Greetings. Welcome to the Diversified Energy 2023 Interim Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Douglas Kris, Vice President of Investor Relations. Thank you. You may begin.
Thank you, Daryl, and good afternoon to our stakeholders in the U.K., and welcome to the Diversified Energy 2023 Interim Results Conference Call. Today, we'll discuss our recent financial and operational highlights and our focus on delivering reliable results, executing on strategic objectives, and creating value through stewardship. We will begin our remarks from our President and CEO, Rusty Hutson. Also joining us today are Brad Gray, our Executive Vice President and Chief Operating Officer, and Wren Smith, our Senior Manager of Investor Relations. Before we get started, I will remind everyone that the remarks we make today reflect the operational outlook as of today's date, September 1, 2023. We have published our interim report and our earnings presentation, which we will review today on the investor relations section of our website at div.energy. Our remarks today also include certain non-GAAP financial measures.
You can find reconciliations of these in our earnings release and our corporate presentation, which are all both available online. I'll now turn the call over to Rusty.
Thank you, Doug, and good morning or good afternoon, depending on where you're at today, as you call in for our results presentation. Today, I'm gonna walk through several slides, and we're really gonna focus, you know, touch on the results a little bit on the first half, but also discuss our corporate strategy and how Diversified is well-positioned for long-term success. And I really want to spend as much time as possible on that because I think it's important for our shareholders as we move forward here to hear from us as it relates to that. So we'll start through the presentation. I'll start here on slide three. Really, you know, our long-term strategy continues to drive reliable and measurable results. You can see some of the highlights here from the first half.
A couple that I'll point out, obviously, the production, 863 MMcf equivalency per day, about 144,000 barrels of oil equivalent, as I believe a record, for our overall production. Another important metric here that I was going to point out is our 50% cash margin. That continues to be very consistent over the years, and even with prices coming down, with the $2-$3 natural gas price, we've seen our margins continue to improve and stay relatively robust. These are the outcomes, both the production and the margins, our outcomes, the hard work of our 1,600+ strong team at DEC.
They're incredible employees, hardworking, and for all of our employees that are listening in today, and I know there are several, I want to recognize the outstanding performance that you continue to achieve for Diversified. Also on this slide, it's important to note that we have consistently delivered a return of capital to shareholders since the IPO back in 2017, having returned over $760 million of the $1.2 billion that we've raised back to our shareholders over the last six years. Flipping to slide four.
While the first half of 2023 saw natural gas prices in the $2-$3 range for the majority of the period, we continued to deliver reliable financial results and continued to improve not only on our costs, but also on our sustainability goals, which you can see here on this slide. These financial and operational results were in line with the market expectations. And we'll talk a little more about costs and as we move through the presentation. But it's important to note that these production numbers, which again, were records for Diversified, that those production metrics reflect our strategic decision to forgo those completions on the four drilled uncompleted wells during this pricing environment that we had from the Tanos II acquisition back in February.
So we made a decision with gas prices between $2 and $3 to hold and not complete those wells till later in the year or first part of 2024. Flipping to slide five. Again, talking about the corporate strategy that we employ, we really have differentiated ourselves from other, more traditional E&P companies. Obviously, they're more development focused, where we're more operational focused. But our business model meaningfully reduces four of the typical industry risk factors. Obviously, commodity price risk, we continue to have a dynamic hedging program and, you know, trying to realize prices that deliver consistent cash margins.
We, typical other industry risks, development, operational risks, we obviously don't have a, drill, drilling, program in place, so that, that, risk of, you know, drilling risk that comes along with that. Financing risk, you know, we, we have, traditional RBL. We also have our, amortizing notes. We've been able to be creative from that perspective, and, and find ways to delever but also to, grow the business. And then environmental risk. We've spent a lot of time and attention, developing a stewardship model that reduces emissions, and improves already, improving already producing long-life assets. And we're one of the best in class in sustainability reporting, as evidenced again, by our gold standard classification. Moving to slide six.
