Diversified Energy Company Aktie

Greetings, and welcome to the Diversified Energy's First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Douglas Kris, Senior Vice President, Investor Relations and Corporate Communications. Thank you. You may begin.

Good morning, and thank you all for joining us today, and welcome to the First Quarter 2026 Results and Camino Acquisition Conference Call. With me today are Diversified's Founder and Chief Executive Officer, Rusty Hutson; and President and Chief Financial Officer, Brad Gray.

Before we get started, I will remind everyone that the remarks on this call reflect the financial and operational outlook as of today, May 7, 2026. Certain statements made on today's call are forward-looking and may be subject to risks and uncertainties related to future events and the future financial performance of the company. Actual results could differ materially from those that are anticipated. The risk factors that may affect results are detailed in the company's public filings with the SEC, including the annual report on Form 10-K for the fiscal year ended December 31, 2025, filed on February 26, 2026.

During this call, we also make reference to certain non-GAAP financial measures. Our disclosures regarding those items are found in our earnings materials 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. For those of you following along with our acquisition and results slide deck, which we posted to our IR website last night, I plan to cover a few slides focusing on the acquisition of assets from Camino Natural Resources that we announced last night and then turn the call over to Brad to discuss highlights from our financial results. After Brad's remarks, I will provide some closing thoughts before opening the call for your questions.

Starting on Slide 4. Before we get into the quarterly results, I want to spend some time on what I believe is a truly defining moment for Diversified Energy, our acquisition with Carlyle of assets from Camino Natural Resources and our continued innovation in financing the acquisition of established energy assets. Let me walk you through the structure because I think it speaks directly to how we think about capital allocation and value creation for our shareholders. In partnership with Carlyle, we are acquiring assets from Camino Natural Resources for $1.175 billion. The financing of the acquisition will consist of ABS debt facilitated by our partners at Carlyle and by cash contributions from both Carlyle and Diversified. A special purpose vehicle or an SPV will be established to jointly own the developed assets as well as issue the ABS notes. The initial ownership percentage in the SPV is 60% Carlyle, 40% Diversified. The acquired assets from Camino include production from PDP wells, of which Diversified will operate as well as undeveloped acreage. Notably, Diversified will own 100% of the undeveloped acreage and related proven undeveloped reserves. Diversified's total consideration paid for this acquisition is anticipated to be approximately $210 million or approximately only 20% of the transaction value.

We plan to utilize existing liquidity to fund our contribution as we do not intend to issue equity for this acquisition. Based on the innovative financing structure with Carlyle owning 60% of the SPV, this acquisition is accounted for as an off-balance sheet transaction receiving equity method accounting treatment, which means the leverage associated with this acquisition stays at the SPV level and is not included in our consolidated balance sheet. Now that I've provided some details on the acquisition structure and financing, let me share a more straightforward explanation.

Our partnership with Carlyle and this innovative financing structure allows us to acquire a $1.2 billion asset with a fraction of the balance sheet impact a traditional acquisition would carry. Importantly, we can access an asset of this size and scale without the need to issue additional equity that could dilute our current shareholders. In terms of reporting, Diversified will receive 40% of the residual cash flow generated by the SPV. In addition, Diversified will receive a fee for the administration of the ABS and operation of the assets. And as I previously stated, Diversified retains full ownership and control of the valuable undeveloped acreage and all undeveloped locations. This upside sits entirely within our company.

With our Carlyle partnership, we also have a future built-in pathway to buy out Carlyle's equity interest as the asset matures and delevers. So not only are we benefiting on day 1, but this structure also sets up a natural future acquisition for us, which is fully consistent with our business model. We expect the transaction to close in quarter three of 2026, subject to customary closing conditions. I want to go a level deeper on what this structure actually delivers for Diversified shareholders because there are multiple value levers in this transaction that I don't want to get lost.

First, 40% of the asset's residual cash flow comes to the Diversified parent. The assets sit at the SPV level, so we receive the cash flow without the leverage. Second, and this is a point I want to reemphasize, 100% of the acreage in all undeveloped inventory stays with Diversified. The optionality and upside of that undeveloped position is entirely ours. Third, Diversified earns a management fee plus a future ownership percentage promote once Carlyle achieves certain return thresholds. That's incremental high-margin cash flow from further -- that further enhances our returns on what is already an attractively priced asset. And fourth, as I mentioned, the Carlyle agreement includes a pathway for Diversified to buy out Carlyle's full interest in a future period. This feature is a built-in future acquisition. We get to operate the asset, integrate it, realize the synergies and then step into full ownership when the timing is right. This deal is exactly the kind of innovative, creative and very shareholder-friendly structure we've been developing our capabilities to execute.

We believe it's a template for how Diversified can access large, high-quality asset packages while minimizing potential shareholder dilution and balance sheet risk.

Turning to Slide 5. Moving to the asset itself. Camino is a transformative contiguous bolt-on to our leading Oklahoma position, and we think the strategic logic here is as clear as any deal we've done.

Camino brings approximately 51,000 net BOE per day of production from approximately 200 net operated wells across roughly 101,000 net acres. And notably, these assets sit directly adjacent to our existing Oklahoma footprint. When you look at the map, you can see this is not a reach into a new basin. This is a density play in the heart of our core Oklahoma operating territory. The production mix is approximately 15% oil, 30% NGLs and 55% gas, which increases our overall liquids weighting and further adds commodity diversification to our portfolio.

From a financial standpoint, Camino carries an estimated next 12 months EBITDA of approximately $397 million with the reserves of approximately 1.5 Tcf equivalent. And we're acquiring this asset at a valuation that we believe is meaningfully below what comparable Oklahoma transactions have commanded. The contiguous nature of these assets is also what makes the integration thesis so compelling. We have line of sight to approximately $7 million in operating synergies and more than $20 million in G&A synergies.

Our track record of integration gives us high confidence in our ability to quickly achieve these numbers. Additionally, through our disciplined underwriting process, we have identified approximately 100 actionable drill-ready inventory locations on the Camino acreage. These locations have been run through our in-house engineering process, which is the same rigorous review we apply to every development decision across our portfolio. Our engineering teams have high-graded these 100 locations by considering spacing, pricing and appropriate type curves.

And now inclusive of the Camino inventory, Diversified holds 1,000 Oklahoma locations in total, including more than 450 that meet our robust investment hurdles at $65 oil. It is exciting for me to share this information that in our 25th year of business we are blessed to have a robust inventory of future reserves. 450 economic locations in the state of Oklahoma is real value that we have accumulated. That's a significant inventory runway and at a 1-rig pace, for example, would equate to over 30 years of inventory.

Turning to Slide 6. I want to spend a moment on valuation discipline because it is a cornerstone of how we operate and how we evaluate every deal we bring to our shareholders. Since November of 2023, there have been eight comparable Oklahoma transactions. The peer average on an enterprise value per flowing BOE basis is approximately $28,100.

The peak valuation paid in this period was $34,000 per flowing BOE. Camino was transacted at $23,030 per flowing BOE per day. Our Canvas acquisition came in at $22,925. That means we have consistently priced these deals approximately 18% below the prevailing market average and nearly 1/3 below the recent cycle peak, which was within the last quarter. And I'd note that when Reuters reported in January of 2025 that NGP was seeking a $2 billion valuation for Camino, market expectations were substantially higher than where we ultimately transacted. While we are invited to participate then and throughout the on-again, off-again process, we stuck with our valuation methodology, and that discipline has delivered a great result.

This acquisition valuation metric for us is not an accident. It reflects the relationships we've built, the speed and certainty we bring to the deal table and the discipline to walk away when a deal doesn't meet our return thresholds. We are a proven buyer in this basin, and we believe that our reputation continues to create deal flow and pricing advantages for our shareholders.

Turning to Slide 7. With Camino, our portfolio optimization program, what we call POP, takes another meaningful step forward. Our POP toolkit encompasses three primary value levers related to this asset, acreage sales, select nonoperated programs and operated drilling. Together, these tools have historically generated more than $400 million in cash flow since the beginning of 2023, and we see a continued runway ahead with our Oklahoma assets.

On the Camino acreage specifically, we've used our in-house engineering and land man expertise to high-grade approximately 300 sell-side locations down to 100 actionable drill-ready locations. These are locations that clear our investment hurdles at $65 oil after completing our internal upspacing analysis and after running risk type curves versus using the analysis provided by the seller. As an example, a 1-rig program from Camino's assets, which is down from the 3-rig program Camino had been running, complements our existing high-return nonoperated drilling activity while keeping our reinvestment rate conservative and our capital discipline intact. But I want to be clear, we view this inventory as an option, not a mandate. Our reinvestment rate remains disciplined, and we will continue to evaluate development against outright sale, M&A, partnerships and return of capital alternatives.

Turning to Slide 8. Let me briefly address synergies as I know this is an area where we've established credibility with our shareholder base. We've identified approximately $7 million in field level operating synergies, primarily through integration of Camino's wells into our Smarter Asset Management framework, which allows us to reduce LOE through centralized vendor management, optimized field operations and through our efficient technology platform.

On the G&A side, we see more than $20 million in near-term synergies from deploying our integration playbook. The contiguous nature of the Camino assets means we're not standing up a new regional infrastructure nor are we adding administrative or back-office resources. We're holding these wells into an operating machine that already exists. We have an experienced Oklahoma team that has integrated over $2 billion of assets recently. With approximately 200 net wells across contiguous acreage, we expect this integration to move quickly and carry low execution risk.

Turning to Slide 9. Before moving to the results portion of the presentation, I thought I would just bring it all together on Camino. This transaction checks every box in our acquisition framework. It brings a best-in-class asset management opportunity across an expanded and contiguous Oklahoma footprint. It demonstrates our innovative financing capabilities using the Carlyle partnership and ABS structure to access a $1.2 billion asset with no equity issuance and achieving off-balance sheet accounting treatment for the issued ABS debt. It keeps the undeveloped upside 100% with Diversified and further enhances our returns with the management fee structure and built it has a built-in future acquisition pathway structured into the Carlyle agreement.

We are confident this deal strengthens the long-term cash flow generation and shareholder return yield of this company, and we are excited about the future cash flow generation it provides to our shareholders as that asset matures and delevers over the coming years. As we have stated before, the opportunity set in front of this company is larger today than it has ever been. There are assets in every basin we operate along with other basins that are undermanaged, undercapitalized and underoptimized. There are sellers who need certainty, who need a buyer with operational expertise and financial credibility to close transactions quickly and effectively. That is our brand and reputation.

The Carlyle partnership has supercharged us, giving the company the ability to reach up and acquire large assets without shareholder dilution or balance sheet strength, and we are just getting started with that capability.

With that, let me turn to our first quarter results. Turning to Slide 11. This slide tells the story of our disciplined capital allocation priorities, which are core to our differentiated business model. Not only is our business model differentiated, it is proven. Our model continues to deliver on our four key priorities for capital allocation, which are as follows: systematic debt reduction, return of capital through dividend distributions and share repurchases and growing our portfolio of cash-generating assets through accretive strategic acquisitions.

We are off to a terrific start in the first quarter of our 25th year in business. I'm extremely proud of our team for delivering outstanding results in our year of celebration. As you can see on this page, we have reinforced our track record across all of our shareholder priorities during the first quarter of 2026.

During the first quarter, we repaid approximately $92 million in debt principal. This is not just financial housekeeping, it's strategic. Every dollar of debt we retire strengthens our balance sheet, reduces our cost of capital and expands our capacity to execute the next acquisition. With our pro forma leverage at 2.2x, we have the confidence to move decisively on opportunities like Tamino without putting our balance sheet at unnecessary risk. We returned approximately $94 million to shareholders through dividends and strategic share repurchases. And I want to be clear about how we think about share repurchases because it's opportunistic by design.

When we believe the market significantly misprices our stock, we act because we know what the business is worth, and we are willing to back that conviction with capital. We don't view market dislocations as a threat. They are a buying opportunity and shareholders benefit. Worth noting, we have demonstrated a track record of robust and disciplined capital allocation with approximately $2.3 billion in shareholder returns and debt principal repayments since our IPO in 2017. Together, these actions demonstrate the power of our disciplined and flexible capital allocation priorities and the quality and consistency of the cash generation capabilities of our portfolio of assets. And as a result, our free cash flow engine is expected to generate approximately $430 million this year.

I'll now turn the call over to Brad to discuss our financial performance and portfolio optimization results in greater detail.

Thank you, Rusty. I share Rusty's excitement for Diversified's future and my confidence in our teams, in our assets and in our ability to generate consistent, reliable cash flow has never been higher. I appreciate the dedication and commitment of our teams to deliver quality results each and every day. Now turning to Slide 12. Before sharing the highlights of our financial and operational results for the first quarter of 2026, I would like to focus on the right side of this slide. This presentation very simply illustrates how our accretive growth of cash-generating energy assets paired with best-in-class operational and corporate infrastructure translates into material bottom line growth.

For the first quarter of 2026, starting with production, the daily production exit rate for March was approximately 1.23 Bcfe per day, and our production for the quarter averaged approximately 1.2 Bcfe per day. Like others, our production was impacted by Winter Storm Fern and other regional weather events. But importantly, our deeply experienced operational teams were able to manage through those challenges and our production exit rate stands in line with our guidance.

Total commodity revenue was $556 million, and adjusted EBITDA was a record $287 million for the quarter, with our adjusted EBITDA margin landing at 68%. Notably, our portfolio optimization processes or better known as our POP program allowed us to generate approximately $101 million in additional cash proceeds during the quarter. And I would note that approximately $50 million of the $101 million was an agreement sold working interest in acreage to a drilling program run by Continental Resources, receiving not only cash proceeds, but the opportunity to add production and overall reserves. These results are exciting to reflect on, but the real excitement is about the opportunities in front of us and the capabilities of our team to capture those opportunities.

Our adjusted free cash flow for the first quarter was $160 million and was burdened with approximately $11 million of transaction costs and also reflected some friction related to natural gas first of month and mid-month pricing volatility, specifically in the month of February. Our net debt stood at approximately $2.7 billion at the end of the first quarter, and we improved our overall pro forma leverage by approximately 20% to 2.2x. And that leverage ratio sits comfortably within our target level of 2.0 to 2.5x net debt to EBITDA.

With approximately $529 million in liquidity our balance sheet is providing us the optionality and flexibility to navigate and take advantage of opportunities that we believe are available, including our recent Sheridan acquisition and notably the Camino acquisition. Additionally, our investment-grade rated nonrecourse ABS notes help contribute to our financial resilience and ensure we maintain our discipline to consistently repay outstanding debt, of which we repaid $92 million during the first quarter.

In summary, our team's strong execution of our strategy to acquire and optimize stable, consistent cash-generating energy assets enables strong free cash flow generation and allow us to continue to prioritize returning capital to shareholders and paying down debt. This is what operational innovation looks like in the real world, a relentless, systematic compounding improvement in everything that we do, and our financial results reflect it.

Now turning to Slide 13. I want to highlight the continued momentum in our joint venture nonoperated partnership program, which is adding high-return production with capital efficiency that we couldn't otherwise achieve on a stand-alone basis. We now have three active partnerships, the Mewbourne Anadarko program in Oklahoma and two new Permian Basin programs, one with a private operator on the Northwest Shelf in New Mexico and one with Continental Resources on the Central Basin Platform in Texas.

The Oklahoma program continues to deliver greater than 60% program IRRs. The two new Permian programs are expected to begin initial drilling in the second and fourth quarters of this year, respectively. Our nonoperated development total production exit rate in 2026 is expected to be approximately 12,500 BOE per day, which meaningfully offsets our core business base production decline. And by contributing acreage into these JVs, we're accessing well-level economics that aren't otherwise available in our existing PDP portfolio. It is worth noting that with the addition of Camino to our Oklahoma undeveloped inventory location count, we not only have the ability to expand our POP program, but further opportunity to expand the company's underlying reserve value that can potentially facilitate the opportunity to expand our capital structure in the U.S. credit market and lower our cost of capital.

Turning to Slide 14. We are reiterating our full year 2026 guidance today. We expect total production in the range of 1.17 MMcfe to 1.21 MMcfe per day with a mix of approximately 28% liquids and 72% natural gas. Adjusted EBITDA guidance remains in a range of $925 million to $975 million with adjusted free cash flow of approximately $430 million. Total capital expenditures are expected in the range of $205 million to $235 million, with nonoperated CapEx of $135 million to $155 million and maintenance CapEx in a range of $70 million to $80 million.

We remain committed to our leverage target of 2.0x to 2.5x. The recently closed Sheridan acquisition and the Camino transaction we announced last night are not fully reflected in these guidance figures. We look forward to providing further information on the combined financial profile as we approach our third quarter.

And now turning to Slide 15. We believe Diversified Energy represents a truly compelling and differentiated investment. And when you look at our investment attributes, you see something that's genuinely rare in the energy sector. We are a business that is simultaneously a growth story, a value story and an income story. And we believe the market is still in the early stages of fully recognizing these attributes -- but the work that we are doing is closing the gap. We have a viable path and a plan to grow that valuation, supported by the recognition that our core business delivers durable, consistent cash generation, similar to cash generation attributes of sectors that receive much higher valuation multiples in the equity markets.

The value is even more magnified in the credit markets. where quality cash flow is rewarded with investment-grade ratings and lower cost of capital. Our continued success in the ABS market illustrates a compelling path to close the current valuation gap and provide a higher long-term valuation.

