverick has sort of a similar mature asset portfolio? Just trying to understand the capital structure thoughts going forward. Thank you.
Yeah. Yeah, Tim, this is Rusty. What I was saying, I'll let Brad finish this up, but an attractive element of this deal was the fact that their Oklahoma asset had an ABS structure already attached to it. And so we were able to assume that an amortizing structure similar and identical to the ones that we already have in our portfolio. And this was just an add-on. The RBL element of this is much smaller than the ABS portion of it. So yes, those ABS notes are the ones that we really see the heavy amortization that reduces the debt over time. Obviously, this RBL piece was smaller in this acquisition, but it's still part of it.
Yeah. So about 70% of the assumed debt, Bert, is in an Oklahoma ABS. We also have our Oklahoma assets in an ABS, so we believe that there will be a future opportunity to extract some liquidity and bring those together. I'll also add that we did highlight this in our release that we did have great support from our bank group. We have a $1.5 billion credit facility with a $900 million borrowing base that's going to help just with some of the liquidity needs out of the gate here. So we appreciate the bank's support. They recognize the quality of the assets, the ability for us to integrate those. So that's the current mix. It's about 70/30 ABS to RBL debt.
Okay. That's helpful context. If I could sneak one last one in. You've been talking about potentially monetizing Oklahoma acreage for quite a while. The amounts you've reported have been small to date. Does this merger in Oklahoma kind of accelerate plans on that? Do you still want to be optimistic, or are you going to potentially formalize an asset sale plan? Just curious what your thoughts are on that. Thank you.
I think it's kind of twofold. I think we'll continue to be opportunistic in the acreage positions where we don't have size and scale to be effective on our own. And so there's other parties that would have that ability, and they value that acreage more than we would at that time because, obviously, we don't have the ability to put together big enough units to drill. However, the acreage position in the Cherokee that we discussed and the joint venture operator that we'll be combined with there, that would not be on the table for us. I think we see that as a big opportunity for us moving forward with very economic wells being drilled. And so we want to participate alongside of them and grow that over time.
Yeah. And Tim, I'll just add that we highlighted the fact that we have 1.2 million acres in the Western Anadarko Basin, primarily in the state of Oklahoma. And Oklahoma is a great state to operate in. There's a lot of activity going on there, even within the JV that we're stepping into that Maverick had developed. So with a 1.2 million-acre position, that just provides us with a lot of optionality. And so we're very excited about the deals and opportunities we'll have with that position.
Thank you.
Thank you, Tim.
Thank you. Next question is coming from Simon Scholes from First Berlin. Your line is now live.
Yes. Hello. Thanks very much for taking my questions. First of all, I was wondering how much of Maverick's current production is hedged and if you could give us some indication of what level it's hedged at? And secondly, I was wondering what the length of the EIG lockup is and whether the other Maverick shareholders are subject to the same lockup?
Yeah, so on the hedging question, what I would tell you is there's an ABS on a large percentage of the production. And so as you guys know, most of those ABS, because we've discussed this in prior, there's a high percentage of production that's hedged for a longer tail period, typically five to seven years, depending on the way it is set up. But most, seven years, so definitely that piece of it is already hedged. And then on the assets that are not in the ABS, there are still hedges on that. They have hedges on that production also, but it's not as long a period. It's like a year or two years out. The beauty of it is that you've got this, as we've talked about over and over, the Cherokee JV. Well, that production is unhedged.
And so there's some ability to leg into some additional prices moving forward. But the majority of the PDP, at least in the next one to two years, is pretty highly hedged at a decent rate. And of course, the ABSes are completely hedged, similar to the ones that we do. On the lockup, it's just the standard provision that we have for all shareholders when it comes to these types of transactions. And I think we're in a good position to have EIG participate alongside of us for the long haul and create shareholder value. Now, this is an investment for them, and they see it as such. We've had great conversations about the future of the company, and I believe they're going to be very good long-term shareholders.
Okay, and are the Maverick shareholders who hold 10% also subject to a lockup?
Same one.
I mean, I think you've got the other Maverick shareholders will have 10% in the combined company.
Yeah. No, I'm saying that they're under the same lockup, yes.
Okay. Got it. Thanks very much.
Thank you. Next question today is coming from Samuel Hutt from Peel Hunt line is now live.
Hi there. Thanks for taking my questions. The first one is around the undeveloped acreage. I think somebody else mentioned around Oklahoma. But in terms of the Permian Basin, the acquisition there, how do we think about potentially monetizing some of the development assets there? And how does the price compare to Oklahoma with $1,100 per acre? And the second question is around the density synergies. I mean, the company has been very successful historically in terms of driving revenues and free cash flow through synergy gains. How should we think about this acquisition within that framework and in terms of driving down costs relative from Maverick to Diversified?
Yeah. Let me start with the Permian. I think we would treat the Permian the same way with any acreage position we have. And we have a lot of acreage. It's where we have the ability to have scale or be able to put together blocks of acreage to drill. We would look at drilling ventures and partnerships there. Where we don't, that's where we typically monetize. And typically, that's in good positions or in good places where other operators are more active. And I think Maverick has done that to some degree over the last several months in terms of being able to monetize some of that acreage themselves, where they didn't have the scale and size to do a drilling program on their own. So I think that that has continued to be the case here.
I will say a lot of these Permian acreage positions are at a much higher valuation than what we've seen in other places, and I mean, a lot in some cases, so a lot of value there. So we'll lean in with our partners and look at the acreage positions and determine where it makes sense to keep and where it makes sense not to. As it relates to the synergies, and Brad, you can add anything to this, but as we've said, these are two large companies coming together with common operating areas, and that always comes with what we believe to be a lot of high synergy opportunities. And that just comes with operating pipelines and compression and water hauling and all these things where you can leverage better contracts and scale and size to drive down costs. It's an exciting part of what this transaction represents.
So we look forward to it, and we know that there's a lot of shareholder value that can be created through that.
That's great. Thank you.
Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to Rusty for any further closing comments.
Yes. Thank you all for joining us today. As always, if you have further questions, Doug Kris, our investor in charge of our investor relations area, will be available, and we look forward to executing on this transaction, closing it, and moving forward. Thank you all for your time today.