For six years, we have demonstrated a proven ability to accomplish what we say we will do. That's always been very important to me as I've talked to our investors over the last six and a half years, that, look, we're, we're going to, we're going to tell you what we're gonna do, and we're gonna go out and, and achieve it. We've stayed true to our corporate strategy of, you know, acquiring assets and operating assets, driving efficiencies in the, in those asset bases, enhancing production, maintaining a strong balance sheet, and then also providing returns to our shareholders. That has been consistent since day one, and we'll continue to do that. Our credibility has earned the trust of our shareholders, which is represented by long-term holdings and engagement of the majority of our shareholders.
This means a lot to me, and I would like to thank all of them for their support personally for their time and their efforts and being part of what we're doing here at Diversified. I'm very appreciative. Turning over to slide seven. On the following few slides, I'm going to provide a little more granularity around a couple of our key aspects of our corporate strategy. On page seven, this is really the leverage profile. We've been very consistent since the IPO. We've always maintained that we need a 2x-2.5x levered balance sheet to maximize returns for our shareholders.
And that's you can see here on this slide as the commodity price cycles, the ups and downs, the ebbs and flows of that, and, and how we compare to our to our peers in the industry. Most of our peers are, and their average leverage is driven purely off the price of natural gas. You can see ours has just maintained a very consistent profile through that whole period. You know, their, theirs will swing more w with the commodity prices. Ours stays more flat. We have a very low CapEx and reliable cash flow, so our business model can maintain a higher leverage profile similar to the industrial manufacturing or the special chem, specialty chemical sector, both of which, both of which it would have similar profiles to us. Moving on to slide eight.
Again, staying within our corporate strategy, talk about hedging, and how we mitigate that pricing, volatility, and risk. You can see here as we've, through the first half of the year, for the last 12 months, I guess, we've been about 85% hedged. You can see the hedge price that or the realized price that we're seeing. And you can see kind of how we relate to all the peers in the industry. And most of our peers are around 50%, or even lower than that. But that's not the way we operate our business, and we like to have a very systematic approach to hedging. We remain better positioned than our natural gas peers, who on average are only 50% hedged this year.
We are approximately 16% higher than strip, and above our industry peers as it relates to realized pricing. And that active risk management approach allows us better management of the commodity price cycles, which we have been able to weather over the last four to five years. Moving over to slide nine. Excuse me. On our earnings call, we discussed our focus on unlocking value for non-core, undeveloped acreage. It's been a very, you know, something that we've talked about for a while. This year, we're starting to lean into that, and starting to find value for the undeveloped acreage, which we didn't pay for in most of these acquisitions. So we've always been very clear, we don't pay for undeveloped, but we believe that that has value, option value, that we'll be able to recognize at some point in the future.
You can see here, halfway through 2023, we've started to deliver on that objective. Year to date, we've executed over $60 million in asset undeveloped sales. Our assets or asset dispositions. It's worth noting that we did not pay anything for it, and we ascribed no value to the purchase prices on these assets that we sold. We continue to work with third parties on other meaningful opportunities. The one piece that we haven't done yet is these drill bit partnerships, which we've been talking about. And we believe that those opportunities will present themselves as the natural gas environment, natural gas price environment improves later this year and in early next year. On slide 10, talking about smarter asset management. This is an area of our business that just, I believe, gets overlooked.
But we spend a lot of time in the field assessing projects, looking for ways to create value that other people that own these assets probably would not do. It's at the core of our business, efficiency gain, and optimizing the technical and the commercial, operational, and environmental aspects of our acquired assets through these programs of smarter asset management. At the end of the day, you buy good assets, you operate them better; it's a big win for us. And so we continue to look at ways, and you can see some of the examples of some of the things we've done over the last six months to garner value out of these assets. And so we continue to put a lot of time and attention on this.