And finally, I would like to extend my congratulations to Rusty on the achievement of his 25th year leading Diversified Energy. The proven nature of our business model is one thing, but the resilience, dedication, grit and creativity of its leader is equally, if not more important. Now back to Rusty.

Thanks, Brad. Before we take questions, I want to step back for a moment to provide some final thoughts on our investment thesis and our strategic outlook.

On Slide 16, Today, we're in a highly volatile geopolitical and commodity price environment where many producers are still evaluating or pulling back from M&A and new commitments. At Diversified, our entire history has been built on doing exactly the opposite. We step up when others step away. We did it when we built this company from the ground up in Appalachia when other operators were chasing the drill bit and moving away from conventional production operations. We did it with recent transactions like Maverick, Canvas and Sheridan, and we're doing it now with Camino. We didn't inherit this model. We didn't copy this model. We invented it, and the barrier to entry isn't just capital. It's operational muscle, institutional knowledge, technological innovation and relationship infrastructure that underpin everything we do.

We don't just generate cash flow, we engineer it, make it durable and make it consistent. The result, 25 years in is a company that has returned approximately $1.2 billion to shareholders in dividends and share repurchases since IPO that has grown EBITDA per share at a 12% compounded annual growth rate over the last 5 years, and that will control over 1,000 Oklahoma undeveloped drilling locations, over 38,000 miles of midstream pipeline, operations in four distinct basins, including high-quality Permian assets and a daily production platform of over 1.2 Bcf per day.

When I look at the execution and results displayed here, it is important to note that, that kind of consistency doesn't just happen by accident. It happens because we have built something that most companies in this industry haven't, a true operating platform. It's not just a collection of wells. It's a technology-driven, vertically integrated, continuously improving system that brings every dollar of value out of every asset and acquisition. In a volatile world and an industry filled with uncertainty, the market rewards stability, and we are the constant. 25 years in with more opportunity ahead of us than behind us, we are proven, and we are just getting started.

With that, I'd like to turn it over to the operator for the Q&A portion of today's call. Operator?

[Operator Instructions] Your first question comes from Neal Dingmann with William Blair.

Nice quarter. My first question is on your potential operational activity. Specifically on Slide 7, you all mentioned the potential for a rig from on Camino's assets to complement your non-op. And I'm just wondering, what will determine if and when you would bring in a rig like this? And then remind me, other areas where you also have optionality like this to potentially bring in a rig to sort of juice things?

Yes. No, Neal, we really look at it, we have alternatives. It's optionality. So we can -- we have the acreage -- and I'll just be frank, I've received multiple calls already regarding the acreage we're picking up with this Camino transaction, wanting to partner, drill ever. So we've got options here. We can -- acreage sales are always on the table. JVs with other partners like our Mewbourne operator relationship in the Cherokee, the one that we just announced with Continental in the Permian or to your point, adding a rig ourselves. All of those options are on the table. As we stated in here, we have 100 locations that are highly economic at $65 oil. So you can imagine one of those three options would be something we would be looking at doing fairly quickly after we close the transaction.

Neal, this is Brad. I would just add, as Rusty indicated in his comments, we do have 1,000 locations down in Oklahoma that we've accumulated with Canvas, Camino, Tapstone -- and one other, but -- and 450 of those locations are highly economic at a $65 oil price. So that number of opportunities really, as Rusty indicated, creates tremendous optionality for us.

And Brad, that sort of leads me to my second question was going to be around Slide 5, where you classify, as you said, just with Diversified alone over 350,000, another 100,000 for Camino, which you all term actionable Oklahoma inventory. I'm just wondering what metrics are you using to put it in that to, call it as actionable? And what would be potential timing of development in this area?

Generally, we've underwritten these assets at $65 oil, $3.75 gas. That's the primary. And then we've been, as also as Rusty indicated, running through our in-house engineering and rigorous process, we've really risk -- derisked these locations. As we said, there's 100, a 1,000 out there, but 450 are economic here. So it's a big inventory. I mean if you ran 1 rig on that number of locations, you could have 30 years of inventory. So it's a good opportunity for us.

And Neal, from our perspective, everything we do, we have acquisitions that IRR hurdles that we have to look at. This would have to compare to it. And so everything is obviously compared on an IRR basis. So those 100 would obviously fit that mold. And so the one thing for us now is how do we leg into it and which degree that we leg into it outright sale, JV or with our own rig. But I would say that from a timing perspective, it's not something we would sit on for a year or two, that's for sure.

That make sense guys. A great time to have massive acreage.

Next question, Charles Meade with Johnson Rice.

I wanted to ask about the -- I know there's probably more details than we could or should get into on this call, but about the Camino SPV and the mechanics of it and how Diversified owns the -- I guess, the undeveloped portions. Does the SPV just own an interest in the existing wellbores? And if that's the case, then what's the structure and the mechanism whereby Diversified kind of owns the rest? And is there any kind of duration on this SPV that you could point us to?

Neal, first of all, as we indicated in our comments, the undeveloped inventory, the undeveloped acreage is 100% owned by Diversified. It is not included within the SPV. So we have full ability to benefit from the value there. The SPV does own the wellbores of the producing PDP wells. And then the ownership percentage of that SPV is 60% Carlyle, 40% Diversified Energy. The SPV will also have the debt. We'll issue the ABS debt. And as we indicated, it will not be consolidated on our balance sheet. So really, I mean, you could look at this transaction in two different transactions, one with an undeveloped component and one with a PDP component.

The SPV has the PDP Diversified as the undeveloped, along with its equity interest in the SPV.

Got it, Brad. You understood where I was going with that. And then if I could actually go back to what Neal was just asking about because I want to make sure I understand. is Diversified now considering running an operated -- I mean it sounds like you are considering running an operated drilling program, but you're not committed to it. And I know in the past, you've talked about it's like if you're going to run an operated drilling program, that means there's a whole set of professional competencies that you have to have in your organization, which historically, I believe you haven't. But you picked up a lot of talent with Maverick and it's possible you're picking up more talent here with Camino. So could you just elaborate on that?

Yes, Charles. I'll call you Charles. Brad called you Neal. I'll call you Charles.

Oh, I am sorry.

I caught that too.

Sorry.

No. Yes, you're absolutely right. But again, keep in mind, we have three options here, okay? The one that will make the most economic viability to us is the one we would take. We can sell the acreage. We can JV it, which we've done twice now with Mewbourne and then also now with Continental and the Permian, which in both of those cases, as you know, that brings their expertise to the table, and we're just participating alongside of them. They're paying us for that value and then we're participating alongside of them. Or in some cases, we could consider bringing on a rig ourself. All three of those options are viable. For us, it will just be evaluating which one makes the most sense, most economic sense to us as we move forward.

And Charles, I got to write this down, yes. You did mention an accurate statement that we did pick up a lot of very solid strong talent in our Maverick Natural Resources acquisition. And Rick Gideon, who's our Chief Operating Officer, has extensive experience in the Lower 48, including in Oklahoma in developing wells. We picked up some very capable technical talent from an engineering perspective at all different parts -- and we've got experience with our employees that have worked in drilling programs, drilling and completion programs in the past. So we're not starting from scratch if that's the path that we decide to go down.

Yes. And Charles, I will also just to elaborate just further, that experience that Rick and his team and the engineering team and such brought to the table from the Maverick deal was also one of the reasons why you have seen us be so successful in our POP program, being able to, for the first time, really get behind the scenes, evaluate all of our acreage position across the company and really determine value that we can then go out and extract for things that we didn't pay for when we did these transactions. And so Rick and his team have helped us tremendously from that standpoint.

Next question, Jonathan Mardini with KeyBanc Capital Markets.

You alluded to this a little bit, but in the prepared remarks and just broadly, historically, you've talked about the potential to buy out Carlyle's equity interest, in this case, in the Camino assets as they mature and the ABS within the SPV delevers over time. Just curious how you would think about the various milestones or the timing that could drive a potential buyout of the structure?

Yes, it's really -- I wouldn't say that there's any specific thing that we would put our finger on to say that's the time to do it. But for us, there are a lot of variables in there. There's obviously the delevering, the asset maturity, the reversion aspect of the SPV that to be triggered where we would automatically receive a reversion. And so all of those things will be coming into play.

And a lot of it just goes back to the one thing that's really attractive about this partnership is we're able to really accumulate a lot more assets at a much faster pace than we would if we were trying to do all this on our own balance sheet, but it's setting up a massive inventory that we can acquire. As we sit here every so often when you hear questions, they say, well, what -- how are you going to grow the business long term, acquisitions, whatever. This is going to be a big inventory of assets that we can continue to acquire back from Carlyle just by buying out their residual equity value in the SPV and bringing it on balance sheet.

So I don't think there's any triggering moment. It's really based on just from Diversified's perspective, what's the right timing and the need to grow the business on a going-forward basis.

And Jonathan, one other aspect. We have a track record of issuing ABS notes, allowing them to delever and then creating equity value in those structures. And then we've been able to refinance and tap into that equity value, just like you would in your home mortgage that you're paying down.

We've been able to tap into that equity value and use that liquidity to continue to grow the business. And so there would be some similar characteristics that we would look at in this Carlyle structure with the ABS notes that we're putting on that.

Okay. Yes, that's clear. I appreciate the detail. If I could just pivot on your non-op JVs. You referenced asset sales to Continental this year related to a joint development program starting in 4Q. Can you just maybe talk about or help frame the scope of that JDA, whether in terms of well or rig commitments or maybe expected contribution to production over time?

Yes, it's an ongoing -- to be fair, we just signed it up. I mean, literally just a couple of -- yes. And so sitting down with them, walking through the drill schedule that they have anticipated, they paid us for 50% of that acreage position upfront, and then we'll participate alongside them on a going-forward basis. Most of that contribution will be in '27, obviously, because they're not really picking up a rig until the end of the year. But they're still working through the mechanics of the timing and how many wells and when they're going to drill them.

And then on top of that, we've talked about in the past that we've got noncore acreage we don't really consider this acreage position that we had that we contributed to Continental as noncore. I mean it's very proven acreage. We just believed through our analysis by Rick and his team that the best way to generate value for Diversified was to contribute, receive cash and then utilize the expertise of Continental in that area. So this is very good acreage, and we just, through our economic analysis, believe that this was the best path.

Next question, Jarrod Giroue with Stephens.

So my first one is just on the Camino acquisition. Thank you, Rusty, for the details on why you're funding the acquisition, utilizing the off-balance sheet equity method of accounting. So I guess my question is for future acquisitions, how do you guys decide if that's the route will go if utilizing the off-balance sheet financing? And could you just give an update on your partnership with Carlyle? I believe the original agreement was for up to $2 billion in PDP acquisitions. So I guess after the Camino, what's still remaining? Or can you guys go higher than the total $2 billion?

Yes. Let me address the first question in terms of forward acquisitions, whether we use the Carlyle partnership or not. I would say a lot of the transactions that we're looking at sitting here to date the Carlyle structure would be highly utilized through that acquisition opportunity set.

For us, we're seeing a very robust market right now. I think just the overall market for divestitures has opened up quite a bit in the last 30 days, and I think we're going to be involved in several of those. And so I think that off-balance sheet nondilutive structure to us is very attractive. We're able to do more without stressing the balance sheet. So I would say that's probably going to be a majority of what we do moving forward here over the next several months.

On the other hand, as it relates to their -- the agreement we had with them stated a $2 billion commitment -- but there -- the opportunity is way bigger, and they have made the commitment that they don't really -- it was $2 billion. We put it in our agreement just because we had to put a number. It's unlimited. I mean they have capital. We have opportunity set. They're ready to put money to work as we are. And I would say that there's no restrictions at least right now in terms of the opportunities and what they're willing to step up for.

That's great color. Yes. And then just my second question, just on capital return priorities. If you had to rank debt reduction, share repurchases, the fixed dividend acquisitions, how would you rank those most important to least important to Diversified?

It's -- look, they're all very, very important. And I wouldn't rank them. I would say we would always put them in the order of which one makes the most sense at that specific time. And so we're on a systematic debt reduction process with the ABSs. So every quarter or really every month, we have debt reduction. So that's ongoing. That's a very important factor in our business. We obviously, as Brad said earlier, these ABSs, we want them to pay down. We want them to create equity value that we can then utilize to grow the business going forward. So that one is probably -- if I had to rank them as I sat here today, that one is always going to be right at the top because you're doing it every quarter. But as it relates to dividends, that's a very, very important piece of our business.

We've set that dividend. We've said that it's stable and it's very dependable. And no one should worry about that fixed dividend. And then share repurchases, as I said in my comments, they really just kind of factor on are the shares being mispriced. And when they are, we're going to be opportunistic to step in there and buy them because we believe that's a very, very good use of our cash to reduce our share count and create value for the ones that are still holding it.

So all in all, I think we're all in a -- all four of them are important, but as is growing the business because you have to grow. So I think it's really just based on that specific moment, which one makes the most sense.

And what I like about the business model and the business that we've built is the fact that we do have flexibility on all of those. The durability and consistency of our cash flows give us -- and the way we've capitalized the business give us the ability to balance all four.

[Operator Instructions] Next question comes from Sam Wahab with Peel Hunt.

Actually, a lot of mine have already been answered, but one that I do have is that just in terms of the off-balance sheet SPV, I mean, what sort of differences in terms of return hurdles have you applied to the Camino deal that you wouldn't necessarily do or you would do more if it was on your balance sheet?

Well, the only thing that would -- if it was on our balance sheet, the biggest restriction would be, Sam, is that it would really tie us up from being able to do more transactions of that size in the future. Because when you bring it on the balance sheet, you've got the debt, you've got the -- all the other things that come along with the balance sheet transaction. That's something that we wanted to limit. We didn't want the, number one, the leverage on our balance sheet, but we also didn't want to result in any kind of dilution to our existing shareholders. That was the big thing. We want to grow the business. We want to grow the free cash flow profile of the business with as little to no dilution to our shareholders as possible. And so that would probably be the only difference.

Sam, I'll also add that with our Carlyle partnership, it's not just a financing partnership. It's a true partnership to really look for value because they're taking an equity interest in the SPV like we are. And so we're definitely aligned as it relates to the valuing of the assets.

Yes. Understood. So should we start thinking that, that sort of structure will be the dominant funding route for your sort of larger deals that you remain optimistic as and when you see good fits and synergies potential in your existing sort of on-balance sheet format?

Yes. I mean the larger deals for sure would be things that we would look at with them. I would say as it relates to our on balance sheet, smaller bolt-ons, corporate transactions that may not fit the structure would be the things that we would look at from that standpoint.

And if you just play this answer forward into the future, and we've -- if we're fortunate enough to be able to stack 4 or 5 of these type of transactions over the next couple of years, what does that mean 3 years and 4 years down the road? Well, it creates an inventory of acquisitions that we can bring back on to the balance sheet, bring that cash flow, as we've mentioned, high-margin cash flow back on to our financial statements, and that just provides, again, stability -- future stability for our company.

Great. And just finally, more broadly, you mentioned, Rusty, that you're seeing a lot more activity up until recently, a lot of divestitures -- could you just talk a little bit about what's driving that, where you're seeing the opportunity in terms of geography? And also comment on -- is it more gas related? Is it more liquid related and where your preference lie?

Yes. No, I think, obviously, liquids have become to the forefront here. -- obviously, the oil price escalation in the next month or two, I think what people aren't really focused on is you just think, well, oil is up in the front month. But if you look out over the curve, it's not really that substantially higher than it was 6 months ago. But that $2 difference in that curve going forward has caused some of these more liquid-rich plays or assets to come to market. We still are seeing gas. There's some gas out there that's in the market. It's just not as much as you're seeing on the liquid side right now.

Congrats again on another impressive deal.

Thank you. I would like to turn the floor over to Rusty Hutson for closing remarks.

I just want to say thank you all again for joining today. If you have any further questions, obviously, reach out to Doug and on our Investor Relations group, and he'll have all the answers you need. Thank you again.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

Greetings, and welcome to the Diversified Energy 2025 Annual Results Conference Call.

[Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Douglas Kris, SVP, IR and Corporate Communications. Thank you, Douglas. You may begin.

Good morning, and thank you all for joining us today, and welcome to our fourth quarter and full year 2025 results conference call. With me today are Diversified's Founder and Chief Executive Officer, Rusty Hutson; and President and Chief Financial Officer, Brad Gray.

Before we get started, I will remind everyone that the remarks on the call reflect the financial and operational outlook as of today, February 27, 2026. Certain statements made on today's call are forward-looking and may be subject to risks and uncertainties relating to future events and the future financial performance of the company. Actual results could differ materially from those anticipated. The risk factors that may affect results are detailed in the company's most recent public filings with the SEC, including the annual report on Form 10-K for the fiscal year ended December 31, 2025, filed on February 26, 2026.

During this call, we also reference certain non-GAAP financial measures. Our disclosures regarding those items are found in our earnings materials on our website and in our regulatory filings.

I will now turn the call over to Rusty.

Thank you, Doug, and thank you all for joining the call today. Before diving into the recap of the year and the fantastic operational and financial results that we posted last night, I want to start the call today with some opening remarks around our strategy, our culture and the theme that we believe fits well with our accomplishments in 2025, we are proven. I believe we are at an inflection point for our industry and for our company. The landscape is changing rapidly, not only in upstream but the entirety of the energy value stream.

