Diversified Energy Company Stock

Greetings. Welcome to Diversified Energy's Third Quarter 2026 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded.

I'll now turn the conference over to Douglas Kris, Senior Vice President, Investor Relations and Corporate Communications. Thank you. You may now begin.

Good morning, and thank you all for joining us today and welcome to our third quarter 2026 earnings conference call. With me today are Diversified's Chairman and Chief Executive Officer, Rusty Hutson; President and Chief Financial Officer, Brad Gray; and Executive Vice President and Chief Operating Officer, Rick Gideon.

Before we get started, I will remind everyone that the remarks on this call reflect the financial and operational outlook as of today, November 5, 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 anticipated. The risk factors that may affect the 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, and subsequent filings with the SEC.

During this call, we will 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'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 results slide deck, which we posted on our website last night, I plan to cover a few slides focusing on the overall results we announced, the strategy that fuels the cash flow engine and the opportunity set ahead with our Birch Resources acquisition. I will then turn the call over to Rick to provide some greater detail on the day-to-day blocking and tackling of our Smarter Asset Management operational program, and Brad will provide a look at the financials and 2026 guidance. After Brad's remarks, I will provide some closing thoughts before opening the call for your questions.

Before we get into the quarter, I want to spend a minute on the market we're all operating in because it helps frame everything you'll hear from us today. 2026 has been one of the most volatile years for energy in a long time. The conflict in the Middle East and the disruption in the Strait of Hormuz have kept crude on a hair trigger. Oil spiked in the spring, gave much of it -- gave much off back over the summer and has moved sharply again this month amid renewed supply fears.

WTI has been trading around $90 or higher. Even as recently as this week, we have seen material movements in oil prices. That's real money moving on headlines sometimes in a single session. Natural gas tells a different story. Overseas, gas prices jumped as LNG supply was disrupted. Here at home, Henry Hub has been stuck near $3 or lower and hit some of the lowest in-basin prices in Appalachia in years.

Record U.S. production, a lot of it associated gas from the Permian and storage heading into winter near record levels, have kept a lid on domestic natural gas prices. So we have a global energy security premium in Europe and Asia, while conversely a well-supplied U.S., market.

Looking out, the long-term demand story for U.S. gas is as strong as it has ever been with more LNG export capacity coming online and rising power demand, including from data centers in the Northeast. But the forecasters don't agree on the back half of 2027 or full year 2028 yet. Some see a tighter market, while others see new Permian pipeline capacity bringing more supply.

Honestly, nobody knows, and that's the point. Our answer is the business model that we have created. Diversified turned 25 this year. Since 2001, we have operated through every kind of cycle, price collapses, price spikes, credit crunches and a pandemic. What we learned is that you can't control the commodity price, so you build a business that doesn't depend on guessing it right.

We've hedged 2027 at approximately $4.40 per Mcfe and against the natural gas strip of approximately $3.45. That's the model doing its job. We continue to maintain a strategy that allows you to manage through cycles. That's what our model does. We buy producing assets at a discounted value. We hedge to protect the returns we underwrite. We finance with investment-grade ABS debt that amortizes in line with the cash flows of those assets. We operate them with greater focus than the people we bought them from.

We create upside and additional cash flow through portfolio optimization, and we consistently return the cash to shareholders. That discipline is why we can say we're operating from the strongest financial position in our history. It's also why when others pull back in volatile markets, we can lean in as we did with Birch.

Starting on Slide 3. So let me start where we always do, how Diversified Energy allocates capital that is generated from our cash engine. Our capital allocation framework has 4 parts and year-to-date in 2026, we've delivered on every one of them.

Our model continues to generate durable free cash flow from a low-decline asset base, along with continued cash generation from portfolio optimization of noncore assets that we can deploy to our 4 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.

I'm extremely proud of our team for delivering outstanding results. As you can see on this page, we reinforced our proven track record across all our shareholder priorities throughout 2026. Through the third quarter of 2026, we repaid approximately $313 million in debt principal. This is not just financial housekeeping, it's highly strategic. Every dollar of debt we retire strengthens our balance sheet, reduces our cost of capital and creates long-term value for our shareholders.

With approximately $506 million in liquidity at the end of the quarter, we are continuing to operate from a position of strength. We returned approximately $157 million to shareholders through dividends and strategic share repurchases. At current levels, that is an approximate 17% shareholder return on capital yield. We are confident in our durable cash generation abilities, and we were pleased to provide our shareholders with this level of return thus far this year.