Investing in our core business remains a top priority, but it's always dictated by the economics of the projects. Our operational folks continue to look at projects, they'll size it up to the economics, and they'll push the ones with the highest economics to the front. We feel like that this continues to be very instrumental in being able to reduce our decline rates over time, enhance production, drive more economics in the front end of the curve, and help us to better increase our reserve values. So this is a very, very big part of our business. Moving over to slide 11, talk a little bit about the sustainability practices of the business.
You know, we've spent a lot of time and resources improving our sustainability reporting, our sustainability and emissions reductions in the field. You can see some of the fruits of that. This model continues to not only be good for Diversified from the sustainability aspect, but it's also delivering results and economics to us as we reduce emissions and allow more of the production to be sold from the wellhead. We have engaged, experienced, diverse, and independent board of directors that is committed to strong sustainability practices, including a track record of improvement in our methane intensity, which is very, very important as we move forward in time.
You can see that we've the IRA threshold, which is the new, or the new, bill that was introduced last August, that threshold is point two methane intensity, and we're already down to that level, and under the, the amounts that need to be to keep from having any type of, fees associated with our, methane. So we're in a very good place. We've also received a double A, I believe. Is it double A? Yeah, double A from MSCI, which is one away from the best you can be, I believe, and puts us in the top threshold of our peers as it relates to the ESG scores. And then we obviously have the GMP OGMP Gold Standard classification again this year.
Flipping over to page 12. Our discipline strategy once again delivered reliable results. We put that earnings release out this morning. Total revenues per unit were almost 25% higher than the natural gas pricing during this period, including the effects of our active hedging program. This revenue generation also reflects on the higher, higher liquids exposure in the Central Region, and the uptick in pricing that we've seen over the last six months related to some of those liquids values. While seeing a sequential improvement in per unit costs despite the continued inflationary environment.
And what I really like about this slide and what really, as I sit here as CEO today, obviously, in the second half of 2022, we saw an uptick in, especially in our variable costs, related to some of the higher pricing, but also some of the, the inflationary aspects of just where we were in 2022 as a, as a country and really the globe. But we've seen those levels come back down to almost flat with the first half of 2022 as we've finished up the first half of 2023, which is a very, very good sign that the inflationary aspects of the business are starting to come back down, and obviously, the variable cost aspect has come back down with it.
So very good quarter, or very good first half of the year. And we're very pleased with where the costs have come back down to as a result of the inflation coming down. And then finally, we'll just move over to slide 13. You know, we've started to say this here internally, but we're gonna message it out: right company, right time. We believe that's the case. We believe that Diversified's future is bright. We're providing a solution for energy companies that are development-focused. We're providing another look for investors, somebody on the other end of the spectrum that's not development-focused.
We also are, you know, helping our, our states in which we operate with our Next LVL well program, plugging program to manage the state's orphan well programs with the federal money that they've received. So we're helping them to. We're, we're 40% of the capacity in Appalachia, so we're helping them to manage their orphan well programs with the money that they're getting. We're providing a solution for investors looking for a compelling small cap opportunity with a unique business model. Our business model is very unique in this sector, even in the U.S. And so, we, we believe that that will continue to sell to investors looking for something different other than the traditional E&P and development focused companies.
And as a natural consolidator of long-lived natural gas assets, we can help to meet the demand of the energy transition by efficiently producing natural gas with an environmentally focused stewardship approach, providing less dependence on new wells being drilled and less reliance on foreign sources of energy. Our business model, while unique, I believe, is going to represent a big opportunity, not only to our current investors in London, but at the U.S. investors over time, who will see this as being a model, that is needed, in the U.S. markets, to help to continue to keep mature producing assets in production and keeping our energy needs met, because we just can't do without the mature producing assets. It's too big of a part of our energy supply.
So with that, I'm going to stop, and I will open it up for some questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for your question. Our first questions come from the line of David Round with Stifel. Please proceed with your questions.