Consolidation is accelerating. Volatility in commodity prices, especially natural gas, is increasing. Competition has never been more intense, and the choices we're making right now matter more than ever. But in the 25 years since I founded Diversified Energy, I believe we are in the best position we have ever been in. I'm truly excited for the future and the next 25 years of Diversified.

As the founder and CEO of our company, I'm extremely proud of the business we have built, the professionalism of our team, the quality of our assets, our sound financial condition and the strength of our business model. Importantly, a ticker symbol doesn't drive results. People do. Diversified is a leader, an innovator, a pioneer because of the talent, skill, tenacity and capabilities of every member of our team of professionals. Whether in the field or at a desk, Diversified is a leader because we trust our people and empower them to do their very best work.

Our people are the track record. They are the results. They are the proof, and we are proven. For those of you following along with our year-end 2025 results slide deck, which we posted to our IR website last night, I plan to cover a few slides and then turn the call over to Brad to discuss highlights from our financial results. After Brad's remarks, I will provide some closing thoughts before opening the call for your questions.

Starting on Slide 3. Given current market dynamics, especially related to the energy sector, I believe it's important for analysts, investors and all stakeholders to understand in simple terms, the investment opportunity we offer. As the founder, I was the first investor 25 years ago. I used my home equity to purchase a small package of wells in West Virginia, which led to a $50 million initial public offering in 2017. Today, I still hold all my shares as the largest individual shareholder with company insiders holding approximately 6% of the shares outstanding, demonstrating the team's belief in the quality of our company and the future prospects for our business.

I will not go through all of the investment qualities listed on this slide but the 6 simple attributes that Diversified possesses are not only what we provide but also what we deliver and ultimately tie back to a simple statement listed here as number one. Diversified is the first and currently only publicly traded company focused on acquiring, operating and optimizing established cash-generating energy assets. We believe the first-mover competitive advantage we built continues to bolster our business and is a key component in the record results we achieved in 2025 while allowing us to continue creating value as a proven business model and a compelling investment thesis.

For the past 25 years, we focused on acquiring and operating cash-generating energy assets so that we could provide our investors with a consistent and reliable return. We know that this proven focus provides investors with a unique and lower-risk method of investing in oil and gas assets, and I am proud that we were and are the leader in this strategy.

Turning to Slide 4. As we look further across the subsectors of the energy investment landscape, it's important to recognize that diversified exhibits several of the positive investment attributes of these subsectors, while notably delivering a significantly higher free cash flow yield. We believe these attributes represent a straightforward thesis for a multiple re-rate in our shares as we currently trade on average 3 turns below those other cash-generative subsectors of the overall energy industry.

Given this low relative valuation, we believe our shares offer a triple threat of attractive investment style. As a value stock that trades at an attractive 4x EV to EBITDA multiple and over 25% free cash flow yield, as a growth stock with attractive top line revenue growth of over 140% and free cash flow growth of over 110% year-over-year and as an income stock with an attractive current dividend yield of approximately 8%. Our company remains a unique yet consistent and proven investment opportunity.

Turning to Slide 5. When we view the high-level recap of the past calendar year, 3 words come to mind: innovation, transformation and focus. Innovation from the Mountain State Plugging Fund and Carlyle strategic financing partnership, transformation from the approximately $2 billion in accretive acquisitions, inclusive of Maverick Natural Resources and Canvas Energy, focus from delivering on goals to improve financial leverage, expand our investor universe and achieve multiyear sustainability performance. It's impressive to know that we delivered success during a time of commodity, geopolitical and financial market volatility and equally impressive that it was all done in 1 year. Once again, it illustrates we are proven.

Turning to Slide 6. We are kicking off 2026 continuing to execute on our proven acquisition playbook, and I will spend a few minutes on the specifics of the deal we announced last evening. We are excited to announce the acquisition of Sheridan Production Partners, a privately held company with assets in East Texas, including a bulk of its leasehold and production in Panola and Harrison Counties. As you can see from the map, the acquisition is a true bolt-on to our existing operations and has the potential to create significant value above the purchase price through the combination of high-quality assets with our proven operating model.

We are acquiring an additional 61 MMcfe per day of natural gas production in the sought-after Gulf Coast region and notably in proximity to our 120 MMcf per day Black Bear processing facility. We are acquiring Sheridan for approximately $245 million, which represents a PV-15 valuation. The acquisition is being funded with our current liquidity, which we announced last evening was approximately $577 million. This established producing asset has an extremely low corporate production decline profile of approximately 6% and is anticipated to contribute approximately $52 million in next 12 months EBITDA during calendar year 2026.

We believe this accretive acquisition offers a tremendous opportunity, adding contiguous acreage in the operating region, delivering strong, stable production with estimated reserves of approximately 397 Bcfe and immediate line of sight to operating efficiencies from our smarter asset management and the ability to capture meaningful synergies from the increased asset density in field operations, integrating processes and systems under our DEC platform and consolidating corporate functions. We anticipate the acquisition closing during the second quarter of 2026 and look forward to integrating these high-quality assets into our asset base.

Turning to Slide 7. As we discussed throughout 2025, we established a goal to move our primary listing, reincorporated in the U.S. and publish U.S. GAAP financials as an SEC regulated accelerated filer. With our SEC 10-K filing last evening after the New York Stock Exchange market close, we fully achieved our listing and reporting objectives going hand-in-hand with our 25-year milestone as an operating company. This achievement and formal move to the U.S. markets mark a new chapter and provide the company with a larger stage to further expand its investor base and ultimately create the opportunity to increase the value of our business.

As I reflect on the history of our public company journey as a public company over the past approximately 9 years, the sheer magnitude of our growth in operational and financial scale and capabilities reinforces the art of the possible with our get stuff done culture, and I'm excited for what we can accomplish in the future.

Turning to Slide 8. Our proven business model continues to deliver on our 4 key pillars of our capital allocation priorities, which are as follows: Systematic debt reduction; return of capital through dividend distributions and share repurchases; and growing our portfolio of cash-generating assets through accretive strategic acquisitions. As you can see here on this page, we reinforced our track record on all of our priorities for shareholders in 2025. During 2025, we repaid approximately $277 million in principal. We returned approximately $185 million to shareholders through dividends and strategic share repurchases, representing approximately 16% of our current market capitalization.

Worth noting, we have demonstrated a track record of robust and disciplined capital allocation with approximately $2.3 billion in shareholder returns and debt principal repayments since our IPO in 2017. Importantly, we believe our shares remain a compelling investment at current levels, and we will continue to take advantage of the current cycle and market dislocation to opportunistically repurchase shares. Together, these actions demonstrate the power of our disciplined and flexible capital allocation priorities and the quality and consistency of the cash generation capabilities of our portfolio of assets. We will remain focused on our key strategic pillars.

With that, I'll turn the call over to Brad to discuss our financial performance and portfolio optimization results in greater detail.

Thank you, Rusty. I share Rusty's excitement for Diversified's future and my confidence in our teams, in our assets and in our ability to generate consistent, reliable cash flow has never been higher. I appreciate the dedication and commitment of our teams to deliver quality results each and every day.

We'll now turn to Slide 9. Before sharing the highlights of our financial and operational results for the full year 2025, I would like to focus on the right side of this slide. This presentation very simply illustrates how our accretive growth of cash-generating energy assets paired with best-in-class operational and corporate infrastructure translates into material bottom line growth.

I'll start with production. The daily production exit rate for December was approximately 1.25 Bcfe per day, and our production for the year averaged approximately 1.1 Bcfe per day. The growth in our low-decline resilient production base has put the company in a great position to participate in LNG exports and data center energy demand and to benefit from the growing demand from our products while continuing to supply energy to our local communities and our commercial customers. And our vertically integrated marketing team provides us with a terrific strategic advantage to get our products to market at the highest possible margin.

Total revenue was $1.83 billion, and adjusted EBITDA was $956 million for the year, beating our stated guidance and with our adjusted EBITDA margin landing at 58%. Our adjusted EBITDA was a record for our company. And as the one member of our leadership team who joined Rusty before our public offering, I'm very proud of the quality and scale of the company that we have built.

Notably, our portfolio optimization processes or better known as the POP allowed us to generate approximately $170 million in additional cash proceeds. These results are exciting to reflect on, but the real excitement is about the opportunities in front of us and the capabilities of our team to capture those opportunities.

Our adjusted free cash flow for 2025 was $440 million, which was burdened with approximately $55 million of transaction costs. Our net debt stood at approximately $2.8 billion at year-end, and we improved our overall leverage by over 20% to 2.3x since year-end 2024, which would allow us to achieve a leverage ratio within our target level of 2 to 2.5x net debt to EBITDA with approximately $577 million in liquidity. Our balance sheet strength is providing us the optionality and the flexibility to navigate and take advantage of the opportunities that we believe are available, notably the Sheridan acquisition.

Additionally, our investment-grade rated nonrecourse ABS notes helped contribute to our financial resilience and ensure we maintain our discipline to consistently repay outstanding debt, of which we repaid approximately $277 million in 2025. In summary, our team's strong execution of our strategy to acquire and optimize stable, consistent cash-generating energy assets enabled strong free cash flow generation and allowed us to continue to prioritize returning capital to shareholders and paying down debt.

Turning to Slide 10. One can simply describe Diversified Energy as the E&P company without the E. Our model provides a derisked option, which focuses on optimization and innovation in order to deliver outsized results and longer-term financial resilience in any commodity price environment. And on this page, we are zooming out on that multiyear track record of several key financial metrics and bottom line fundamentals that have created per share value for our investors. Notably, a prudent and disciplined strategy to capitalize and integrate acquisitions has delivered a 12% compounded annual growth rate in EBITDA per share. an 11% growth rate in cash flow from operations and an 8% growth rate in free cash flow per share.

We believe that these metrics reinforce that our business model is proven. This slide also illustrates how we've been able to generate a solid return of capital for investors by utilizing a more flexible capital allocation framework, which incorporates both strategic share repurchases and consistent dividends.

Turning to Slide 11 now. One of the main benefits of our disciplined acquisition strategy is that we have created multiple drivers of cash flow generation and growth. Our expanded asset portfolio benefits from a low decline production profile, commodity diversification, a disciplined hedging program and material upside from anticipated operational and administrative synergies that we generate from our scale and vertical integration. The key metrics at the bottom of this page highlight the impact of our disciplined acquisition framework and the power and advantage that vertical integration and scale provide meaningful value to our shareholders. We have delivered year-over-year growth in free cash flow while also reducing overall leverage. And this was a terrific achievement for our team in such a short period of time.

This simple yet proven strategy of acquiring assets at attractive valuations using low-cost investment-grade rated financing allows us to capture a spread and with our operational excellence and portfolio optimization, improve our return on investment. With this proven playbook, we have and plan to continue building a resilient platform of cash flow generating assets.

Turning to Slide 12 now. Our proactive portfolio optimization program or our POP is a continuous evaluation and execution process for us. Since 2023, we have taken advantage of increasing opportunities to monetize the large inventory of undeveloped acreage that we have accumulated, which notably was ascribed 0 value as part of our acquisition processes. We utilize our deep operator relationships and market experience to generate additional unlevered free cash flow to deploy toward value-creating opportunities. During 2025, we have generated approximately $160 million in divestment proceeds, and we repositioned that cash for strategic share repurchases and 2 highly accretive acquisitions, which meaningfully lowered our leverage.

Moreover, the cumulative $314 million in proceeds from portfolio optimization in the last 3 years has enhanced our return on investment by approximately 10% for the $3.7 billion of acquisitions that we completed since entering the Central region in 2021. Collectively, the numerous optimization opportunities provide cash-generating levers to grow our business, increase free cash flow and bring forward the hidden or unrealized value of our portfolio of assets. And by reallocating the incrementally generated cash flow from our POP programs, we can also support superior shareholder returns.

Turning to Slide 13. We continue to see robust results and additional value creation from our non-op joint venture partnership, specifically in the Western Anadarko Basin. This capital-light approach with an industry-leading development partner offers an elegant solution for adding reserve replacement and ultimately free cash flow while delivering a compelling return profile. During 2025, we saw an approximately 60% rate of return on these new wells, which are trending approximately 75% liquids. This additive production meaningfully offsets our approximate 10% annual corporate production decline. For example, we anticipate that non-op production to exit 2026 at just over 12,500 BOE per day.

Additionally, we have recently added a new Permian Basin non-op partnership, which provides additional commodity diversification and the potential for even higher project returns. And notably, the upfront proceeds from the sale of the land and the working interest to our Permian development partner offset our capital spending and further increase our ultimate rates of return.

Now to Slide 14. Our stewardship operating model is supported by our long-tested smarter asset management practices, which optimizes the cash flow from the assets we acquire through production enhancements and expense efficiency. And our daily priorities require us to look for, find and execute activities that enhance margins. Our daily priorities drive additional cash flow and in the long term, do and will create value for shareholders. These daily priorities, which are safety, production, efficiency and enjoyment are unique to Diversified, and they allow us to continue to generate resilient, consistent free cash flow as the PDP champion. The subtitle on the cover of our earnings presentation says, proven, stepping up when others step away. This statement is about responsible stewardship.

We were innovators in buying PDP assets that other companies neglected or lost focus on. Our proven business model steps up to own these assets and make them safer, efficient and more profitable. Simply stated, optimization is stewardship. So to wrap up my comments, I want to say thank you to all of our teams for their excellent work over the past year. Our company is well positioned to grow and generate consistent cash flow for our shareholders. This positioning of strength is due to hard and smart work from our skilled team of professionals.

I will now turn the call over to Rusty for some final thoughts.

Thanks, Brad. Before we take questions, I want to provide some final thoughts on our outlook for 2026 and the milestone of our 25th anniversary.

Turning to Slide 15. We continue to emphasize we are a differentiated energy producer that seeks to optimize established, often overlooked and undervalued cash-generating U.S. energy assets. We maximize value in a unique way by minimizing traditional E&P risk, growing our revenue streams, optimizing our asset portfolio and being good stewards of our capital while generating real, consistent, meaningful cash flow. In 2025, our results were impressive, and we were able to exceed or achieve our guidance on important financial metrics, adjusted EBITDA and adjusted free cash flow. Notably, all of our additional guidance metrics were also within the guidance range.

As we embark on our 2026 journey, we have published full year 2026 guidance seen here on the slide using the same operational and financial metrics. I would note that these guidance metrics do not incorporate the Sheridan Production acquisition announced yesterday. Also, as a reminder, we continue to include cash generated from our portfolio optimization programs in adjusted EBITDA and adjusted free cash flow and is anticipated to be approximately $100 million for the full year 2026.

Turning to Slide 16. When the founding father set out to build America, they aim to create something that would last, something rooted in hard work, responsibility and the belief that what was created must be cared for and nurtured for it to endure. That same belief defines Diversified Energy. As our nation celebrates its 250th anniversary, we celebrate our milestone 25th anniversary. For 25 years, Diversified has stepped up when others stepped away, investing in established energy assets and committing to their full life cycle from production to responsible retirement.

We are, at our core, adaptive out-of-the-box thinkers, innovators and trailblazers. We pioneered a new way of working using scale and vertical integration, leveraging technology and flipped the narrative on natural gas and oil production while also maintaining the discipline and predictability required to make our work profitable. This culture, this mindset, this belief has allowed us to transform one company's divestiture into our consistent cash flow.

What started as an idea and one small well package acquisition in West Virginia in 2001 has evolved into a 2,200-plus person organization, a sizable publicly traded entity that generates over $2 billion in revenue annually, a top 3 landholder in the Lower 48 and the largest owner of wells in the U.S. We took a different approach to responsible energy production. We were the underdogs, but we proved ourselves. For 25 years, we made our own rules, crafted our own strategy and created enormous value for stakeholders and shareholders along the way.

Now is the moment to consider what we've done and how we got here, what we set out to do, how we were unique and what we proved. Now is the moment that we give each other a collective high five because we are proven and now others follow us. As America looks ahead, Diversified does the same. We are grounded in our values, focus, experience and our commitments.

With that, I'd like to turn it over to the operator for the Q&A portion of today's call. Operator?

[Operator Instructions] Our first questions come from the line of Neal Dingmann with William Blair.

Nice details. Rusty, my first question just on capital allocation. In the prepared remarks, you kind of gave the rankings but I'm just curious how you think about -- you've always had a good dividend. Is there a sort of an optimal dividend yield that you all target? And then in that same vein, with leverage, you've been able to take that down. Is there an optimal or kind of a leverage goal as well?

Yes. No, I don't think we really sit around and think about what our dividend yield is. We have a dividend -- fixed dividend that we feel comfortable that the free cash flow will support that will give our shareholders a good return. And then that's where we stay. We don't really look at the dividend yield. That's going to be based on the share price and where it goes, and we just kind of try not to focus on that. We focus on what we feel like we have the financial capabilities of paying with free cash flow. On the other hand, as it relates to leverage, we've stated our business with the type of funding that we use with the ABS, asset-backed securitizations, we're very comfortable having that 2 to 2.5 range. There's times when it could come down closer to 2, and there's times where it may go a little higher than that at 2.5. But staying within that range is a real -- is a goal for us and really important for us as we grow the business through acquisition.

And Neal, one thing I would add as it relates to leverage, one fact that I would not want anybody to just skate over is the fact that we paid down $277 million worth of debt last year. So our business continually deleverages. It should be close to $300 million this upcoming year. So we continually deleverage and build up equity value in these ABS notes.