Worth noting, we have demonstrated a consistent track record of robust and disciplined capital allocation with approximately $2.5 billion in shareholder returns and debt principal repayments since our IPO in 2017. Together, these actions demonstrate the power of our disciplined yet flexible capital allocation priorities and the quality and consistency of the cash generation capabilities of our portfolio's assets. And as a result, our free cash flow engine is expected to generate approximately $440 million this year.

Turning to Slide 4. Now to our Birch acquisition, which we announced in September and is on track to close prior to the end of the fourth quarter. Birch gives us an anchor position in the Permian Basin. It's turnkey PDP production from 500 gross operated wells with infrastructure already built, including 12 central production facilities, gathering lines and a valuable water disposal system. Importantly, Birch is 70% liquids that materially rebalances our commodity mix and adds a larger oil wedge of liquid-based revenue to our cash flow.

It sits adjacent to our existing Texas operations, so there are opportunities for near-term synergies and longer term a platform to bolt-on accretive acquisitions in a maturing developed basin. The financing for this acquisition is our business model at work. ABS funding facilitated by Carlyle covers the producing assets and Diversified will own 100% of the Birch PDP, along with additional undeveloped acreage and infrastructure assets.

The scale is significant and a step change in our Permian Basin position. Birch brings about 68,000 barrels of oil equivalent per day, about $548 million of next 12-month EBITDA and $455 million of free cash flow. It is 70% liquids, which balances our gas-weighted base. Pro forma, that means production is up an estimated 35%, EBITDA more than 55%, and free cash flow more than doubling.

Turning to Slide 5. I just wanted to briefly touch on the potential investment opportunity ahead with the closing of our acquisition of Birch, which we believe is yet to be recognized by the market. Pro forma for Birch, we will become a Top 15 U.S., publicly listed producer with approximately $1.5 billion of EBITDA and nearly $900 million of free cash flow. That puts us within the ZIP code of household names and materially above the middle of a natural gas peer group that trades at an average of 5 to 6x EBITDA. We currently trade at approximately 3.9.

On a pro forma free cash flow basis, we ranked fifth in this peer set and ahead of several companies valued at much higher multiples. We don't control our multiple. What we control is the operations, the cash generation and the track record. Birch is a step change in all 3, and we believe the public market should take notice.

Now I'll hand it over to Rick.

Thank you, Rusty. Turning to Slide 6. Here, we outlined some specifics of our strategy Rusty has recently discussed with a focus on our Smarter Asset Management, which drives cost reduction, synergy capture and enhanced margins. It's how we turn acquired assets into more cash than the previous owner could deliver, ultimately adding to the underlying rate of return from an acquisition.

On this page, we are highlighting 4 specific opportunities that are part of our playbook, but I wanted to stress that this is not the full scope of our capabilities, rather it is a small sample set that reflects the operational excellence and corporate culture ingrained within our organization. Small daily wins add-up to long-term durable gains.

First, workovers. Given the size of our operational footprint in Oklahoma, we're running 3 workover rigs. The results to date across 263 jobs have restored about 6,700 barrels of oil equivalents per day with an average payback of under 4.5 months.

Second, supply chain. We cut our Mid-Con chemical suppliers from 5 to 3 through a competitive process, resulting in approximately $2.5 million of annual savings, rightsizing compression, while driving competitive opportunities should add about another $2 million more.

Third, infrastructure. We tied into infrastructure we already owned and cut our water hauling costs by 58%, about $22,000 of capital or roughly $100,000 a year in savings, which results in under a 3-month payback.

And then fourth, synergy capture. In Oklahoma and East Texas, we put existing Diversified operators on acquired assets. By utilizing our own operational team, we cut our support costs by approximately 17% on Canvas and Camino and approximately 44% on Sheridan, while holding production flat. Importantly, none of these are headlines on their own. Together, they're the playbook we'll bring to Birch on day 1 to help exploit an identified opportunity set for the company's largest acquisition to date.

I would like to turn to the operated Oklahoma development plan. We have approximately 20 gross, 17 net high working interest wells in Phase 1 of our program that are highly economic at $65 oil and $3.25 natural gas. The program is underway, and we have completed the drilling of 4 wells to date with execution on time and on budget. We have begun completion operations on our first pad and construction of the on-pad production facilities on our second pad is nearly complete. This phase of the program is intended to run through December of 2027, and we look forward to sharing additional results in the coming quarters.

With that, I will turn the call over to Brad.