Thanks and morning, guys. I'm going to start with the obvious question around M&A, please, and just ask for your thoughts on the outlook there. I mean, should we be expecting to see further deals this year or how is that panning out? Actually, I also wanted to ask about the asset retirement business, please, and particularly the third-party retirement part. Interested also in how that business is evolving versus your expectations and where you think you could get to. I mean, if I look at your revenue breakdown, it looks like that could soon overtake the midstream business. Am I right in thinking that, or is there something else in the other income line?
Yeah, so I'll let me address the acquisition question first. What we're seeing right now in the acquisition market, there's a lot of deals. I think that what I am seeing is that there's still a lot of some of the sellers that are still not understanding, to some degree, that there is a cost of capital change that has occurred for all companies. Debt costs are higher, and so, you know, there needs to be some adjustment in the seller's expectations. We believe some of our best opportunities, though, are out there that are coming. We'd like to get a little, you know, a little more liquid exposure, especially on the LNG side. We think that. Or NGL side, I'm sorry.
We think that there's some opportunities to beef that up a little bit further, especially in that Central Region. The acquisition market will come to us at some point. We're being very patient. I don't want to overpay. I don't wanna pay. What I'm seeing in our market over here is we're seeing some consolidation with some of the publics, which I think are needed, especially in the Permian Basin. But what we don't want to do, and what's very, very important, is overpay for anything. And so it's more important for me to stay focused on good deals at the right value, but I do believe that those deals are coming, and we'll have an opportunity to take advantage of them here in the near term.
It's just we want to make sure we're paying the right price for them. Outside of that, on the asset retirement business, that continues to be very, very important for us, for a few reasons, obviously. Number one, to control the cost and make sure that we're able to retire our own wells, in a very efficient manner. As it relates to the rest of the business, Brad can kind of bring up to speed on some of the other stuff that you asked about.
Yeah. Good morning, David. As it relates to expectation on the business, the results of our business thus far here in 2023 are pretty much right in line with our expectation. You know, we've plugged a lot of wells. We'll plug probably almost an equal amount or maybe slightly less than that for the remainder of the year. And the revenue is picking up with the work that we're doing for the Appalachian States, specifically and for the state of West Virginia, where we won several large contracts. So that is picking up.
You know, what we're trying to do is really offset the cost of our plugging up the plugging of the wells that we own, with the additional revenue and gross profit that we're earning off of plugging for third parties. So it's you know, it is in line with our expectations. This business is based upon having good equipment and good people. And so if we want to continue to grow this business, it will require more of both of those, which there's opportunity to do that. The business is really evolving here in the United States. You know, for the last 30, 40 years, plugging wells has been an afterthought or been looked at as an area that has not been a focus.
It clearly has come into focus, and we're in a great position to benefit from that. Not only do we think that we could, you know, add some additional capacity, but also there's a lot of work going on here in the United States related to innovation and new ways to plug wells more efficiently. With those efficiencies, whether it's new materials or new processes or a combination thereof, that's gonna allow the country and us to be able to plug more wells, lower cost, just across the board. So, we're in line with what we thought, and there's still opportunity there for us.
Great. Very clear. Thank you.
Thank you, David.
Thank you. Our next questions come from the line of Mark Wilson with Jefferies. Please proceed with your questions.
Hi, good morning, gents. Thank you for the questions. I'd like to ask about, given what you said there, Rusty, regarding patience needed on deals, even though they're out there, and given your relatively robust realized price year on year, yours is going up, Henry Hub is going down. How do you see the profile of the dividend moving forward? And can I also ask regarding the share buyback that you authorized in the middle of the year, do you see your own shares as being something you could buy in lieu of external M&A? Thanks.
Yeah. No, great question, Mark, and I appreciate it. Yeah, as it relates to, you know, the acquisition market, we've always said, look, the growth of this business is through acquisitions, okay? And when you know, back in 2021, I believe it was, we did four acquisitions. Last year, we essentially did one, for the most part. And, you know, you don't want to be in a position. I would rather be very focused or very strategic and be careful about what we're paying than I would to overpay just to do a deal. And so we've been very focused on that.
