What Diversified Energy (DEC) Said on Its Q3 Earnings Call

Key Points

• Q3 results: Diversified Energy reported $256 million in adjusted EBITDA and $153 million in adjusted free cash flow, with production averaging approximately 1.2 billion cubic feet equivalent per day. It reiterated its 2026 outlook of about $1 billion in adjusted EBITDA and $440 million in adjusted free cash flow.
• Birch acquisition: Expected to close by year-end, the deal would add about 68,000 barrels of oil equivalent per day and establish an anchor position in the Permian. Diversified estimates Birch could increase pro forma production by 35%, EBITDA by more than 55%, and more than double free cash flow.
• Balance sheet and shareholder returns: The company repaid approximately $313 million of debt principal in the first nine months and had $506 million in quarter-end liquidity; its credit facility was later expanded to $1 billion. It returned about $157 million to shareholders and said it had hedged 2027 production at approximately $4.40 per thousand cubic feet equivalent.

Diversified Energy NYSE: DEC reported $256 million in adjusted EBITDA and $153 million in adjusted free cash flow for the third quarter of 2026, while reiterating its full-year outlook ahead of the expected closing of its Birch Resources acquisition.

The company expects the Birch deal, announced in September, to close before the end of the fourth quarter. Chairman and CEO Rusty Hutson said the acquisition would establish an anchor position in the Permian Basin and substantially increase the company’s production and cash flow.

Third-quarter production averaged approximately 1.2 billion cubic feet equivalent per day, President and CFO Brad Gray said on the Nov. 5 earnings call. Commodity revenue totaled $470 million, or approximately $4.29 per thousand cubic feet equivalent, while the adjusted EBITDA margin was 56%.

Diversified also generated approximately $149 million in proceeds during the first nine months of 2026 from its portfolio optimization program, which monetizes non-core acreage and surface assets, Gray said.

Birch Deal Would Expand Permian Presence

Hutson said Birch brings approximately 68,000 barrels of oil equivalent per day of production from 500 gross operated wells, along with production facilities, gathering lines and water disposal infrastructure. The assets are approximately 70% liquids, giving Diversified a larger oil-weighted contribution to its gas-heavy portfolio.

The company expects Birch to contribute approximately $548 million in EBITDA and $455 million in free cash flow over the next 12 months. On a pro forma basis, Hutson estimated the acquisition would increase Diversified’s production by 35% and EBITDA by more than 55%, while more than doubling free cash flow.

Diversified expects to own 100% of Birch’s producing assets, along with undeveloped acreage and infrastructure. Hutson said asset-backed securities financing facilitated by Carlyle would cover the producing assets.

During the question-and-answer session, Executive Vice President and COO Rick Gideon said the projected Birch free cash flow is based on existing producing wells. The forecast includes capital for workovers and maintenance, but no additional drilling at this point, he said.

Hutson said the acquisition market remained “relatively robust,” though opportunities to buy natural gas assets appeared fewer than those on the oil side. He said Diversified would remain selective after Birch and evaluate potential transactions individually.

Guidance Reaffirmed as Debt Falls

Gray reiterated 2026 guidance for approximately $1 billion in adjusted EBITDA and $440 million in adjusted free cash flow. The outlook calls for average production of approximately 1.2 billion cubic feet equivalent per day and capital spending of $225 million to $255 million.

The guidance includes the closed Sheridan and Camino acquisitions, the Barnett divestment and spending on the company’s operated development program. It excludes Birch, which Gray said could provide upside to the outlook.

Diversified repaid approximately $313 million of debt principal through the first three quarters, representing more than 11% of its outstanding debt, according to Gray. It had $506 million in liquidity at quarter-end. After the quarter, the company’s credit facility was increased to $1 billion from $900 million; that increase was not included in the reported liquidity figure.

Hutson said the company returned approximately $157 million to shareholders through dividends and share repurchases during the first nine months of 2026. He also said Diversified had hedged 2027 production at approximately $4.40 per thousand cubic feet equivalent, compared with a natural gas strip of approximately $3.45.

Oklahoma Drilling and Operating Efficiencies

Gideon said Diversified had drilled four wells in the first phase of its Oklahoma operated development program, which comprises approximately 20 gross wells, or 17 net wells. The phase is intended to run through December 2027.

The first wells primarily target the Meramec formation, Gideon said. Completion work had begun on the first pad, and construction of production facilities on a second pad was nearly complete. He said the company would provide more detail on the program’s production contribution after it had established a production profile.

Gideon also outlined cost and production improvements under Diversified’s asset management program. In Oklahoma, 263 workover jobs restored approximately 6,700 barrels of oil equivalent per day, with an average payback of less than 4.5 months. The company also reduced support costs on acquired assets by using its existing operating teams, he said.

For Birch, Gideon said the company would examine major spending areas, including compression, water hauling and chemicals. He described service costs as broadly stable, though fuel was the biggest cost change the company had seen in 2026 and heading into 2027.

About Diversified Energy (NYSE:DEC)

Diversified Energy Company plc is an independent energy company focused on acquiring, operating and managing mature onshore oil and natural gas assets in the United States. Its portfolio includes producing wells, gathering systems and related infrastructure, with an emphasis on extending the productive life of existing assets through operational improvements and disciplined asset management.

The company's operations are concentrated in several U.S. regions, including the Appalachian, Central and Rocky Mountain areas.

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