Thank you, Rick, and I'll start on Slide 7. Our teams continued to deliver consistent and strong results in the third quarter of 2026, starting with production. Daily production averaged approximately 1.2 Bcfe per day, and our low decline, predictable base is the foundation of everything else on this page. Total commodity revenue was $470 million, equating to approximately $4.29 per Mcfe, and our adjusted EBITDA was $256 million for the quarter with a margin of 56%.

Notably, our portfolio optimization processes or better known as our POP program, allowed us to generate approximately $149 million in additional cash proceeds through the 3 quarters of 2026. That POP program is the ongoing effort to monetize noncore acreage and surface assets, which contributes to our robust cash generation. As the largest well owner and the third largest leaseholder in the Lower 48, these noncore assets are something that we are continuously evaluating, and we anticipate having additional opportunities to high-grade our portfolio in the future.

Our adjusted free cash flow for the quarter was $153 million. On the balance sheet, we closed the quarter with $506 million of liquidity as of the end of the quarter. Subsequent to the end of the quarter, during the fall borrowing base redetermination process, we were very pleased to receive an upsize on our credit facility to $1 billion, up from $900 million. Notably, this upsize is not the reported liquidity figure and this will further enhance the strength of our financial position.

In addition, approximately 72% of our outstanding debt is nonrecourse investment-grade rated ABS. The achievement of investment-grade rating of our ABS notes is important and should not be overlooked. This rating indicates security and confidence in the future cash flows of the assets. And this rating tells investors that the leverage on the assets has been stress tested and the cash flow risks are mitigated. Through 3 quarters this year, we have used the designed amortization in the ABS notes to pay down approximately $313 million in principal, which represents over 11% of our outstanding debt. Our efficient and very shareholder-friendly financing strategy is fundamental to how we finance PDP assets. And in an rate environment like this one, it truly matters.

The table on the right frames the trailing 12-month picture, 1.2 Bcf (sic) [ Bcfe ] per day of production, approximately $2 billion in commodity revenue, approximately $1 billion in adjusted EBITDA and $560 million in adjusted free cash flow. Those results show the run rate cash engine of this business and why our business model has been proven for 25 years.

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. 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.

I'll now turn to Slide 8. We are reiterating our full year 2026 guidance today. This guidance encompasses the closed acquisitions of Sheridan from the second quarter, Camino, which closed during the third quarter and the Barnett divestment as well as capital spending associated with our 2026 Operated Development Program. Notably, this guidance does not include the Birch acquisition, which is anticipated to close before the end of the fourth quarter and could provide some upside bias to these metrics. We expect total production of 1.2 Bcfe per day with commodity mix of approximately 29% liquids and 71% natural gas.

Adjusted EBITDA guidance is approximately $1 billion with adjusted free cash flow of approximately $440 million. Total capital expenditures are expected in a range of $225 million to $255 million. The headline here is capital allocation flexibility. Approximately $440 million in free cash flow after spending between $225 million to $255 million in our capital program means we retain the flexibility to allocate capital to the best uses rather than being forced into any one of them.

I would also like to provide some detail on the included line item, income from equity affiliates, to account for the minority ownership of our Camino special purpose vehicle, which sits off balance sheet. The cash flows received as part of our 40% ownership in the producing assets totaled $8.6 million for the quarter. Distributions to Diversified included approximately $6.6 million from distributions from equity affiliates, representing the residual operating cash flows and approximately $2 million in management fees, which is included as a reduction of general and administrative expense in the income statement. Further information related to our Camino SPV accounting process is provided in our 10-Q.

With that, I'll now turn the call back over to Rusty.

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

On Slide 9, I want to spend a moment on what underlies the results we have presented. It's the machine we have built to deliver on our long-term goals. Given the scale of the opportunity set and our ambitions, building this machine is a continuous effort and our execution is the driver of our growth. That machine has 3 high-level components: acquire; operate; and optimize.

Scale, technology and focus are the tools that enable us to enhance margins and increase cash flow. We buy the value targeting mid-teens returns. We finance with investment-grade ABS at a mid-single-digit cost, generally lower than the seller's cost of capital, and we keep the spread. Hedging within that structure locked in what we underwrote. We then optimize our portfolio, which has allowed us to monetize more than $450 million of assets since 2023, materially increasing the underwritten return. And then we consistently and simply return the cash to shareholders.

Year-to-date, dividends and buybacks have delivered a 17% shareholder return of capital yield. That compares with our full year 2025 shareholder return of capital yield of 18%. Buy, finance, optimize, return, then do it again. Our 25th anniversary seal this year reads "Built by the Proven", and it describes how we got here, proven strategy, proven assets, proven cash flow, proven people, proven results.