Obviously, and I've said this a lot, you know, if you don't grow the business over time, you know, your dividend will be adjusted to reflect no growth in the business over a period of time. But we, you know, we'll manage through that, and we'll take a look and decide, you know, as time goes by. We're not there. I mean, obviously, we've, you know, just released our second quarter dividend this morning also. So, but I will tell you, we will find growth. It's coming. We've looked at several deals. We've got a lot of them out there that are just kind of waiting for. We're waiting for them to make a decision on what they want to do.
Because right now, Mark, we're not really competing that much with other companies as much. You're really competing, at the end of the day, with the hold case of these companies. You know, if they hold it, they can, in their minds anyway, they can make X. If they sell it, they can make X, and so that's kind of where we're at on that. And the natural gas fields are a little bit harder because, you know, as the strip prices come down, the PV values, you know, a PV-17, for example, or PV-18 value on just PDP, could represent a 5x multiple in the next 12 months because the strip price is so low. And so all that's just kind of a balancing act, but we'll find some growth here in the near term.
I, you know, I'm very confident that we'll execute on one or two here in the near term. What was the second question related to? I'm sorry, Mark, what was the other question again?
No, I understand that. I hear from that, you know, as dividend can grow, as you grow, and deals are needed to grow.
Got you.
The second question would be just, you know, are you expecting to execute your share buyback?
Oh, yes, that's. I'm sorry. I lost track of that one. You know, we've got a, the share buyback is there, and we can obviously implement it. We've been, you know, obviously in a, in a kind of a restricted period as we were moving in toward earnings, so couldn't do anything as it relates to that. We know kind of what the price of the shares that we want to, if it gets to a certain level, that's where we'll be taking advantage of it. But we, you know, unfortunately, in the markets over there, we can only do so much volume on a daily basis, and it represents about 10% of the average three-day volume.
That's about 100-150,000 shares a day at max that we could even acquire. So it's, unless you go out and do a tender offer or something like that, you're really in a mode of very little shares that you can buy back on a daily basis because our liquidity has been so low in the trading volume. So it's definitely on the table. We have a price that we will do it. And so, yes, it's out there, and we will do it when the price is right.
Understood. No, that, that's very clear. I just wanted to cover up on a couple of other things. It, you know, it was interesting talking about deferring some operations because of the low gas price, and I just want to put it to you, you know, because of your hedging and therefore your relative strength in lower gas price markets, you know, why you would have to defer? Arguably, you can move forward as others don't. That's the first point. And then the second is, Rusty, could you just let us know, where do we stand on the, haven't heard of it for a long time, the, the Oaktree co-investment, setup? Thank you.
Yeah. Yeah, well, on the four drilled and completed wells, keep in mind, our hedge portfolio is related to existing production. You can't hedge production you don't have, so that production would, that you bring online would all be unhedged. And, you know, as we were looking between February and today, when you factor in the Henry Hub price and the basis differentials, which have been a little bit wider in that Central Region over that period of time than typical, just because of the high storage levels that we saw coming out of the winter last year, that's just not a price we would want to take good flush gas off of new wells and drill into. It's just not a good return on our investment.
So now, what I will say, as we get into the end of the year and prices have started to pick back up, that's an opportunity for us to complete those wells and be able to realize that as we go into 2024. So that's how I would look at it. I would say we'll do something with those drilled and completed wells right toward the end of the year and have that production kind of producing into the first part of next year. And then the second question was what? Potential question.
Just give us an update on the Oaktree co-investment.
Oh, yeah, Oaktree. Sorry. Oaktree, yeah, so their—believe it or not, their agreement expires on October the first. So our three-year agreement with them is coming to an end on October the first. Oaktree has spent probably the last 12 months exiting a significant amount of their oil and gas assets here in the U.S. Some of them, they've been in for a good while. They're prepared to stay in this one and just ride it out. I think there could be an opportunity there, Mark, for us to buy that asset back from them, and as we exit this agreement, because I don't think they're really interested in acquiring new assets as we sit here today.
