Diversified Energy reports rise in debt

An American gas and oil producer that is the most heavily bet against stock in London has reported another rise in its debt levels, as it attempts to revive investor confidence.
Diversified Energy has said that net debt had increased to $1.6 billion at the end of September, up from $1.2 billion at the end of last year, after the company spent $585 million in buying up old gas wells since the start of this year.
The increase in debt equates to 2.9 times adjusted earnings, an increase from 2.3 times and above its own target range of between 2 and 2.5.
Diversified was founded by Rusty Hutson Jr, its chief executive, in 2001, who bought an old gas well in his native state of West Virginia. The company has since amassed more than 70,000 gas wells, predominantly in the southern and Appalachian regions, having spent about $2.6 billion since 2017.
Investors have bet heavily against the stock since the start of this year, which has made it the most shorted in London. In March, the company slashed its dividend in an attempt to alleviate pressure on the balance sheet.
Diversified repays debt steadily over a period of ten years or so, rather than being subject to lumpy debt maturities, although a constant drip-feed of cash is needed. The company has retired $154 million in debt since the start of this year through amortisation payments.
The company has also faced scrutiny from the US Congress over its environmental liabilities, namely concerns that it may be “vastly underestimating well clean-up costs” once the gas production is spent. In response to the letter sent by four members of the House of Representatives at the end of last year, the company has said it has clear processes for tracking any methane leakages and has answered the questions addressed in the letter.
It is on track to meet or exceed a target to retire 200 of its wells this year, the company said.
Average production rose to 829 million cubic feet equivalent of gas a day during the third quarter, up from 804 million a year earlier.
The average realised price fell to $3.23 per thousand cubic feet of natural gas equivalent (mcfe), down from $3.46 per mcfe over the same period last year. The company has hedged 85 per cent of its production for next year at $3.30 per Mcfe and 75 per cent of 2026 production at $3.24 per mcfe.
The shares, which have fallen 18 per cent since the start of this year, closed marginally lower at 980p in London.