To sum it up, in one of the most volatile years for commodity prices we've seen, Diversified delivered steady production, increased cash flow and achieved the strongest balance sheet we have ever had. We returned capital, paid down debt principal and announced the largest acquisition in our history. 25 years in, the model is proven, and we think the best is still ahead.

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

[Operator Instructions]. And our first question is from the line of Charles Meade with Johnson Rice.

Rick, perhaps this question is for you. I'd like to ask about your operated drilling program. You gave us the update you've got 4 wells out of about 20 gross that you plan for the Mid-Con. Can you share with us just a few more details, what county, what zone you're targeting there?

And if you're willing to -- the way that I perceive these wells is they're about not eliminating but mitigating what your PDP decline is. And of course, your PDP decline is going to be a little different in '27 once you close Birch. And so I wonder if you could just calibrate our expectations on what you -- the contribution of this operated drilling program to the overall '27 production profile and net decline for the company?

Yes. Let's -- great questions. And I'll tell you, I want to brag the drilling program is going exceptionally well. Everything is on cost, everything is on schedule. We have drilled our first 4 wells. These have been 1.5-mile and 2-mile laterals. We're going to continue to extend that into 3-mile laterals where we can. We're targeting the Meramec for the most part on these first wells. Obviously, there's other horizons that are very prolific in the basin that we'll continue to target. We are certain our first completions. And post that, we'll give more details after we get a good production profile. So it's going very well.

As far as decline, we're going to target to overcome that with the highest return wells we have. And that exact number, I don't know that we've put out quite yet, but we'll be talking about that as we get into Q1.

Charles, I would just say real quick that we're going to be looking at year-end numbers. We're going to be putting out some new guidance, and we're going to be talking about a lot of this stuff. So more to come on all that, and it will -- I'm sure everybody will be happy with it.

So good question, just a little ahead of the curve. And Rusty, for the follow-up, we go back -- I was thinking back to the event you guys hosted in April of this year, and you made the comment that you thought there was a lot of opportunity in the acquisition market. And sure enough, that's borne out with the deals that you've announced this year.

And I'm curious if you could offer maybe an updated view on what the acquisition opportunity set is like? I mean we've had a lot of changes. You talked a lot about the commodity volatility, but also part of that is that the '27 gas strip is -- has had a kind of a tough move down. So with everything that's happened in the last 6 or 7 months, I wonder if you could just update us on your outlook for the acquisition opportunity set?

Yes, I mean it continues to be relatively robust. I was -- I'm kind of surprised by it, to be honest. I figured the volatility in oil prices would slow that market down some, really hasn't. I would love to buy natural gas at 2027 strip right now. I just feel like it's a significant discount to what the true value is long-term. We would love to buy more natural gas at this gas strip. But that -- I will say the natural -- and you can imagine with prices down that natural gas opportunities seem to be fewer than on the oil side.

So the market is still robust. I would say it's selective. You've got to -- we've got the -- it's after Birch, I mean, our financial position in our next 4 or 5 years looks so good. We don't have to do anything, but we're going to be strategic and we're going to be selective in what we want to do. And so we'll continue to be on the look. And right now, I would call the market still relatively robust.

The next questions are from the line of Bert Donnes with William Blair.

Just following up on M&A. Rusty, I think you put it pretty well when you described the awkward situation, just tough right now, maybe a little next year, but then fundamentals say everything looks great in '28 and beyond. How do you approach it from a debt-to-equity mix when you're looking at future acquisitions?

If you see another Birch, I'm sure you want to kind of roll that in. But do you lean less or more on equity? I'm guessing you look at an optimistic 2028 outlook and that gives you some more confidence to add debt, but maybe you have -- maybe you're forced to kind of focus on the lower current pricing and use more equity. Just how do you balance those 2?

Well, I mean, it's all dependent on the deal. If it's a significant sized deal, you have to look at things a little differently than you do bolt-ons or strategic adds. Obviously, natural gas, as we said, is the one that's the most difficult right now. This -- The curve is -- 2027 is pretty low, but it does recover pretty well, '28 moving forward. And if we can buy gas at the current strip, we would love to do it. But look, it's all -- everything is opportunistic for us.

And so we'll just look at each deal separately. But at the end of the day, we're paying down significant debt every year through our ABS structures. And so it's creating equity value by just paying down debt. And so being able to refinance and do things from that perspective to create cash for deals. So yes, I think it's a deal-by-deal basis, and we'll look at everything just depending upon the size of the deal and where it's at and the value. Go ahead Brad.