So anyway, I think that's an opportunity for us, but it, you know, the, the actual agreement with them to co-invest expires on October first, and then they just retain the assets that they've, they've invested in up to this point. But I see it as an opportunity for us to look at other partnerships, as we move forward. So, it's been a great partnership. Oaktree has been a great partner. We've, we've done a. I think they've done about $500 million of total investment with us and, and helped us to grow this business pretty substantially over the last couple of years. But, that's coming to an end in terms of the agreement, and we'll, we'll look to, other partners or other, ideas to, help fund the growth going forward.
But it could be an opportunity for us, as I have stated now for three years, it's kind of an asset that's kind of on the shelf, just waiting for us to acquire it at some point in the future.
Got it. Very clear, and also very clear on the hedging point on new production. Thank you, Rusty. I'll hand it over.
Thank you, Mark.
Thank you. Our next questions come from the line of Matt Cooper with Peel Hunt. Please proceed with your questions.
Thank you, and congratulations on a strong set of results. You mentioned on slide nine that you've executed some JV agreements with regards to undeveloped acreage. So if you're able to give any more details on this, and also on the likely shape of potential DrillC o partnerships?
Yeah, no, the sales that we've done have just been purely sales of undeveloped acreage to other companies. So no JV there at all. It was pretty much just us selling undeveloped acreage where it was in areas that we felt was, even for us, as future value, wouldn't be areas that we would look at to take advantage of ourselves. Now we have, as you guys know, we did in the acquisition of Tanos II back in February. As part of that deal, we retained the Tanos II team on a retainer as a consultant to do a couple of things.
Number one, to take all of our East Texas, Louisiana, acreage, and do an evaluation of it in terms of undeveloped opportunity and drilling opportunities within that area, but also for them to, as they had some acreage that we acquired, and for them to, to help us to potentially drill some of that in the future. And so they're there. It's a great team. They're probably one of the best Cotton Valley drillers in the region. They're with us as consultants, and they are evaluating all of our acreage. And I think as we get late in this year and start into next year, with prices getting better, that's an opportunity for us to take advantage of.
Matt, let me just add one point to that, just on the joint ventures, specifically. This year, to Rusty's point, this year, we haven't executed any of those, but in the past, if you recall, we made the EdgeMarc acquisition in Appalachia, and we basically had an agreement where there was a number of drilled and uncompleted wells there. We partnered with another company, completed those wells. We actually operate the acreage and where those wells were, so that there was a partnership there that we struck with another entity to kind of complete those wells. They pay for the cost, and we just get the operatorship of that at the end of the day. So that's kind of an example of something that we've done in the past.
We've done it at other times, too, with, with the folks at Comstock, where we've kinda flipped out some acreage to them and had them develop it. So there's, there's, in the past, constructs where we have done that. Just in the calendar year, 2023, we haven't executed any of those yet.
Yeah. Hard to get too many people interested in, you know, drilling very many wells in a $2-$3 gas environment. That's really. And honestly, we wouldn't want to.
Okay, got you. Yeah, that makes sense. And you mentioned Tanos II, your most recent acquisition. I don't know if you can give a bit of an update on the progress here, integrating that into your portfolio and opportunities that you've seen to reduce costs and maximize production there.
Yeah. Hey, Matt, this is Brad. Yeah, so we're fully integrated with the Tanos II, not Tapstone II, the Tanos II assets.
Yeah, Tanos II.