Great point. And then my second question, just on non-op activity. It seems like you have a lot of -- I was going to ask on acquisitions but I'm just excited on your non-op activity. It seems like there's a lot of upside potential. I mean, whether that's Mewbourne and Mid-Con or others. Could you talk about just what you're currently seeing in the non-op. Are you seeing where -- I know there's a sort of non-operator talked about some private sort of shutting things down. It seems like you're having just the opposite where you're having some sort of fantastic activity. Could you talk about potential upside around your non-op activity?

Yes. Our Western Anadarko, you mentioned with our -- in Oklahoma with Mewbourne. Neal, we've just seen tremendous results there. The commodity prices haven't affected those IRRs to a level where we would ever think about shutting that down. They're just that good. And we've seen great success there. We still have a runway to go. And so we're going to continue to invest alongside of Mewbourne in that program. We're also seeing -- we mentioned it in our comments, we're the largest leaseholder, one of the largest leaseholders in the Lower 48. That gives us a lot of flexibility and a lot of optionality. And so we're leaning into that in our Permian acreage with another non-op partner and fully expect to invest as we move into 2026 and see some pretty good returns there, especially with the uptick in oil that we've seen here recently.

So we're excited about the non-op piece. It allows us to have some organic growth within our portfolio without having to put the G&A cost that running a program ourselves would do. And so it's a big piece of what we're going to be doing moving forward.

Our next questions come from the line of Charles Meade with Johnson Rice.

Yes, I'd like to start off with -- ask for a little more color around this, the Sheridan acquisition you guys announced yesterday. It looks like to me, that's an area that has a lot of historic Cotton Valley production, but also it's more recent in the last few years, there's been a lot of horizontal Haynesville production there. And so I wonder if you can talk about -- when I look at the 6% decline you gave us for that though, it really suggests to me that there hasn't been a lot of recent drilling or at least a lot of recent horizontal drilling there. And so I wonder if you could talk about the nature of that production, what zones is coming from? How much is horizontal versus vertical? And really, one of the things I'm aiming at is an idea of how much undeveloped acreage you guys might have there that's a candidate for your portfolio optimization?

Charles, the way we've really looked at this acquisition opportunity, it is a perfect strategic bolt-on to our business franchise there in East Texas. We've got tremendous overlap with our field operations, with our midstream business. And so it is a great tuck-in where we can add in highly -- high-margin production into that area. Along with it, it does come some additional acreage, and I think we highlighted that in the press release. So we'll have some opportunities there. And as we've done with our POP program, we'll look for the best ways to bring value forward, whether that's through some type of development or some type of just sale or some type of non-op relationship.

So this is a perfect tuck-in acquisition. It's only $245 million for us. It's adding reserve replace -- it's adding reserves, and it's also adding incremental cash flow to just the overall corporate cash flow that we produce.

And just to add on to that, it's kind of a mix. It obviously has horizontal wells in the package. To your point, they haven't been drilled in the last few years. But the other real important factor here is this is in the proximity of our processing facility in that area. And so it gives us some potential upside there to move gas maybe down to our processing facility and get the liquids exposure as well. The other thing I would say is, too, is that this is an area that's gotten really, really active and hot pretty much the whole area down there. But -- so as Brad was mentioning, we'll look to find the best value for that undeveloped acreage, whether it be a JV like he was saying or a sale or whatever.

So there's lots of optionality here, lots of synergies that we can lean into and really key to our acquisitions, take an acquisition, pay for it and get additional value that brings what you pay for it to a better valuation.

Yes. Charles, last comment I'd say is just there's a page in our presentation that talks about the strategic value of in-basin acquisitions, that framework. This one hits every box there.

Yes, it definitely seems like it could be a good fit. On the financing of it, is this already in process with the Carlyle, ABS structure? Or what's the state and path forward for the financing?

Yes. We're -- we've got the liquidity on our credit facility to finance this acquisition, and that's our initial plans to close it with that.

Our next questions come from the line of Jonathan Mardini with KeyBanc Capital Markets.

Just on the non-op side, you said the 2 non-op partnerships together, they're expected to offset about half of the natural decline in 2026. Just looking forward, how are you thinking about the scale that you'd like to get for these non-op partnerships? For example, would you look to have enough partnership activity to offset all of your base decline?

Well, we'd love that. We'd love it. But you ultimately have to have the programs that make sense and that are -- have good rates of return. So these 2 that we've mentioned have that. And so these would be the 2 that we're going to lean into. There could be more coming in the future. And we're -- as I've stated, I believe, the last call that we did, we're high-grading our acreage. We're looking at multiple opportunities to lean into all that value. These are 2 that are extremely important to us and that are already kicked off, but there could be more coming in the future.

Yes. And one thing I would say, we did this Canvas Energy acquisition at the end of 2024 that came with a lot of acreage and a lot of opportunity. And so with commodity price movement, if there is any commodity price movement upward, that price movement will unlock additional development opportunities for us. So like we said in our comments, we've got a lot of cash-generating levers in our portfolio.

The last thing I would say there as well is that don't underestimate Appalachia. We have some acreage in Appalachia that has some really, really good prospects at some point. We're kind of monitoring the situation that's going on there but it could end up being a big, big win for us up there as well.

Understood. That's helpful context. I just want to ask about the asset sales. You previously talked about maybe a $40 million or $50 million run rate of asset sales is a good baseline. We saw 2025 come in over $160 million. With the 2026 guidance, including about $100 million of these proceeds, how do you just think about the updated run rate for these land sales? And are you seeing more buyer interest today?

Yes. I mean I would say there's buyer interest. Again, we're high-grading our portfolio. We're looking at all of our acreage positions. Last year was the first year with all the acreage that we had acquired through Maverick and Canvas. This year, we'll have a little more -- we've seen a little more interest levels in a couple of things that we didn't anticipate last year. But I think -- and Brad, you can comment on this as well. I think $40 million to $50 million is a run rate type expectation on a normal year.

Yes, post 2026, we've already issued expectations and guidance on '26 at $100 million. But on a go-forward basis, we believe that $40 million to $50 million is a comfortable number. We have a vast portfolio of assets and acreage. And so opportunities come our way very often.

And I find it interesting that a lot of the areas that people didn't think about or didn't really put a lot of attention, all of a sudden are regaining interest levels and people are starting to come back and look at different things. So that's what gives us comfort in the guidance.

Our next questions come from the line of Paul Diamond with Citi.

Just drilling down a bit more on the Permian JV. In the Central Basin, we have a bit more of the details. Is there anything else you can disclose on locations, working interest, expected production run rate through the year, anything like that?

I would say we'll have more data around that after the first quarter. Give us a little time on that. But no, look, it's really close to moving forward here and getting kicked off. And so we'll have better data to kind of help you to drill down more so at the end of the first quarter.

Got it. Understood. And then jumping over, can you talk about the bigger news or news last year was the plugging funds. Can you talk about the status of where that sits and the potential opportunity set and I guess how you go about potentially extending that to other states?

Yes. I'm still surprised at how that got kind of gotten -- just kind of blown over by most people. But that was a big win for us as it relates to asset retirement. We're on a -- we have a really, really good financial assurance policy there now that we've made our first payment into that. That will go on for 20 years. We'll continue to plug the wells that we have committed in the state already for the next 20 years as well. We want to utilize that in some of the states where we have the higher well counts for sure, especially in Appalachia, mostly. And so we're working to try to get inroads there. I would tell you that there's a couple of states that would probably do it very quickly, and we'll probably circle back to them this year. But we're working on one as we speak and really want to get that one squared away.

So it's a great product. It really -- the whole industry should be looking at this as a way to deal with asset retirement obligations long term. And I think even the states themselves with their orphan well program should be looking at something similar. But no, it was a big win for us. Obviously, my relationship with the politicians in West Virginia gave us the ability to take advantage of that there first. And so we'll continue to work with some of the other states and probably you would probably -- you'll probably see us do something else with a couple of the other states this year.

And Paul, I would just add, this program, as Rusty indicated, we're very excited about. This program, when it works as designed, and it will because it really is just math and time, moves the financial liability for plugging our West Virginia wells off of our balance sheet and away from future cash flows of this business. It is a significant victory for our company.

Our next questions come from the line of Sam Wahab with Peel Hunt.

Congrats on another great set of results. A lot of my questions have been answered but one that still stands out is sort of linked with the Sheridan transaction and the strategic partnership with Carlyle. I noticed, obviously, the Sheridan deal is very much gas weighted compared to Maverick last year, where we introduced a lot more liquids. I mean is that a signal of intent in terms of strategy? You talked earlier about data center demand, LNG opportunities. Would that partnership be more gas weighted going forward? And what does the landscape look like for opportunities? And is gas at the moment a better deal than potentially oil given the uptick in prices?

Yes. Good question. We are -- I've said this before, we're not really focused on whether it's liquids or gas. What we're focused on is the value that we can get from the acquisition. In this case, it was mostly gas, obviously, but it was sitting right in our geographical operating area and just gave us all kinds of opportunities to drive the cost down, increase the -- we bought it on a margin. We think we can increase that margin. And so that's what made it so attractive to us. The Carlyle partnership, they don't really care whether it's liquids or natural gas either.

And so -- but they do have a size -- they obviously want to do deals of a little larger than this one. And so that's primarily the reason why we just did this one on our own through our own liquidity. But they are -- they don't have a preference, whether it's liquids or natural gas. We're all about where can we get the best return. That's what we're focused on. And whether it's liquids, whether it's natural gas, it doesn't matter to us.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Rusty Hutson for closing comments.

Thank you all for attending today. Obviously, if any other questions or have any additional information that you need, please reach out to Doug in his numbers in the press release for you to reach out. Thank you all, and have a great day.

Thank you, ladies and gentlemen. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time, and enjoy the rest of your day.

Greetings and welcome to the Diversified Energy Third Quarter 2025 Results Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Douglas Kris, Senior Vice President, Investor Relations and Corporate Communications. Thank you. You may begin.

Good morning and thank you all for joining us today and welcome to our Third Quarter 2025 Results Conference Call. With me today are Diversified's Founder and CEO, Rusty Hutson; and President and CFO, Brad Gray.

Before we get started, I will remind everyone that the remarks on this call reflect the financial and operational outlook as of today, November 4, 2025. These outlooks entail assumptions and expectations that involve risks and uncertainties. A discussion of these risks can be found in our regulatory filings. During this call, we also reference certain non-GAAP and non-IFRS financial measures. Our disclosures regarding these items are found in our earnings materials, on our website and in our regulatory filings.

I will now turn the call over to Rusty.

Thank you, Doug, and thank you all for joining the call today. As the Founder and CEO of our company; I'm extremely proud of the business we have built, the capabilities of our team of professionals, the quality of our assets and the strength of our business model. I'm also excited for the future of Diversified Energy. Our company is well positioned as a consolidator of choice for PDP assets. We have established tremendous momentum over the past 12 months. We have significantly increased the scale and capabilities of our company.

Our cash flow is strong, our balance sheet is secure, our assets are performing, our business model is proven and we have access to capital. Our teams continue to deliver results and innovative solutions while also giving back and serving those in need in our communities. We also developed a winning language that highlights the culture of our company. One part of our winning language is be where your feet are, which emphasizes a focus on relentless execution. I'm pleased to say that in 2025 and specifically in the third quarter, our teams delivered and delivered in a big way.

So I'm pleased and excited for Brad and I to share the terrific results our teams delivered in the third quarter. Our company continues to be a unique, but consistent investment opportunity. Our business model focuses on optimizing cash flow from our portfolio of low-decline energy assets. We complement this foundational business model with growth from strategic acquisitions and disciplined capital allocation. Importantly, we continue to illustrate our differentiated positioning as a triple thread and this triple thread is that Diversified Energy offers investors elements of value, growth and yield. This balanced approach provides confidence and stability across market cycles.

I mentioned the strength and consistency of our business model in my earlier remarks. Our company and our assets have and continue to produce a consistent stream of cash flow. We still believe in the value of real tangible cash flow and we continue to believe that companies that produce cash flow for their investors are valuable and investable. We all see the valuations that are being placed on companies in technology, some of which have 0 revenue and others that have significantly less cash flow than Diversified. Over the long term we believe that markets will return to investing in companies that produce cash flow.

I want to highlight and emphasize that we have significantly transformed and strengthened our company in 2025 with the acquisitions of Maverick Natural Resources and most recently Canvas Energy, which is anticipated to close prior to December. Our acquisition-driven growth strategy continues to demonstrate how a material change in scale can unlock operational leverage enabling us to deliver robust cash flows and create long-term value for shareholders. This value creation is reflected in our year-over-year growth in EBITDA and cash flow, which nearly doubled.

Additionally, our increased guidance following 2 strong quarters with Maverick and ongoing portfolio optimization underscores our disciplined focus on driving efficiencies through our tested asset integration playbook. I want to commend the efforts of our employees. Their hard work and determination allow us to deliver outstanding results and live by our culture of GSD, which stands for get stuff done. Our team has positioned Diversified for an exciting future. I'm confident we will continue to deliver compelling operational and financial results.

While the market for oil and natural gas producers has remained dynamic throughout 2025, we have a foundational belief that if it's challenging, there is opportunity. For those of you following along with our third quarter 2025 results slide deck, which we posted to our IR website last night, I will cover a few slides and then turn the call over to Brad to discuss highlights from our financial results. After Brad's remarks, I will provide some closing thoughts before opening the call for your questions.

Starting on Slide 3. We continue to focus our capital allocation strategy around our 4 key pillars that are deliverables to judge us by: systematic debt reduction, return of capital through dividend distributions and share repurchases and growing our portfolio of cash generating assets through accretive strategic acquisitions. As you can see here, we have built on these pillars in 2025. In the first 3 quarters of 2025, we reduced debt principal by approximately $203 million and returned approximately $146 million to shareholders through dividends and strategic share repurchases representing approximately 15% of our current market capitalization.

Worth noting, we have demonstrated a track record of disciplined capital allocation with approximately $2.2 billion in shareholder returns and debt principal repayments since our IPO in 2017. As the founder of our company, this impressive ability to generate cash flow not only makes me proud, but it also excites me about our future. Importantly, we believe our shares remain a compelling investment at current levels and we will continue to take advantage of the current cycle and market dislocation to opportunistically repurchase shares. Together, these actions demonstrate the power of our disciplined and flexible capital allocation strategy and the quality and consistency of our portfolio of cash generating assets.

Our team accomplished all of this while integrating our transformational Maverick acquisition. We sit today with both the field level and corporate level processes fully integrated on time and on schedule. With a line of sight to additional synergy capture following our closing of Canvas Energy, we are well positioned to continue to be a market leader in consistently returning capital to shareholders. We continue to demonstrate that Diversified is a disciplined company that invests in cash generating assets in the energy industry and we will remain focused on our key strategic pillars.

Turning to Slide 4. As we officially announced in early October, we are moving our primary equity listing to the New York Stock Exchange, redomiciling to a U.S. corporate entity and will change our financial reporting to SEC and GAAP compliant filings. We believe these steps will provide strategic capital markets benefits for all shareholders regardless of geography. We will also retain an international listing and continue to trade on the London Stock Exchange. Importantly, this change is expected to enhance trading liquidity, increase exposure to the deeper capital pool of U.S. investors and facilitate new passive investment through indexation and ETF ownership.

As a notable reference point, since the company executed the initial dual listing approximately 20 months ago, we have seen an almost 400% increase in daily trading volume and an expansion in U.S. ownership to over 65% of shares outstanding. The work streams continue to progress and currently anticipate the New York Stock Exchange primary listing to commence trading on November 24.

Turning to Slide 5. I was pleased to have the opportunity to work in partnership with the Governor of West Virginia to launch a first of its kind agreement that provides additional financial assurance for the retirement of effectively all Diversified wells in the State of West Virginia. This innovative public-private partnership with our insurance partner, OneNexus, is a secure dedicated fund that establishes a common sense solution and a new standard for operators, which I anticipate will be a blueprint for others to follow. Perspective and approach is the solution for our industry and we need to continue to focus on solutions at work.

Several of the highlights and administrative mechanics of the fund are listed here. The $70 million investment over 20 years utilizes the power of investment compounding over several decades to increase the funds to a potential of approximately $650 million, which has the capacity to fund the retirement of all of the approximately 21,000 Diversified wells in West Virginia and represents approximately 30% of our balance sheet liability. We intend to continue to have our next level well retirement group safely and cost effectively retire our wells along with the wells of other operators and for the State of West Virginia. And with this agreement in place, we intend to grow that subsidiary in a meaningful way.

Turning to Slide 6. Diversified has developed a disciplined acquisition framework, which we utilize to analyze and evaluate deals. Because we operate with size and scale in multiple basins across the United States, our company has optionality to participate in significantly more acquisition opportunities or not to participate in overvalued sale processes ensuring we are buying attractively valued assets that fit into our business model and not reaching on valuation or strategic fit. This disciplined approach and valuable flexibility is a linchpin of our capital allocation strategy.

The recently announced Canvas acquisition is a perfect example of an in-basin opportunity that checks all the boxes with multiple avenues for upside that were not underwritten in our valuation, including strategically monetizing undeveloped acreage, implementing targeted synergies and/or exploring joint development agreements to accelerate additional value creation. This simple yet elegant strategy of acquiring assets at attractive valuations using low cost investment-grade financing allows us to capture a profit spread and with our operational excellence and portfolio optimization, improve our return on investment. With this playbook, we are building a resilient platform of cash flow-generating assets.