Yeah, we're fully integrated with them, both from a systems perspective, a marketing perspective, an operational perspective as well. So, and we're currently in the process of looking at the scale that we've built in that market, in that East Texas, West Louisiana area, Northwest Louisiana, where we are leveraging pipelines, we're leveraging processing plants, we're leveraging personnel and management. So, you know, what we've done in Appalachia as we've looked to export that same model to the Central Region, that is in full force. So, and we've generally been pleased with the production from those wells. We're building a strong relationship with the Tanos team that we do have under retainer, as Rusty just mentioned.
They're gonna bring some great value to us in that marketplace. It's kind of a not only do they have the technical expertise and the engineering and the development expertise, but we also have a little, I would call it, a mini business development team in that marketplace that's got their ears to the ground and look for opportunities where we can continue to grow scale there. So, you know, at this point, positive results from the Tanos II integration.
Okay. Well, thank you, Brad. And just finally, with regards to U.S. Listing, your latest thoughts there?
Yeah, Matt, we continue to keep our numbers updated. You know, it's interesting, we've been doing a lot of marketing in the U.S., talking to a lot of U.S. investors. The U.S. investors are very supportive and encouraging us to do that. They really believe that it's something that we. Number one, it's going to be highly popular and that the investors here in the US will like. You know, we definitely think that it will help our trading liquidity, which has been extremely low in the markets in London, especially over the last six months. And, you know, honestly, we're keeping the numbers up. We're keeping our SEC filings updated and making sure that we're prepared to go.
The volatility index here, which is really the biggest gauge, I would say, of market availability to get something done, has continued to be below the levels that it needs to be. So it's a very, very ripe market to get something done. I think after Labor Day, there's gonna be some raises in the U.S. in our sector. So we're staying ready, and we believe that that's an opportunity for us that should, you know, that we need to execute on, imminently.
Okay. Thanks very much. I'll pass it over there.
Thank you. Our next question has come from the line of Brendan D'S ouza, with Allenby Capital. Please proceed with your questions.
Morning, guys. Congrats on the solid set of numbers. Just another boring question on M&A. I'm just wondering, are you currently seeing any distressed sellers at the current prolonged, you know, sub-$3 gas price? You know, perhaps companies that are leveraged and need to sell, or is this something you think will start to happen as the year drags on and we get into 2024 and prices stay at these levels?
Yeah, you know, we're seeing fewer of those, and I'll tell you why. There's been several things that have reduced the number of these distressed companies. Number one, gas prices. I've said it's high prices hide a lot of sins. And so what happened last year, people were able to recognize pretty high gas prices and oil prices were able to, you know, some companies did, and some of the ABSs, they've done some things to clean up their balance sheets. And so not a lot of what I would call stress out there, but I do see a lot of private equity sellers in the market right now, trying to probably trying to determine whether they want to sell or not sell, essentially. But, you know, I don't think.
Then the other thing that I believe has reduced the number of those has just been the overall consolidation in the markets over the last 12 months, especially in the Permian. We've seen a significant number of Permian-based consolidators and consolidation M&A. And so, you know, as we sit here today, I would say that there's not a significant number of distressed companies. Now, look, what I think could push people towards this distressed level, or at least push them towards needing to do something, even if they're not distressed, is a reduction in capital availability. There's just not a significant amount of capital available to some of these, especially some of these smaller companies.
If you don't have access to capital markets, if you don't have, you know, robust hedging capabilities, it's gonna get tougher and tougher as you move forward. And so one of the reasons why I've been so adamant on the U.S. markets is to make sure that we have as much capital availability as possible, as we move forward. And so, you know, I think that some of the banks, the number of banks that are participating in RBLs, have come down quite a bit in the last 12 months. And, you know, it's just gonna make it harder for companies to survive, these smaller, private equity-backed companies or even some of the smaller small cap companies, even on the public side.
It's gonna get tougher and tougher to survive with the reduced amount of capital available in the market.
Thanks, Rusty.
Sure thing.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question has come from the line of Simon Scholes, with the First Berlin. Please proceed with your questions.
Yes, hello. Thanks for taking my questions. I've got two. The first is on basis differentials.