Turning to Slide 7. Our stewardship operating model is supported by our long-tested Smarter Asset Management practices, which optimize the cash flow from the assets we acquire through production optimization and expense efficiency. A great illustration of our field team's efforts is the Fallowfield Compressor Station where our Appalachian team identified, acquired and integrated an underutilized and underperforming compression asset.

Notably, with this opportunity, they were able to eliminate compression fees, improve production volume meaningfully, add third-party volumes and increase revenue while laying the groundwork for coal mine methane environmental credits. This project is a textbook example of the value our teams deliver every single day with our Smarter Asset Management focus. As we are fond of saying the assets we acquire are not bad assets, they just lack focus. This margin enhancement cash generating example demonstrates our focus on optimizing and increasing returns from our portfolio of assets.

Our daily priorities require us to look for, find and execute activities that enhance margins. Our daily priorities drive additional cash flow and long-term value for shareholders. Our daily priorities; which are safety, production, efficiency and enjoyment; are unique to Diversified and are enabling us to continue to generate resilient, consistent free cash flow.

With that, I'll turn the call over to Brad to discuss our financial performance and portfolio optimization results in greater detail.

Thank you, Rusty. I share Rusty's excitement for Diversified's future and my confidence in our teams, in our assets and in our ability to generate consistent reliable cash flow has never been higher. We'll now turn to Slide 8. Before sharing the highlights of our financial and operational results for the third quarter, I would like to focus on the right side of the slide. This presentation very simply illustrates how our accretive growth of cash generating energy assets paired with best-in-class operational and corporate infrastructure translates into material bottom line growth.

For the third quarter starting with production, the daily production exit rate for September was approximately 1.14 Bcf per day and our quarterly production averaged over 1.13 Bcf per day. Approximately 65% of our produced volumes were generated in our Central region. The growth in our low-decline resilient production base has put the company in a great position to participate in LNG exports, data center energy demand and benefit from the growing demand for our products while continuing to supply energy to our local communities and commercial customers.

Total revenue was approximately $500 million and our adjusted EBITDA was $286 million for the third quarter with an EBITDA margin of 66%. Our third quarter adjusted EBITDA was a record for our company. And as the 1 member of our leadership team that joined Rusty before our public offering, I'm very proud of the quality and scale of the company we have built. As we continue our integration processes and improve the combined company cost structure, we anticipate that we will be able to maintain our historical approximately 50% cash margins.

Notably, our portfolio optimization processes in the third quarter allowed us to generate approximately $74 million in additional cash proceeds. The quarter's free cash flow was $144 million, which is burdened by approximately $9 million of nonrecurring and transaction cost. Our net debt stood at approximately $2.5 billion for the quarter and we improved our overall leverage by 20% since year-end 2024 achieving a leverage ratio within our target level of 2x to 2.5x net debt to EBITDA.

And with over $400 million in liquidity, our balance sheet strength is giving us the optionality and flexibility to navigate and potentially take advantage of volatile markets and commodity price cycles. Additionally, our investment grade rated nonrecourse stable ABS notes helped to contribute to our financial resilience and ensure that we maintain our discipline to consistently reduce outstanding debt. In summary, our team's strong execution of our strategy to acquire stable consistent cash generating energy assets enabled strong free cash flow generation and allowed us to continue to prioritize returning capital to shareholders and paying down debt.

Now turning to Slide 9. Active portfolio optimization is a continuous evaluation and execution process that we undertake with our dedicated and skilled team of professionals. Since 2023, we have taken advantage of increasing opportunities to monetize the large inventory of undeveloped acreage that we have accumulated, which notably we ascribed 0 value as part of our acquisition processes. We utilize our deep operator relationships and our market experience to generate additional extremely high margin unlevered free cash flow to deploy toward value-creating opportunities within our capital allocation framework.

In fact year-to-date, we have generated approximately $143 million in divestment proceeds and we've repositioned that cash for strategic share repurchases and 2 highly accretive acquisitions while we've also meaningfully lowered leverage. Collectively, these opportunities provide cash generating levers to ultimately grow our business and bring forward the hidden or unrealized value of our assets. By reallocating the cash flow from our portfolio optimization programs, we can also support and do support superior shareholder returns.

Turning to Slide 10 now. One of the main benefits of our 2025 Maverick acquisition is that we have created multiple drivers of cash flow generation and growth. Our expanded asset portfolio benefits from a low-decline production profile, commodity diversification, a disciplined hedging program and the potential for additional upside from anticipated operational and administrative synergies. The chart on the bottom of this page highlights the impact of our meaningful expanded asset portfolio and we have delivered both sequential and year-over-year growth in free cash flow.

Turning to Slide 11. Translating these results into comparable data points, you can clearly see that Diversified is a leader in return of cash to shareholders not only with a fixed dividend comparable to yield focused energy sectors, but also through the deployment of strategic share repurchases that outpaces other E&P peers. And since our IPO, we have returned approximately $2.2 billion in shareholder returns and debt payments, which shows the strength of our strategy to acquire cash generating assets and to operate them with excellence.

These shareholder returns show our commitment to create value. However, we do believe the current share price does not reflect these attributes and is not adequately valuing the strength of our business model to generate real cash flow. We believe our shares remain undervalued impacted by macro headwinds, including allocation of investment funds to extremely high valued companies. And over the past 5 years, we have delivered a 310% EBITDA growth averaging over 60% annually.

Based on historical EV to EBITDA multiples and peer comparisons, our valuations suggest meaningful upside potential. And with our primary listing on the New York Stock Exchange and full SEC reporting, we believe we are at an inflection point and with these needed catalysts positioning our shares for a re-rating that could drive a significant increase in share price.

Now turning to Slide 12. We continue to maintain momentum into the second half of the year and with the completion of the Maverick integration, we have increased financial guidance 7% on adjusted EBITDA and 5% on adjusted free cash flow. Importantly, we anticipate generating between $900 million to $925 million in adjusted EBITDA and more than $440 million in adjusted free cash flow. Pro forma for the full year of Maverick, we would have delivered over $1 billion of adjusted EBITDA, which is a phenomenal achievement for our company.

The company is positioned on a path that creates a unique and compelling investment opportunity. We are very pleased with how the year has progressed and we are confident in our ability to execute at a high level for the balance of the year and beyond. And to wrap up my comments, I want to say thank you to all of our teams for their excellent work this year and this quarter. Our company is well positioned to grow and generate consistent cash flow for our shareholders. This positioning of strength is due to hard and smart work from our skilled team of professionals.

I'll now turn the call over to Rusty for some final thoughts.

Thanks, Brad. Before we take questions, I want to provide some final thoughts on why we believe our successful strategy investment attributes will allow us to rise to the top of the list of peers within the Russell 3000 Index. On Slide 13, we continue to emphasize we are a differentiated energy producer that seeks to optimize existing long life and often overlooked and undervalued cash generating U.S. energy assets. We maximize value in a unique way by minimizing traditional E&P risks, growing our revenue streams, optimizing our asset portfolio and being good stewards of our capital by generating real consistent meaningful cash flow.

For this slide, we are highlighting and emphasizing that Diversified offers unique investment attributes, which we believe make us a compelling addition to any portfolio especially those benchmarked to the Russell 2000 or 3000. With our large operational scale, vertical integration and corporate infrastructure that leverages a leading technology platform, we know how to grow and we know how to drive value from growth. We have executed this ability over 30 times over the past 8 years.

Out of a list of 3,000 small cap companies; our business strategy, our ability to generate real and consistent cash flow and our commitment to shareholder returns makes us a company that is investable. Additionally, we believe the triple thread of attractive investment attributes are as follows: as a value stock that trades at an attractive 3.8 EV to EBITDA, as a growth stock with attractive top line revenue growth of 80% year-over-year and bottom line free cash flow growth of over 150% year-over-year and as an income stock with an attractive current dividend yield of approximately 9%.

We believe the anticipated structural trading and listing changes are an additional meaningful catalyst to drive renewed investment from investors and a strong addition to any portfolio. We have been steadfast in executing our strategy since our IPO driving strong financial and operational performance. The right company, right time mindset for the type of assets we manage delivers consistent free cash flow and returns to shareholders and serves a fundamental role in sustaining the U.S. energy markets.

Before I turn the call over to the operator for Q&A, I'd like to again recognize our employees for their outstanding achievements and contributions this quarter and this year. Without their focus, commitment and excellent teamwork in the field and in the corporate office, these results would not be achievable.

With that, I'd like to turn it over to the operator for the Q&A portion of today's call. Operator?

[Operator Instructions] Your first question comes from Tim Rezvan with KeyBanc Capital Markets.

I wanted to start either for Rusty or Brad. You highlighted leverage now in that target range of 2x to 2.5x. So it gives you a little more optionality going forward. So when you think about uses of free cash flow at this point, is it safe to say that you're really fans of the repurchases where shares are trading or do you think at all about keeping some liquidity aside for maybe investing in the equity portion of future ABS deals that you do with Carlyle? I'm just trying to understand kind of the uses of free cash flow and if that at all is a consideration on future M&A.

Thank you, Tim, for that question. I think it really comes down to what's the best use of cash at the appropriate time. And right now we have a lot of liquidity, we have $400-and-some million of liquidity. We've made it very clear that our shares are significantly undervalued. So that's an option obviously. Transactions and growth in the business is another option. So we're always highly focused. We kind of have an understanding of our needs over the next short term and kind of how we want to play our cash outlays.

But it's always going to be focused on what's the best return for our shareholders at that time. And so I think right now we obviously are very disappointed on where the shares are trading and we think that it's very undervalued. So you could see us, I would say, put that cash to work there for the immediate time. And then obviously growth is always on our calendar and on our horizon. Brad, I don't know if you wanted to add anything there.

I agree with Rusty's comments. We have grown the business significantly and we have the Canvas Energy acquisition closing coming up here towards the end of the month and so we'll be using some of that liquidity in that transaction as well. But yes, the valuation on our shares right now, as we said in our comments, we don't think is reflecting the value that we've built in this company.

Okay. I appreciate that. And then switching gears a little bit on the second question. I wanted to ask about this Mountain State Plugging Fund. The release came out a month ago, but it seems like a pretty transformational event. I think you used the phrase a blueprint for other states. So can you talk, Rusty, about any conversations you're having with other states? Is it your hope that this can be replicated across your Appalachia footprint? Is this something that maybe is easier to get in a red state versus a blue state? Just kind of curious on how we should think about that growing because that has been a big concern for investors and you've been on your front foot addressing it. So just trying to understand sort of the next steps on that process.

Yes, sure. I think I explained it to our governor, the Governor in West Virginia, and he actually said this during his remarks. It's a win-win for the industry and for the state of West Virginia because we came up with a practical common sense solution for something that's always been out there that nobody has really wanted to address. And so for us to be able to say, look, every well in the state of West Virginia will have a financial assurance of being retired over a long period of time, which we don't want to retire these wells. We're producing them right now.

And I said this also, Tim, is that even if every dollar was available right now to plug every well in the country or even in the State of West Virginia or any state, it would still take over 100 years to plug them all just simply because of the capacity. We represent 40% of the plugging capacity in the Appalachian Basin right now and we're doing everything we can do with the resources we have and we would not even come close to plugging all the wells in the State of West Virginia in 100 years. It's just not doable from a time perspective, weather perspective and all that. So this is a meaningful way of taking care of a retirement obligation and we believe that the other states, especially in Appalachia, should take notice.

We obviously want to enter into arrangements like this, but we just covered 30% of our asset retirement obligation in that 1 transaction. Think about if we did a state like Pennsylvania, we'd be at 60% of our total asset retirement obligation. So these are meaningful transactions. They're common sense. They're win-wins for the state and the regulatory agencies and the company. And I, for the life of me, don't understand why this hasn't been more of a precedent in prior years, but we're going to make it a precedent for our company and we're hopeful and the Governor of West Virginia said this, he's hopeful that other operators will step up and do the same thing.

Next question, Charles Meade with Johnson Rice & Company.

I wanted to ask a question about what you're seeing in the ABS market. It's been in the news a little bit I think probably pretty far afield from you guys. But I think there's a lot of us on this call that we're still coming up to speed and learning the nuances of the ABS market. So I wonder if you could talk about if you're seeing any changes in the availability appetite, cost of capital in that market.

I'm going to let Brad answer this question. I'm just going to say this. The ABS market, now we've been doing this since 2019 I believe. That was the first time that we deployed capital through an ABS transaction. It's a great product for us because of the type of assets we have; long life, low-decline, very predictable type production and cash flows. It has become more and more popular as you've seen throughout the industry, but the access to that capital is still very -- or I should say the appetite for it is high. And we do a lot of meetings and conferences around this. Brad and his team do a great job of getting us in a place to do these transactions. But the low cost of capital helps us in being able to bid on our transactions. But Brad, you can speak to the overall appetite for this at this point.

Yes. So Rusty mentioned that we did our first ABS in 2019 and so similar to the Mountain State Plugging Fund, we did the first operated ABS in the industry. So we're proud of that and we have seen the industry from a PDP perspective follow utilizing that source of financing. Our business model and the success of our business model is really built on 3 things. One is acquiring assets at attractive valuations. Two, utilizing low cost of capital to finance that growth. And then three, having the operational excellence. And so from an ABS perspective, we do believe that that does provide us with a low cost of capital.

The other thing, and we said this in our comments, is it allows us to have a disciplined approach to delevering the balance sheet and not creating future problems for our shareholders. And so with that structured amortization built into the ABS notes, we believe that's positive. Charles, what I would tell you is the depth of this market is vast. Private debt and private debt capital is very deep in the United States. This asset class investors, primarily insurance companies, have become very comfortable with investing in this asset class. It matches up well with their maturity schedules and how they like to match assets and liabilities.

And Diversified has been the company that's issued the most in the industry. So the last thing I would say is a differentiator for us is that not only have we built a solid reputation as a quality issuer, but when you match that with being a quality operator, the investors in these notes really like that. There are other companies that have issued ABS notes that are likely doing it for different reasons than just financing the business and growth and so that can create challenges. But overall, the market is deep and we think it's a good option for us with the type of assets we have.

Got it. That is helpful color. And then my follow-up, I wanted to ask if you could give us any update or characterize the drilling or the joint development agreements you guys have in some of your Western Anadarko assets, if anything happened in 3Q that's notable on that front? And if you see some potential for either expanding or having a new JDA once you close Canvas on those assets?

Yes. I think that the joint development that we have going on right now in the Cherokee Basin in Oklahoma with a very established and reputable drilling company, we love those returns. Those returns in that have been tremendous. We've been 35% I believe on average and no working interest held. IRRs are through the roof. And so those assets have been tremendous for us. It's been steady as you go. I mean every year at the beginning of the year, they've given us a drilling schedule and they've stuck to it and that's been a big win for us.

But nothing out of the ordinary other than just par for the course. We're moving forward with them on a quarterly basis and we're seeing great results. Obviously through our portfolio optimization plans programs, we are always evaluating our acreage both in the Permian and in Oklahoma and in other areas now and there could be more for that in the future as we talk more about the Appalachian Basin. But I think that what we're seeing right now is that we've looked at all of our acreage. We're high grading it in terms of what we want to participate in alongside a good partner and then what we want to divest.

And you could see other JDAs come to the forefront in the future maybe in the Permian or in the Oklahoma area as we evaluate and kind of summarize what we want to participate alongside somebody else in. And this acreage, I'm just telling you, it's valuable. We've gotten a lot of inquiries around our acreage both in Oklahoma and in the Permian and really has been kind of an eye opener for us. But we want to make sure that we're being very selective on how we manage through that and get the best value we can to the company and to our shareholders.

Next question, Tim Hurst-Brown with Tennyson Securities.

I just had 1 quick follow-up on the plugging fund. So I think, Rusty, you said that West Virginia represents 30% of the group's discounted ARO of $883 million. I'm just wondering whether we should expect some adjustment to that ARO figure in the Q4 to reflect the deal you've done with West Virginia.

Tim, this is Brad. I'll take that. The current accounting guidance -- under the current accounting guidance, we will not be making an adjustment in that discounted ARO on our balance sheet. We will be adding an asset as we grow this and invest this $70 million over time and that will grow and compound over time as well. But effectively, one of the items that we've discussed since we started this roll-up strategy is the concern around the asset retirement obligation and how is the company going to meet that obligation.

And so with this Plugging Fund, we have set in motion the offset of that liability. And as Rusty indicated, this is the common sense patient solution that will provide the funding to meet the needs of those retirement obligations. So the way I look at it is I take that liability on our balance sheet and I say okay, we've accounted for and taken care of 25% to 30% of that liability, now on to the next one. So it will take time, but that's fine.

But don't let the accounting rules be mistaken for addressing the liability because this is a -- as Brad said, this addresses the liability on those wells in West Virginia. It doesn't mean that the accounting is going to match up in terms of offsetting the liability on the balance sheet. There will be an asset that's built up over time. But this is a -- utilizing this insurance product, it does address the liability for the long term and that's what we were more focused on rather than the accounting around it.

And Tim, one other way that you can look at this fund just structurally is just think of it like a long-term pension obligation or any type of long-term obligation. I mean that's what we're funding it with today's dollars so that future obligations can be funded.

Next question, Paul Diamond with Citi.

Just wanted to talk a quick bit about the portfolio optimization. Can you talk about the cadence or timing go forward in these efforts? Is it something we should think about annualized an average number or more of they just kind of spot transaction when they come, they come?

Paul, thanks for your question. We actually have a slide in our investor presentation that highlights the success of that portfolio optimization program over the last several years and we've produced some real cash flow. And we do think, as Rusty indicated, that there are some opportunities that we've got good visibility and line of sight into the continued success with those programs with the assets that we've acquired and acreage positions that we've acquired. It's difficult on a quarterly basis to kind of plan out what those would be.

However, what I would say is on an annual basis, we believe that for the foreseeable future, a $40 million to $50 million baseline level of revenue from these type of programs is achievable. And then where we have opportunities to improve on that, we will through the evaluation processes that Rusty indicated. But on from a go-forward basis, we believe that $40 million to $50 million is an appropriate way to look at the business.

And Paul, the other thing about that is is that cash that's generated off those sales gives us some flexibility around some of the pillars that we talked about; the share repurchases, the ability to grow the business, utilizing cash whether it be with the Carlyle transactions and the equity portion of those transactions or lowering leverage. And so it just gives us added flexibility that we didn't pay for and I keep saying that because it's key. We did not pay for these undeveloped value transactions that we're getting. So I just want to make that clear.

Understood. Appreciate the clarity. And just a quick follow-up. On the other side of the portfolio optimization efforts, you guys have the Appalachian Compressor Station. Can you talk about whether, I guess, are those more spot or those one-off or should we expect more of a trend of kind of those small ball acquisition infrastructure type of things rolling up?

Well, Paul, I would say that it's definitely not a one-off because our teams have been doing it now for 8-plus years. And that is the -- as Rusty said, it's a textbook example of our Smarter Asset Management program. And so when you have an empowered and authorized workforce looking for ways to succeed on our daily priorities of production efficiency and safety, that's what we get. And so this was an asset that was run by another operator that was not core to them. It was core to us. It was more valuable to us. We made a good deal on it and we're leveraging a significant return on that acquisition we made of that facility.

So we're constantly looking for those opportunities. I mean just going back to the second quarter, we highlighted a pipeline system that we acquired out in Western Oklahoma that allowed us to return numerous wells back to production and we eliminated significant amount of compression cost by being able to utilize centralized compression versus wellhead compression. So these are -- again it's just an example of what we do on a daily basis.

Next question, Tim Moore with Clear Street.

Congratulations on the quarter. My first question is to offset the maturity decline curve besides your acquisition strategy edge. Can you maybe give us a sneak peek or a sense of maybe next year's workover count, the initial plan there? Do you think it will be a higher count than this year?

We'll look to provide some guidance as we move into the first quarter and we get our Canvas Energy acquisition completed and then that will have some capital guidance for next year. What I can tell you is that our teams have already gone through a process to high grade projects, to build a portfolio of projects that they will rank and then commodity prices will have some impact on that I'm sure. But I would look towards the first quarter when we release our year-end results to provide some more clarity and guidance on that.

Understood. And my second question, it relates to kind of the cost synergies being implemented at Maverick, the timing of that. I'm just wondering Canvas is obviously a much smaller acquisition, there's some synergies integration there. I'm just trying to get a better sense of maybe how you think about downtime between medium-sized acquisitions not just tiny small ones. I mean you did Summit in East Texas pretty quickly for integration before Maverick and then Crescent Pass right after Oaktree. Do you think about a minimum gap of months for some of these bigger ones acquisitions just to implement best practices or do you have a team in place now big enough to kind of tackle a couple of ones?

Well, I think your final comment there kind of relates to the way we look at it. We've got a tremendous team that has done this so many times and it's all about people and processes and making sure that you take care of the people and then into the processes. And our guys know how to do these things and so there are steps that they do, they go through the process. We kind of have a plan as to how long it takes to do each one of those processes. But our technology teams, our field operations, all the way; they all know how to manage these integrations and so it's really incredible.

When you look at Maverick and the size and scale of that transaction for us to be able to get it completely integrated within 5, 6 months, I mean that's tremendous. And we're sitting here today, we're going to reap the benefits of those synergies a lot faster than we originally anticipated because we were able to integrate it so fast. And so it's really about the people and the processes and the ability to deploy that technology and the platform that we've built to integrate these things in a speedily way. I don't know if you want to add anything.

Just 1 quick item. Our CIO, David Myers, would be disappointed if I didn't say this. But as Rusty said, people, process and systems. And that's what we're focused on and committed to is making sure that we've got the right people on the team, then the right business processes of which we can apply our technology and our systems too.

That's terrific color, Rusty and Brad, and definitely speaks to your capability to tackle more acquisitions in the near term. Thanks a lot. That took care of my questions.

Thank you. I would like to turn the floor over to Rusty for closing remarks.

Well, thank you all for attending today and we look forward to wrapping up the year and meeting again with you in the first quarter to talk about the year-end results. Thank you and have a great day.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Greetings, and welcome to the Diversified Energy Company acquisition of Canvas Energy Webcast and Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Douglas Kris, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead, sir.

Good morning, Kevin, and thank you, everyone, for joining us today for the special conference call to discuss Diversified's acquisition of Canvas Energy. Joining me today on the call are Diversified's Founder and CEO, Rusty Hutson; and President and CFO, Brad Gray. We have also posted a slide deck to accompany our remarks today, and we will reference the slide numbers during our discussion. We will open the line for questions after our prepared remarks. Following the conclusion of today's call, we are happy to follow up with any specific modeling questions.

Before we get started, I will remind everyone that the remarks on this call reflect the financial and operational outlook as of today, September 9, 2025. These outlooks entail assumptions and expectations that involve risks and uncertainties. A discussion of these risks can be found in our regulatory filings. During this call, we also referenced 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 or in regulatory filings. I will now turn the call over to Rusty.

Thank you, Doug, and thank you all for joining the call today. On our call today, we are providing further context about the acquisition of Canvas Energy and the 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 are excited to announce the acquisition of Canvas Energy, a privately held company headquartered in Oklahoma City. We believe this acquisition will add accretive size and scale advantages and further align with our strategy of building a portfolio of high-quality cash-generating energy assets. We believe that our team of professionals are experts at optimizing the existing long life and undervalued U.S. assets, and there continues to be a great growth opportunity to consolidate these assets under the diversified vertically integrated infrastructure. Our focus remains firmly on executing on our unique growth strategy that creates value-based, resilient and consistent cash flow from our growing portfolio of cash generating energy assets.

We intend to utilize our experienced employees' institutional knowledge and commercial relationships to extend our position as a dominant force in the Oklahoma market. In my view, what we are building at Diversified is a battleship, a corporate and financial structure that is strong, durable, agile, resilient and in the best position to serve its shareholders while protecting and delivering cash generation to provide a tangible return to our shareholders. And much like a battleship, our competitive edge, strength and power comes from the importance of every component and the coordination of every team and task no matter how large or small. The addition of Canvas enhances the size and scale of our company, furthering our progress in our strategy and providing investors with a unique opportunity for value accretion that further bolsters our promise to deliver reliable, long-term shareholder returns.

Starting on Slide 3. 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 additional liquids-rich exposure to premium markets that will help drive top line revenue, adding Canvas' production, which is approximately 147 million cubic feet or approximately 24,000 barrels of oil equivalent per day, with a commodity split between 57% liquids and 43% natural gas, further expanding our exposure to both premium oil and LNG opportunities. The combined company will continue to maintain an enviable peer-leading low decline production profile with the added resource of total proved reserves on a PV-10 basis of approximately $1.4 billion. Canvas adds approximately 240,000 net acres with the assets creating significant operational overlap where we can apply our proven consolidation and operating model.

Canvas also offers immediate financial accretion through its strong, stable financial profile, which is anticipated to generate approximately $155 million in the next 12 months EBITDA, or an increase of approximately 18% to our current base. Additionally, we are meaningfully growing our free cash flow by 29%. It's worth noting that these financial metrics do not include any synergies, margin enhancements and our time-tested smarter asset management optimization programs, which we believe provide meaningful uplift in value and bottom line cash flow. This bolt-on acquisition in Oklahoma offers a tremendous opportunity, adding contiguous acreage and the optionality for portfolio optimization either through partnership development or via divestiture. By remaining disciplined, we are growing our company by acquiring value-accretive reliable PDP assets and consistent cash flow at an approximate 3.5x next 12 months multiple. This transaction brings us solid assets at an accretive value.

Turning to Slide 4. Let me now spend a few minutes talking about the specifics of this deal. We are acquiring Canvas Energy for approximately $550 million. The purchase price will be funded through the issuance of up to $400 million of asset-backed securitization funding originated by Carlyle and approximately 3.4 million shares of Diversified cash on hand and current liquidity. Following the closing of the transaction, Canvas unitholders will own approximately 4% of Diversified shares outstanding. Importantly, with a small dilution, we are delivering a leverage-neutral transaction that generates a significant 29% increase in free cash flow. It's worth noting that this acquisition marks a significant milestone as it is the initial transaction that utilizes the Carlyle Strategic Funding partnership. We have a historically established Carlyle relationship through their previous purchases of ABS notes, and they remain investors in 2 of our ABS notes. Since then, we have grown their confidence in our acquisition evaluation, management experience, operational capabilities and stewardship focus.

We are excited to further leverage our strategic partnership to continue to fund high-quality PDP assets and to grow our combined portfolio. We expect the transaction to close during the fourth quarter of 2025 after we receive customary approval and regulatory clearance. Turning to Slide 5. This acquisition creates significant asset density in Oklahoma, and we are very excited about this aspect. The impact on our Sooner State operations will include a combined acreage footprint in Oklahoma of approximately 1.6 million acres, including the largest in the Western Anadarko Basin. Combined Oklahoma production at approximately 78,000 barrels of oil equivalent per day that consists of a high liquids cut, additional exposure to the emerging Cherokee play and other high-quality acreage creating organic growth opportunities for asset optimization or potential development partnerships.

Turning to Slide 6. This slide further illustrates the combined position in Oklahoma and the Western Anadarko Basin. The map shown on this page creates a powerful picture of the significant acreage position resulting from this acquisition. We have a proven approach and ability to identify and achieve synergies in our acquisitions. Our stewardship operating model, 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 free cash flow from our investments. With this acquisition, we will accelerate synergies as a result of increasing asset density and field operations, integrating processes and systems into our One DEC platforms and consolidating applicable corporate functions. In addition to the high-quality developed assets we are adding to our portfolio, there is also room for attractive asset optimization opportunities, which include a variety of options with our expanded acreage position.

As we have demonstrated over the past few years, our talented land and legal teams have proven experience to help us optimize cash generation from our acreage positions. Turning to Slide 7, Diversified has again delivered meaningful growth in important operational and financial metrics that are improving its position among peers and allowing the company to benefit from further trading multiple expansion. The relative performance and significant increase in cash generation have now allowed us to compete with peers with market capitalization and production profiles that are larger. Specifically, with this acquisition, we have a step change in free cash flow generation increasing by almost 30%, notably without any increase in leverage. Importantly, Diversified provides investors, especially those focused in the small to mid-cap arena, the opportunity to own a company with a high free cash flow yield and long duration exposure to the improving natural gas macro environment.

Turning to Slide 8. Diversified has developed a disciplined acquisition framework, which we utilize to analyze and evaluate all the deals we review. Because we operate with size and scale in multiple basins, we believe the company has the opportunity to participate in significantly more acquisition opportunities while also allowing us to profitably leverage our scale, vertical integration and technology. By using low cost of capital to finance attractive returns based on purchase price multiples and discounted cash flow percentages, we are able to successfully capture that spread to increase shareholder value. It's worth noting that there are immediate transaction benefits with the Canvas acquisition before giving any value to multiple avenues for upside, including strategically monetizing undeveloped acreage, implementing targeted synergies and potentially entering into joint development agreements to accelerate additional value creation.

This acquisition is accretive on several metrics, and 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. Finally, moving to Slide 9. Our acquisition of Canvas continues to reinforce our leadership in the industry as the right company to manage resilient cash flow generating assets now and into the future. The strategic acquisition of Canvas Energy allows us to grow our Diversified low-risk business model while also being financially accretive on many key metrics and notably grows our EBITDA by 18% and free cash flow by 29%. We also gain best-in-class operational efficiencies with an expanded geographic footprint in one of our favorite operating areas, the Sooner State.

With enhanced cash flow, achievable synergies and an increase in liquids weighting that strengthens our margins, we create a must-own energy asset manager with substantial equity upside through a multiple rerate. 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 continued interest in our company and in this transaction. We believe this acquisition is a win for our employees, our customers, our shareholders and our partners, notably our initial partnership funding with Carlyle. I'm excited to work with our teams to integrate the Canvas assets into our great company. With that, I'll now open the floor to questions. Operator, please open the line for questions.

[Operator Instructions] Our first question is coming from Tim Rezvan from KeyBanc Capital Markets.

Congrats on the deal. Rusty, I see the acquisition grows your production by 13%, but we also see that 16% 5-year PDP decline which I guess would imply years 1 and 2 maybe closer to 20%. So do you expect to need to sort of increase your D&C CapEx much to sort of offset that a little steeper decline? Or do you think your Mewbourne JV or something else in the mix can address that?

Yes, I think that's exactly right, Tim. I mean we -- some of these wells were drilled -- that canvas had drilled in the last few years, obviously, have a little steeper decline rate on them. But with what we're doing at Mewbourne with our Mewbourne JV, and also with the upside that's potentially in this portfolio with some JV opportunities, we're more than able to moderate that and not really affect our overall decline rate as a company. Keep in mind, it's only 13% of our total production as it sits here today. So even with a little steeper decline on that with our other organic mechanisms within the portfolio, we'll be able to maintain and moderate that pretty well.

And Tim, this is Brad. I'll just add the fact that in modeling this transaction for us and building it into our existing portfolio, we've not looked at intentionally increasing CapEx as a result of this deal.

Okay. That's great context. And then as a follow-up, it's been now 2.5 months since you announced the JV with the Carlyle funds, and you have a deal with about 20% of that capital committed. Can you talk about maybe the quality and quantity of asset packages that you're evaluating and what a potential capital deployment time line could be like? Could this fully be deployed by the middle of 2026? Do you have any sort of line of sight on how to do that?

Yes. I think it's -- we obviously evaluate a lot of things. And we don't do very many of them. I mean, I know that sounds funny because we do so many transactions, but we do pass on a lot of stuff. And we're looking for the right deals. We're looking for the ones that have the most synergies attached to them in good locations where we feel like we like the production. We like the production profiles, we like the assets. We like where they're located. And so we're not just grabbing everything that's out there in the market. So we're trying to be very focused on what we like and what we think is going to add to the long-term success of the company. And we want to buy it right. As it relates to the Carlyle partnership, yes, this was 20% in essence of the commitment.

But I would say that commitment, as we continue to evaluate and look at things, I'm sure they'll be willing to invest right alongside of us as much as we can possibly look at and acquire. And so I can't tell you how quickly we're going to fill up that $2 billion original commitment. But I wouldn't be shocked if we did by the middle of 2026. And so we'll continue to focus and they're going to be focused with us alongside larger transactions. And so we're going to be very focused on getting the right things, and we're going to work with them. We have very common ways of evaluating assets and the value of the deals. And so it's a very efficient process with them, let's put it that way.

And Tim, if you just look back over the last 18 months, with the inclusion of this acquisition, we're at close to $2.5 billion of acquisitions. So yes, I'm just supporting Rusty's comment there that at that pace, if that pace were to replicate, then we could achieve that pace.

Okay. Okay. I appreciate that. If I could sneak one final one in. I know primary drilling is not your business. But looking at Canvas, most of their wells looks like about 60% are in the Meramec over the last few years. Can you talk about what undrilled horizon sort of you're most excited about on this acquired acreage? And I'll leave it there.

Yes, I think it's -- some of the stuff that was -- had been recently drilled down in the SCOOP/STACK area. I think that some of those well results down there were pretty appealing. So we'll probably focus on those first in terms of trying to determine how we want to drive value from that, whether that be through a JV similar to what we've done with Mewbourne or whatever. So -- but that seemed to be the ones that we really thought had the greatest upside and the best returns through the experience that we saw from them.

Next question is coming from Charles Meade from Johnson Rice.

Rusty and Brad, I want to pick up kind of right where you left off with Tim there. So -- and my question is around if you could kind of -- a little bit more characterization of these assets. I think you have in your press release that 23 of these wells are -- have been brought online in the last 12 months. And so it seems to me that's probably going to be, I don't know, half of the total production that you're getting with these assets. And if that's the case, it seems like there's actually both a lot of concentration to these relatively recent vintage wells, but also that there's a lot of acreage out there that probably doesn't have much production. So I wonder if you could just elaborate on that and kind of give us a sense of the concentration and where some of the undeveloped potential for divestiture farmout is?

Yes. Well, the 23 wells that were drilled in the last 12 months, those do not represent 50% of the production. That's -- it's much less than that. I'd say it's probably 25% to 30% of the overall production in the -- you got about 500 wells in this package. Some of it's very -- is much more mature and much lower decline. So from that perspective, yes, these are newer wells. We do have good data on them now where they have been performing. So we have good ideas of kind of how those would play out if you continue to develop that acreage position where these wells are located. I think that, as I said with Tim, I think the SCOOP/STACK area where those 23 wells were kind of drilled over the last 12 to 18 months, that's really our high -- as we sit here today, that's our high-value area. And so we think that there's a great opportunity there to look at some organic type growth mechanism, whether it be through a JV, like I said, like we did with Mewbourne and Cherokee or someone else.