My sense is that basis differentials in Appalachia have widened quite significantly over the last couple of years. I was just wondering if you could share your thoughts on how they might develop going forward. And then the second one is just going back to the RO business. I mean, as the previous caller pointed out, I mean, the growth looks pretty impressive. I was just wondering if you could give us any indication of what we should model for this next year. I mean, are you going to add another $15 million, or could it do better than that, or might it slow down next year?
Yeah. Simon, how's the. Thanks for the questions there. On the basis diffs, I'll answer that first. There's been no doubt that we've seen a, an expansion of basis diffs in Appalachia. Obviously, there's been a, it's been a difficult decade, I would call it, in terms of being able to get infrastructure in place, to remove some of the gas that's being produced in these very, very prolific, shale plays, the Marcellus Utica. We've seen the, the battle that took place with the Mountain Valley Pipeline, which I'm sure everybody's fully aware of, that went on for five or six years, and finally had to take Supreme Court, approval to get it to a point where we could, where that could be, finished and completed.
And I spoke with the CEO of Equitrans yesterday or the day before, and he's still feeling very good and comfortable with a year-end completion date for that pipeline. But that's. Two things caused these basis blowouts that we've seen here in the last six months. One being just no winter. The winter last year was very mild, so we had a storage surplus for sure. And then number two is the lack of infrastructure. So what I'm thinking is going to happen is as we go into 2024, is we'll see some contraction in that, in those bases.
I think we'll probably see, you know, ones like Dom South, which is one that we have about 30% of our gas tied to, come down to probably in the -$0.90 range. And then, you know, a couple of the others, like TCO, in that $0.70 range and $0.65 range, somewhere there. And then, you know, I think the thing that people don't realize, and one of the things that we've been pretty successful doing, is we've been able to reroute a significant amount of production to this East Tennessee market, which has been a premium to Dom South in that southwestern Virginia area. And so we've got that going for us also. But I think basis diffs will get a little better next year.
The Mountain Valley Pipeline coming online will help. And but but you know, the biggest problem we have is we've got all this production in the, in the, Northeast that can't make its way to the LNG export facilities on the Gulf Coast, or at least not a major—enough gas to matter. And so that's going to continue to drive a better basis in the Central Region, which is where we've been operating the Cotton Valley assets. That Houston Ship Channel, I believe, is sitting at, like, $0.17 for next year. So it's a, it's you know, it's just a lot of dynamics at play.
We're in desperate need, I believe, in the U.S., of permitting reform, which I think is going to happen at some point, which will help make these pipelines give them an easier path to completion and help us to be able to get infrastructure that's desperately needed here in the U.S. As it relates to the asset retirement, Next LVL Energy, as we look at the future, Brad, you want to give us some comments on that?
Yeah. I'll have comments, Simon. Thanks for your question. So really, from a revenue growth perspective, there's we see three areas that it can make that possible. One is just adding capacity, and I spoke about that earlier. Two, we could raise our prices, which, you know, there we typically in these federal and state bid processes, it is a competitive process, so there's some limitation on that. And the third is the area that we're really interested in, and that is to be able to plug more wells with the same equipment via innovation. And so that's gonna require, you know, it's gonna require us to be engaged with regulators, to be engaged with innovators. And as I mentioned earlier to Matt's question, we're in a position to do that.
So, but absent innovation and regulatory change, the way to grow this business is adding capacity. And so that's possible. I think we can marginally do some of that as we progress here, but we're primarily focused on being able to plug more wells in a shorter period of time, with the same equipment that we have.
Okay. Well, thanks very much. That's very helpful.
Thanks, Simon.
Thank you. Thank you. There are no further questions at this time. I would like to turn the floor back over to Rusty Hutson for any closing remarks.
Yeah, thank you all for attending today. Obviously, Wren and Doug will be available over the next week or so to answer any other questions that you may have, and, and we'll be prepared to answer anything you might have. Thank you very much for attending.
Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.