We're not going to stand up a drilling expense -- in our existing assets or in our existing operations, we're not going to set up a drilling program ourselves, but we do like to do and like the way that these JVs work out for us. And so I would say that, that's probably our top priority in terms of that organic growth that you're mentioning is to look at that area down there. And we have several, what I would consider to be undrilled locations that could be JV-ed or -- look, and if somebody comes in and offers you enough money and it's going to be worth more than the JV itself, then you would all -- by all means, you take the cash and get the returns that way also. So it's one of many ways that we can benefit from undeveloped acreage that we didn't pay for.

Got it. That's helpful -- go ahead.

Well, Charles, I was just going to add. This is a -- this transaction is right in one of our existing operators where we have an outstanding team. We're excited about our Canvas employees that will be joining us as well. So in addition to some of the optionality that we will acquire when we close this transaction, we also will have our Smarter Asset Management playbook and margin enhancement opportunities that we will start working on actually today. So it's not just about the wells that were drilled or the optionality we have with new development partnerships. It's about the existing PDP, adding to our portfolio of assets in an existing operating area and driving improved margins once we consolidate.

Got it. That is helpful. And then as a follow-up, since we're still in the early days of this Carlyle relationship you have, can you walk us through the mechanics of how this -- of how and when this ABS is going to be placed? And just a couple of things I'm thinking that may be relevant are, is it going to close before the acquisition? Or does it close right after the acquisition? And also, I know there's been some -- there was some talk before whether these -- whether -- the accounting treatment of these, whether they're going to be consolidated on your financial statements or whether it's going to come through in a different manner. So can you just talk about some of the mechanics of how this is going to work and eventually appear?

Sure. I'll hit a couple of those points, Charles. Thanks for the question. So the transaction will close simultaneously with the closing of the acquisition. So that will -- it will be contingent upon the closing of the acquisition. So it will be simultaneous. We will go through a process -- well, let me talk about the off-balance sheet treatment that has been referred to in the past. This transaction, the debt will remain on our balance sheet. Carlyle is going to be providing financing at the debt level for this transaction. The SPV that will be established to support the ABS, the equity of that SPV will be 100% owned by Diversified. So this will be just -- this will look just like our other ABSs that we have on our balance sheet.

We have talked to Carlyle about participating at the SPV equity level, and they are willing and would like to do that for the right transaction. This transaction primarily for tax-related challenges, just was not a good fit for that. So they're providing the debt only for this one. And then this will be really a straightforward process, very similar to our other ABSs. This will be a rated piece of paper. We'll go through that process with the rating agencies. The primary difference from our other ABSs is that we will not go through a syndication process with investors. Carlyle will be the primary and -- will be the investor in this ABS.

Got it. That is helpful detail.

[Operator Instructions] Our next question is coming from Tim Hurst-Brown from Tennyson Securities.

Congrats on the deal. A couple of questions from me. Just wondering whether you could give a sense of the scale of the synergies on this acquisition. So if we look at the Maverick deal, I mean, I think we're talking about $60 million of annualized synergies, which is around 15% of the acquired EBITDA. Would we be looking at something similar here or less? So that's the first question.

Yes. Tim, I -- we don't really know exactly what the synergy dollars are yet. Obviously, once we get in there, operate the asset for a period of time, we'll be able to communicate that back to the market in more detail. Of course, the G&A structure will be the main focus. Obviously, we will -- for a transaction this size and for the number of wells and such, the G&A structure that we currently have, our existing platform will be more than sufficient to consolidate and integrate. So you can kind of get some sense around that. Field synergies, we just don't know until we get in there and operate the assets, but we do feel really, really good that there are going to be significant areas to recognize those synergies.

Yes. And Tim, I would anticipate that upon closing of the transaction in the fourth quarter, we'll have some updated information related to that.

Great. That would be useful. And just in terms of the corporate G&A at the Canvas level, are you able to let us know what that is or was last year?

It's roughly $25 million to $30 million of G&A.

That's useful. And then just a quick follow-on. The vendor shares, I think roughly $55 million worth is a relatively sort of small component of the overall consideration, just wondering what the rationale was to include that in the consideration and not entirely with existing cash and debt?

Well, we just wanted to -- really, the main focus is to get some -- to make sure that we're keeping leverage neutral to going down, which is always very important to us. In this situation, with the Carlyle deal just being debt-only and not an equity position in our SPV, then we wanted to make sure that we kept that leverage at a level that's consistent with our stated desire to stay in that 2 to 2.5x. So mainly that, it's 4% of our total shares. And for us, any time we can utilize our -- 4% of our shares to pick up 29% of free cash flow accretion, we look at that as being pretty positive.

Great. I appreciate it.

Thanks, Tim.

Next question is coming from Sam Wahab from Peel Hunt.

Congrats on a very accretive deal here. Just a couple of follow-on questions from me. The first around the ABS. I mean this looks like one of your historic deals, given that they're not going to use the SPV structure on this occasion. And just on that basis, could you give a bit more info on the expected interest rate and maturity terms of this ABS? And then there's just one more after.

Yes. So just one quick clarification, Sam, look we are going to have an SPV that the assets will be placed into. My comments earlier was that, that Carlyle will not be purchasing a portion of the equity of this SPV so that will be -- so that's the similarity with our other structures and ABS notes that we have. In regards to the interest rates, I think that we've seen a decline here in the treasuries, which is positive for us because the majority of the debt will be priced off of the 5-year treasury so that's been positive. And I think you'll see us have a similar type of spread on top of that with Carlyle. So I think our ABS X note that we printed earlier in the year, I would expect we would see similar type results to that, if not better.

Okay, brilliant. And yes, just a small point on the lockup. It might be in the small print, but is there a timing on that lockup? Is it 6 months or so? That's on the business and the shares...

The lockup is 6 months. Yes.

Okay, brilliant.

Post close.

Post closing.

Post close.

Post closing, Sam. So if we close at the end of...

End of fourth quarter.

End of the fourth quarter, it would be 6 months from then. If we -- whatever month we close in, it will be 6 months from that point.

Perfect, brilliant.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Yes. Thank you all for joining today. We're really excited about the transaction and we look forward to sharing additional information with you as we -- once we close the transaction and start to recognize all the benefits that we discussed today. Thank you all very much.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation.

Greetings, and welcome to the Diversified Energy 2025 Interim Results Conference Call and Webcast. [Operator Instructions] 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.

Good morning, and thank you all for joining us today, and welcome to our second quarter 2025 results conference call. With me today are Diversified's Founder and CEO, Rusty Hutson; and President and Chief Financial Officer, Brad Gray.

Before we get started, I will remind everyone that the remarks on the call reflect the financial and operational outlook as of today, August 11, 2025. These outlooks entail assumptions and expectations that involve risks and uncertainties. A discussion of these risks can be found in our regulatory filings.

During this call, we also reference certain non-GAAP and non-IFRS financial measures. Our disclosures regarding these items are found in our earnings materials, on our website, and in our regulatory filings.

I will now turn the call over to Rusty.

Thank you, Doug, and thank you all for joining the call today. We believe Diversified Energy offers a unique investment opportunity, a resilient business model focused on optimizing cash flow from low-decline energy assets, enhanced by growth from strategic acquisitions and a disciplined capital allocation.

I want to highlight and emphasize that we have significantly transformed and strengthened our company since the start of the year, most notably with the Maverick Natural Resources acquisition. Our growth through the acquisition model has demonstrated how a material change in scale can provide the operational leverage to deliver robust cash flows that ultimately create value for all shareholders.

This generated value is evidenced by our growth in EBITDA and cash flow, which nearly doubled year-over-year and our increased guidance on run rate synergies following our first full quarter with Maverick, demonstrating our focused approach to driving operational efficiencies through the integration of new assets.

I want to commend the efforts of our employees. Their hard work and determination allow us to deliver outstanding results and live by our culture of getting stuff done, which is helping us to be want to know every day. Notably, during the quarter, Southern Appalachia experienced dramatic flood damage. Yet while our operations were impacted, these committed employees not only worked to minimize production downtime, but also devoted significant efforts to help those in the communities where they work and live. Our team has positioned Diversified for an exciting future. I am confident we will continue to deliver compelling operational and financial results.

Additionally, while we recognize the increased volatility stemming from tariffs, geopolitical disturbances, and other external factors, we do not see a material impact on Diversified's fundamental business. Importantly, we continue to focus on what we can control, operating and optimizing our portfolio of assets to create a scalable business model with highly reliable production and consistent cash flow, which delivers certainty and dependable returns to debt and equity investors alike.

While the market for oil and natural gas producers has remained volatile throughout 2025, we know that if it's hard, there is opportunity. For those of you following along with our second quarter 2025 results slide deck, which we posted to our IR website this morning, I will cover a few slides and then turn the call over to Brad to discuss highlights from our financial results. After Brad's remarks, I will provide some additional thoughts on our valuation and guidance for 2025 before opening the call for your questions.

Starting on Slide 3. We continue to focus our capital allocation strategy around 4 key pillars that are deliverables to judge us by: Systematic debt reduction, returning capital to shareholders through dividend distributions and share repurchases and growing our portfolio of cash-generating assets through accretive and strategic acquisitions. As you can see here, we continue to build that credibility in 2025.

Debt principal reduction totaled approximately $130 million during the first half of 2025. Additionally, we returned approximately $105 million to shareholders in the form of dividends and strategic share repurchases. Worth noting, we have a demonstrated track record of shareholder returns with approximately $2 billion in shareholder returns and debt principal repayments since our IPO in 2017 or approximately 1.6x our current market capitalization.

We have also increased our total proved reserves by 65% since year-end 2024, illustrating the strength, resilience, and value of our asset base. Importantly, we believe our shares remain a compelling investment at current levels, and we will continue to take advantage of the current cycle and market dislocation to opportunistically repurchase shares. Together, these actions in 2025 represent a return of approximately 20% of our current equity market cap, demonstrating the power of our disciplined and flexible capital allocation strategy and the quality and consistency of our portfolio of cash-generating assets.

We accomplished all this while integrating our transformational Maverick acquisition. With deal-related expenses behind us and a line of sight to synergy capture in the second half of the year, we are well positioned to continue to be a market leader in returning capital to stakeholders.

We believe our capital allocation strategy balances investment in the business and portfolio growth initiatives while enabling a tangible shareholder return framework, all of which creates long-term value for our stakeholders. We continue to demonstrate that Diversified is a focused company that invests in cash-generating assets in the energy industry, and we will remain focused on our key strategic pillars.

Turning to Slide 4. With our strong liquidity and our recently announced capital deployment partnership with Carlyle, Diversified has unmatched operational scale as well as an advantageous cost of capital and surety of capital, positioning Diversified to support accretive acquisitions in a growing divestiture market.

We have now coupled our operational excellence focused culture with a track record of margin enhancement and earnings growth with a global investment leader, the Carlyle Group. Through this partnership, we intend to prioritize the accretive acquisition investment capital to grow our PDP asset portfolio and optimize returns through synergy capture and portfolio optimizations.

Carlyle has historically been an investor in our ABS securitizations, and we are pleased with the expanded relationship that we have created along with the shared vision of the potential opportunity set ahead. As the PDP champion in the United States, we continue to see a robust opportunity set ahead in the coming years. The combination of maturing assets and M&A activity leading to growth-oriented E&Ps recycling capital through divestment of assets, in many cases, mature producing assets, there remains an ample opportunity for Diversified's continued growth.

Additionally, given our industry-wide reputation as a professional and responsible operator of large portfolios of energy-producing assets and the current upstream market dynamic of E&Ps making acquisitions to backfill and expand undeveloped inventory, Diversified provides a creative and actionable solution as a PDP partner in a joint acquisition.

With this partnership with Carlyle, we now have line of sight to fund up to an initial $2 billion worth of acquisitions without raising a single new share of equity capital. That's a powerful endorsement of our abilities and our strategy and a clear path to non-dilutive growth.

Turning to Slide 5. I was pleased to have the opportunity to attend the inaugural Appalachian Energy and Innovation Summit held in Pittsburgh a few weeks ago. There continues to be growing excitement on the demand pool of data center development within the entirety of the Appalachian region. The pledge headline investment within Pennsylvania alone has the potential to provide a generational economic impact, which can ultimately drive regulatory and legislative streamlining.

Our proximity to emerging data center hubs positions us to benefit from rising natural gas demand, whether through direct supply agreements or improved basin pricing. Notably, in-basin natural gas differentials have already shown improvement. If you believe in the secular trends of natural gas power, energy demand, data center build-out, and LNG growth, then you should be bullish on Diversified.

With that, I'll turn it over to Brad to discuss our financial performance and portfolio optimization results in greater detail.

Thank you, Rusty.

We'll turn to Slide 6 now. And before sharing the highlights of our financial and operational results for the second quarter, I would like to focus on the left side of this slide. This presentation very simply illustrates how our accretive growth of cash-generating energy assets paired with best-in-class operational and corporate infrastructure framework translates into material bottom line growth. Over the last 5 years, we have experienced a greater than 310% increase in our adjusted EBITDA.

For the second quarter, we'll start with production. The daily production exit rate for June was approximately 1.14 Bcf per day, and our quarterly production averaged over 1.15 Bcf per day. Notably, approximately 65% of our produced volumes were generated in our expanded Central region. The growth in our low decline, resilient production base has put the company in a great position to participate in both LNG exports and data center energy demand while continuing to supply our local communities and our commercial customers.

Total revenue was approximately $510 million and adjusted EBITDA for the quarter was $280 million. Adjusted EBITDA was $418 million for the first half of 2025, and our second quarter adjusted EBITDA margin was 63%. As we continue our integration process and improve our combined company cost structure, we anticipate that we will be able to maintain our historical approximately 50% cash margins.

Notably, our portfolio optimization processes in the second quarter allowed us to generate approximately $70 million in additional cash proceeds. These incremental proceeds increase our return on investment from the Maverick acquisition. And the best way that I can describe it is that it was highly impactful in the quarter.

The quarter's free cash flow was $88 million, which was burdened with approximately $25 million of nonrecurring transaction-related costs. And our net debt stood at approximately $2.6 billion for the quarter. We improved our overall leverage by 10%, making continued progress to our target level of 2.0x to 2.5x net debt to EBITDA.

With approximately $420 million in liquidity, our balance sheet strength is giving us the optionality and flexibility to navigate and potentially to take advantage of volatile markets and commodity price cycles. Additionally, our investment-grade rated nonrecourse, stable, longer-term ABS notes helped contribute to our financial resilience.

In summary, our team's strong execution of our strategy to acquire stable, consistent cash-generating assets delivered positive results, enabling strong free cash flow generation and allowing us to continue to prioritize returning capital to shareholders and paying down debt.

Turning now to Slide 7. One of the main benefits of the recently completed Maverick acquisition is that we now have multiple drivers of cash flow generation and growth. Our expanded asset portfolio will benefit from a low decline production profile, commodity diversification, our disciplined hedging program and the potential for additional upside from anticipated operational and administrative synergies. The chart on the bottom of this page highlights the results of our expanding asset portfolio. We have delivered both sequential and year-over-year growth in free cash flow.

Now turning to Slide 8. On this slide, we have provided more details around our non-op joint venture partnership, which is located in the Western Anadarko Basin. This capital-light approach with an industry leader offers an elegant solution for adding production and ultimately free cash flow while delivering a compelling return profile.

Year-to-date, we have seen an approximately 60% rate of return on these new wells, which are trending approximately 75% liquids. Notably, this additive production serves to meaningfully offset our stated 10% annual corporate production decline. Additionally, we have a very healthy inventory of approximately 245 additional identified locations for future development that will support future cash flow generation.

We'll now turn to Slide 9. Our proven approach to capturing additional value and achieving meaningful synergies continues to deliver upside to our original estimates. Our annual synergy run rate has been raised to approximately $60 million. We have integrated our field operations at this point, and we are in the late stages of finalizing our corporate level processes. We are very confident that our enhanced scale will provide additional opportunities for improvement.

One example worth calling out is a pipeline swap transaction with a large midstream provider we completed in the second quarter. With our expanded Oklahoma operating footprint, we were able to acquire a gathering system infrastructure that allows us now to flow our molecules on a no-fee Diversified owned pipeline, along with a reduction in field level expenses, which has provided material margin enhancement.

And with the ability to tie in additional fee-based volumes, wellhead compression eliminations and improved emissions performance, we are seeing the benefits of our expanded scale. The creative execution of our skilled field teams continue to generate cash flow just months after the closure of our acquisition.

Now turning to Slide 10. Our stewardship operating model is supported by our long-tested smarter asset management practices, which optimize the cash flow from the assets we acquire through both production enhancements and expense efficiency. A great illustration of our team's efforts is the current workover program in our Oklahoma basin. With low capital outlay and quick average paybacks, we are improving the productivity and profitability of these wells. And by leveraging our technology stack, we are confident that we are setting a course to manage these wells for many decades into the future.

And now turning to Slide 11. Over the past few years, we have highlighted our Black Bear processing plant, which is located on the Louisiana side of the Haynesville and Cotton Valley basins. We are happy to have recently struck a multifaceted, multiyear deal that provides a gas processing dedication from the purchaser who will pay third-party fees to Diversified. And we love third-party fees because they enhance our free cash flow.

And with this contract, the Black Bear plant will be fully utilized, providing fixed operational cost absorption. These 3 cash-generating examples demonstrate our focus on optimizing and increasing return from our expanded portfolio of assets. Our daily priorities require us to look for, find, and execute activities that enhance our margins. Our daily priorities drive additional cash flow and long-term, they create value for our shareholders. These daily priorities, which are safety, production, efficiency, and enjoyment are unique to Diversified, and they will allow the company to continue to generate a resilient, consistent free cash flow as the PDP champion of the upstream sector.

And to wrap up my comments, I want to say thank you to all of our teams for their excellent work during the first half of 2025. Our company is the strongest it has ever been, and this position is due to the hard and smart work from our skilled team of professionals. The American Energy worker is a special class of people, and our teams are at the top.

I will now turn the call over to Rusty for some final thoughts.

Thanks, Brad. Before we take questions, let me provide some thoughts on our current valuation, company outlook for the balance of 2025, and how we believe our success strategy for the future will look in the coming year.

Turning to Slide 12. Translating these results into comparable data points, you can clearly see that Diversified is a leader in several valuation categories, not only with upstream and natural gas peers, but also across various sectors and market cap sizes. Since our IPO, we have returned approximately $2 billion in shareholder returns and debt payments, which shows the strength of our strategy to acquire cash-generating assets and to operate them with operational excellence. These shareholder returns show our commitment to create value. However, the current share price does not reflect these attributes and our consistent results.

Turning to Slide 13. We believe our share price is undervalued and has been impacted by macro headwinds that are not connected with our company's compelling fundamentals or our consistent performance. We have demonstrated EBITDA growth of 310% over the past 5 years or over 60% annually as we highlighted earlier. Based on the EV to EBITDA metrics where we historically traded and compared to multiples of natural gas peers, the calculation would yield a much higher share price. We strongly believe there's a real opportunity for a re-rate of our shares to create a meaningful increase in our share price.

With a number of near-term catalysts on the horizon, including the full integration of identified and quantified synergies, the cash generation proceeds from continued portfolio optimization, our emerging coal mine methane opportunity, and the continually consolidating landscape of North American operators, we believe that our proven cash-generating business strategy, coupled with our significant capabilities and scale, has us positioned to generate meaningful shareholder value.

Turning to Slide 14. We continue to maintain momentum into the second half of the year. And with the Maverick integration progress nearly complete, we have increased our targeted run rate synergies to approximately $60 million. Importantly, with our targeted daily production of over 1 Bcf and more than $420 million in free cash flow, the company is positioned on a path that creates a unique and compelling investment opportunity.

We are pleased with how we started the year and confident in our ability to execute for the balance of the year. My commitment to our shareholders is that we will continue executing each day while building a resilient portfolio of cash-generating assets for tomorrow.

On Slide 15, as we continue to emphasize, we are a differentiated energy producer that seeks to optimize existing long life and often overlooked and undervalued cash-generating U.S. energy assets. We seek to maximize value that drives shareholder returns in a unique way by minimizing traditional E&P risk, growing our revenue streams, optimizing our asset portfolio, and being good stewards of our capital while generating meaningful and consistent cash flow.

Our results reflect our continued focus on building a strategic, resilient manager and operator of energy-producing assets. We believe we are the champion of the PDP subsector within the upstream E&P space. As the only publicly traded company focused exclusively on PDP assets, Diversified offers investors access to a proven private equity roll-up strategy with the added advantage of Diversified scale and vertical integration to drive superior returns.

We remain focused on building a portfolio of assets through value-accretive transactions while simultaneously unlocking hidden value through our unique operational framework, strategic development partnerships, and growing adjacent business segments. Diversified offers unique value creation attributes, which provide us with a competitive advantage. With our large operational scale, vertical integration, and corporate infrastructure that leverages a leading technology platform, we have a proven integration process that allows us to streamline and capture meaningful synergies. We have executed that playbook 30 times over the past 7 years.

Every internal investment, portfolio optimization, and acquisition is about accelerating progress, creating meaningful synergies and delivering real sustainable value. It's not about size, it's about outcomes, financial, operational, and strategic. We have been steadfast in executing our strategy since our IPO, driving strong financial and operational performance. The right company, right time mindset for the type of assets we manage delivers consistent free cash flow and returns to shareholders and serves a fundamental role in sustaining the U.S. energy markets.

Before I turn the call over to the operator for Q&A, I'd like to take a minute to again recognize our employees for their outstanding achievements and contributions. Without their excellent work in the field and in the corporate office, these results would not be achievable. With that, I'd like to turn it over to the operator for the Q&A portion of today's call. Operator?

[Operator Instructions] Our first question today is coming from Jon Mardini from KeyBanc Capital Markets.

Just on the Oklahoma JV, I appreciate the slide laying out some of the detail around the partnership. How do you see this JV fitting into the core of your portfolio, just given it's more liquids weighted along with the recurring CapEx associated with its growth? Is it something you could look to maybe expand on beyond the current scope of the partnership? Is it more of a steady-state program? Just any framework around how you think about the partnership would be helpful.

Yes. I think that it's just kind of a steady-as-you-go type program. We have multi-year development here with our JV partner. We have a decent working exercise in this acreage position. We have a lot of running room, 240-some-odd locations still to go. The return thresholds have been great. So I think it's kind of a steady as you go, really just kind of the way that's laid out here on this slide.

I would say down the road that there's other opportunities in other basins that we could expand that partnership with. We definitely have a fairly large Permian Basin position now that we're currently evaluating to see if there's opportunities there to do something similar. So I would say this in Oklahoma, as it relates to Oklahoma, it's steady as you go, but there could be opportunities elsewhere as we evaluate our acreage position.

I appreciate the detail there. Just on the Carlyle JV, there's been some industry activity recently related to some PDP-focused deals. Just curious how discussions have been going around deal procurement associated with the partnership? Has there been maybe an uptick in opportunities you've seen that may fit within the parameters of the structure?

Yes. No, we're evaluating opportunities consistently with our partner, Carlyle. The key for us is the right type of acquisition, #1, the right type of assets, #2, and then making sure that we don't overpay for stuff. And some of the best deals you'll do are the ones you don't do, and we need to make sure that we're staying disciplined in our approach, getting the best value that we can, making sure that we're getting the returns that we need. But we'll definitely do deals here in the near term with Carlyle. There's a lot of momentum there.

And so the other thing I would say is I love the commodity prices have come off quite a bit, both oil and natural gas. And as you guys know, that's typically a pretty good environment for our acquisition strategy as we see those assets or as we see those commodity prices come off that we can start to search for value out there again. So we'll get some deals done with them in the near term.

And I'll just add. We've been very encouraged and pleased with the level of engagement from Carlyle. They've been at the table with us evaluating potential transactions and very engaged. So as Rusty said, we're confident that we'll be able to put some money to work here in the future.

Next question today is coming from David Round from Stifel.

First one for me, on the land sales, I think you're only expecting to sell $40 million of undeveloped acreage in the first half. So I mean, the question is, is there anything else in that $70 million number to be aware of? Or can you help bridge the gap and just let us know what you were able to sell that maybe you weren't expecting to at the start of the year? And I know you're able to guide or at least help us sort of get a bit of a steer what that number could look like for the full year, please?

Yes. David, I think it was really just a combination of some higher realizations on the per acreage amount that we were anticipating. And then we did have some additional interest on some various and sundry acreage positions that as some of the developers are looking to put positions together, they need some of the blocks to put their drilling programs in place. And that gave us an opportunity to take advantage of some additional sales is the primary answer.

I mean these were all primarily focused in the Western Anadarko Basin, where we are the largest leaseholder in that area. So that just continues to give us great opportunities. As we highlighted in numerous places in the presentation and in Rusty's comments, I mean, this is part of our asset optimization that we do when we get a portfolio, a new portfolio of assets. We're looking for all ways that we can enhance margins and drive additional returns. And this one has been a great one. I think I said in my comments, it was highly impactful. And so that was just a good opportunity that our land and legal teams were able to take advantage of.

As we go forward for the second half of the year, and as Rusty indicated, we are looking at some of our Permian positions and looking for ways that we might be able to do some development, maybe some land opportunities or some affluent, but what I like to call is asset optimization opportunities in some of that acreage. But that's all under review at this point. And we're not at a point where we're ready to add some additional guidance on that front.

Yes, David, I'll just leave it with this is that as we evaluate all of our acreage positions and we determine which ones make sense to generate value externally versus coming up with a way to take advantage of that value organically, I am finding -- I'm being surprised by the level of interest, but also in the level of value that some people are willing to pay for some of these acreage positions as they look to generate more inventory to drill. So fingers crossed, we'll continue to market and figure out which positions we want to let it go. But we're pretty confident that there will be more. I just don't know what that amount is going to be at this point.

As a second question, are you able to just provide a bit of information on the well retirements, please? And I'm thinking particularly the third-party part of that business, how that's tracking versus last year?

Sure. The first point I'd like to call out, and we had this in our announcement this morning is the fact that over the last several years, we plugged over 1,100 wells. That's a stat that we're extremely proud of. That's required a lot of investment. We've built up our next level energy plugging company in the Appalachia Basin. So we've been active. We continue to be active.

Most of the -- as it relates to third-party activity, yes, we're getting our share of third-party revenue and plugging activity in the Appalachia Basin. It's not as robust as it was back in 2023 when the federal money was really flowing with the initial slug of cash that came out. But it's consistent and some of the state programs are rolling out as well.

So we're trying to be -- just like we do with all of our assets and all of our cash flow opportunities is we're trying to make good decisions with how we allocate our assets, either internally or externally. And we're going to plug close to 400 wells or so this year, I believe, is the pace that we're on. So very proud of all the wells that we've been able to impact here over the last several years.

Next question today is coming from Paul Diamond from Citibank.

I just wanted to quickly talk about, I know a large kind of macro theme in the space has been in the AI data center theme. Given your position in Appalachia, just wanted to talk about -- I want to get your idea on how you see your role in that opportunity set as it develops and if any conversations are ongoing or kind of how you're viewing recent announcements?

Yes, that's a great question. I'm highly enthused as to -- as I said, being in that Pennsylvania Summit, the amount of investment that was announced just on that day alone, $90 billion worth of power generation, natural gas power generation, data center build-outs. The way that I see us fitting in is we could definitely fit in on a small-scale, smaller power generation off-grid source type power generation sources. And we're constantly evaluating some opportunities there.

But I think the biggest impact for us is just purely on pricing alone. And so as natural gas demand increases, it will continue to put pressure, contraction pressure on basis differentials. And that to us is a big impact, and that significantly impacts our ability to hedge better pricing and get better net price in the basin.

So between all of that and then you throw in the constitution pipeline and some other things, I think that it will -- the biggest impact for us is in pricing. But there's no doubt that the demand for natural gas in Appalachia is going to increase substantially. And I think a lot of that will be for power generation, but then off-grid sources also.

And so we're on the lookout for ways that we can participate on a much smaller scale than, say, somebody like EQT is going to provide 1.2 Bcf a day to 2 power sources. But we think there's ways for us to be able to get involved smaller on a smaller scale, but also reap the benefits of what the demand that's coming to market is going to do for pricing.

Just a quick follow-up, more bookkeeping than anything else. The bump in synergy capture you guys are expecting now to close to $60 million. Can you just give me an idea of what the delta is between prior expectations and what you're seeing now?

Are you talking about the synergies?

Yes, the synergy capture.

Yes. So our initial estimates were related -- the $50 million mark was what we kind of identified during our due diligence process. But as we've gotten in, got on the ground, started to look at things a little closer, we were able to find other areas, it's really remarkable. When you sit down and you look at some of the things that we've been able to do and the creativity of our field employees and finding these things, it's truly been remarkable. And that $60 million, we're highly confident in the $60 million number. Did you want to add anything there?

Well, like Rusty said, the scale that we have in that Western Oklahoma area just continues to provide a lot of opportunities and synergies for us. So that's the primary driver of the increase.

[Operator Instructions] Our next question is coming from Tim Moore from Clear Street.

Congratulations on the quarter. Now that you've had a full quarter of Maverick Resources ownership completed and field operations integrated, can you maybe just speak a little bit more about the footprint expansion opportunities? I mean, you got Cherokee, Oklahoma, you mentioned, you got that great slide. Any other areas you're looking to kind of optimize? You mentioned a little bit maybe in the Permian.

And I know you just covered a little bit of the cost synergies upside for Western Oklahoma. But can you speak to like any other specifics that you're really identifying for optimization that might even give you some creep to that $60 million cost synergy number?

Well, I'll let Brad chime in. But from my perspective, the optimization of the portfolio, really, it changes every day. I mean we obviously are doing a portfolio review and looking at all of our acreage positions, as I said during the call. And then we looked at which ones we want to look external to create value. But it also -- a lot of it comes from just people calling and saying, hey, you got this acreage position over here that we'd like to make an offer on. And then when we put it out and we start to make it competitive, it's amazing where those prices for those positions go. And so we've been pretty successful doing that.

The $60 million, like I said, it's come from a variety of areas. It's come from field. It's come from G&A. It's come from finding additional ways to mold the 2 portfolios together, both Maverick and Diversified. And so it's come from different angles. But look, the one thing I'm very confident in as we move forward, things that we don't know today will become opportunities tomorrow.

And we're highly confident as our people start to really get on the ground and start doing things day-to-day that they're going to find ways to take the 2 portfolios and be more efficient in the way we're operating, release compression, add compression. There's all kinds of ways to create additional value. So we don't even know what it all is going to be yet. I mean the $60 million is stuff we've identified, but there could be more stuff coming down in the future.

Yes. And from a growth perspective standpoint, one of the things that I really like about our position at this point is the fact that we operate in 5 basins. So we've got significant Appalachian operations. We've got significant Oklahoma. We've got a very attractive franchise in the Cotton Valley, Haynesville area, and now we're in the Permian as well. And so as we look for ways and areas that we can grow and build additional scale, we have options. We've got a very active business development team. Rusty leads our M&A activities.

And so we're not forced into a 2 to 3 county area or 1 basin. We have the ability to drive synergies and increase scale in 5 different basins. And then you match that with our expanded liquidity and our very scalable corporate infrastructure, that puts us in a very positive position.

And we really appreciate that IRR slide on Cherokee. And just workovers, I think investors are really missing the workover opportunity to offset some of the production decline.

Yes. Just from a workover perspective, because we have such a vast asset base, we almost have an unlimited number of projects on a daily basis. What Rick Gideon, our Chief Operating Officer and team do to look for ways that they can optimize the capital that we're deploying into the best projects is that they're doing a phenomenal job there.

Next question is coming from Charles Meade from Johnson Rice.

I wanted to ask a question about the -- your Slide 8, and this is about really the JV that came with Maverick. So you guys say on your kind of your second, I guess, block on the left there that you have the potential to meaningfully offset 10% corporate decline. I'm wondering if you could frame that up in terms of magnitude and also what time frame and not to say it's inconsistent, but you've reiterated your guide for the balance of '25. So should we be thinking about meaningful offset your decline in '26? And does that mean overall, the top line goes to an 8% decline? Or does it mean it goes to a 5%? If you could just kind of frame that up for me.

Yes. I mean we're still trying to get our hands around that. But we do know that this program is going to give us a material amount of production next year that we don't have this year. And so we'll probably have more color on that as we get toward the end of the year in terms of what those production rates do to our overall decline. But as you can imagine, a 1% or 2% reduction in decline rates is substantial to our bottom line with the size and scale of the company as it is today. So we're excited about that.

It's our first real or what I would consider to be organic other than just workovers and things that we do in the portfolio day-to-day. It's really our first true organic mechanism in the portfolio as a company to kind of stave off decline rates. Our JV partner is fantastic. Their top line, they do a fantastic job. We're really excited about it. The returns, the IRRs on these wells have been great, even in a lower commodity price environment like we've seen over the last couple of months.

So it's just a great opportunity for us. We're excited about it. We'll have more information as we get to the end of the year in terms of how this thing is going to impact '26, but there's no doubt that it will have an impact on 2026.

And can you offer -- has there been interest in other zones besides just the Cherokee? Are there people kind of knocking on your door asking for deeper rights? Or what's the evolution of the target horizons you see there in the Western Anadarko?

Yes. No, we've seen a lot of interest in the Western Anadarko in different formations, different acreage areas. We have let a lot of those go to external parties through optimization efforts. Some we've participated on a smaller scale than, say, this JV. But look, what I would say is Oklahoma and Texas, everything seems to be an opportunity for companies if you find the right one. And so we have a great land group that does a fantastic job of taking our land positions, accumulating and summarizing them and then taking them out to see if there's value to be obtained. And so this will be a part of our business moving forward to some level as we take all this acreage and determine what we have.

And really through the Maverick transaction, we -- for the first time, we have great engineering support to be able to look at our acreage positions and really give us an analysis of what it represents to us if we do something with it ourselves or whether it's better off in the hands of someone else. And so it's just really a migrating process that is now starting to show and really create value.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Rusty for any further or closing comments.

Yes. So thank you all for attending today's call. We look forward to meeting later in the year to talk more about the numbers, and have a great day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.