Just real quick, I would just add. We've got access to capital. And so that gives us some flexibility. We've got great liquidity on our RBL. We've got a strong supportive bank group. We've got, obviously, the relationship with Carlyle that we've utilized here over the last 1.5 years. And then we know we've got the public markets available to us as well, just the way we're structured. So we take a very thoughtful approach, and we look to take care of our shareholders as well in a transaction.

Well said, Brad. And then moving to the Camino asset, given the unique ownership, we really appreciate the color you gave on the quarter. But maybe if you could talk about, is that a good run rate going forward? Or maybe like behind the curtain, or were there any moving parts in the quarter? Like was there a larger debt repayment coming out before the 40% was calculated? Any onetime items? Or should we look at the amount you put this quarter as kind of the run rate if -- assuming production and pricing stay flat?

Yes. We'll come out with guidance with our year-end results for '27 on this asset specifically. But it's a -- the decline rate there in Oklahoma is kind of that low-double-digits. And -- so it should be relatively consistent. The residual cash flows and the P&I on the amortization of the ABS notes are structured, aligned. So it will be a consistent movement. As it relates to onetime or unusual activities in the numbers, there were none. We were pretty much right on our forecast out of the gate. Rick and his team are doing a great job of integrating those assets. We've already achieved, as he highlighted, a fair amount of synergies that will accrue to that SPV. So I think we're moving in the direction that we anticipated with that asset, and we'll have more guidance at the end of the year.

Our next questions are from the line of Jarrod Giroue New with Stephens.

So my first one is on Slide 5. So here, you highlight the opportunity for a valuation re-rating following Birch. Beyond the increase in scale and cash flow, what do you believe are the most important milestones needed to close the valuation gap with peers?

Well, that's a great question. I wish I knew, we'd already have all those levers pulled. But no, I'm just giving you hard time. But no, it's one of those things where you know what -- we believe cash flow is king. And ultimately, cash flow gets rewarded once it's determined that it's real and it's sustainable, and we want to be able to show and we will show that is real and is sustainable on the back end of Birch. And so we think that, that's probably the biggest lever at the end of the day. We'll continue to manage all the other things that people will look at. But growth, cash flow, those kind of things are what people will reward, and that's where we want to show people that we can do it long-term.

And Jarrod, I'll just add a couple of things, too, is, as Rusty said, the robust nature of the cash flow that the business is generating, you layer in Birch and the very healthy dividend coverage that we have in -- that we will have in place is, like I said, very healthy. We think that's important, and we'll be communicating that with confidence as we go into '27.

And then the ABS debt, we've talked about the merits of that. It's investment-grade rating, it's stress tested, risks are mitigated. It's shareholder friendly. It reduces the equity required for us to acquire assets. And we believe that as we've grown scale and have exceeded $1 billion in EBITDA now and roughly a 50% conversion down to our free cash flow, that the public investors will gain confidence in that scale and that amount of cash flow.

That's perfect. Yes, that all makes sense. And then yes, one quick one on Birch. So on Slide 4, you highlight roughly $455 million of incremental free cash flow from Birch. I was just hoping you could help us understand if there's -- what the underlying CapEx assumption is supporting that? And how much of that cash flow is sustainable from the existing PDP versus having to do some additional development on that acreage?

This is Rick. I'll take that. The only capital associated, this is a PDP asset as we purchased it. That is based on PDP cash flows. The only capital on this would be from a workover standpoint or just a maintenance standpoint. So the reality is there is no additional drilling on this at this point that we have forecast. So we haven't given guidance yet on any of those, but the capital would just be associated with maintaining the profile of the curves that are on the current PDP asset.

And as Rick mentioned in his comments earlier, the Smarter Asset Management program and the culture that we have that Rick's team will take into managing these assets to lower expense and optimize production, will absolutely also occur and as he just indicated, to help us stay on those declines or not, if not improve them.

The next questions are from the line of Paul Diamond with Citi.

I just want to touch quickly on the Smarter Asset Management program. You also highlighted several levers that have already been pulled. I guess, can you talk about the low-hanging fruit, like what's next on the merry-go-round? Like what do you see as the next easiest opportunity in that program?

That's a great question. And we're really proud of that program, as we've indicated. We have the right culture internally. We have the right capabilities in order to continue this program. I think there's a lot of optimization. As we continue to grow our scale, provides us the capability for cost reductions across our portfolio. And so, as we continue to grow, we don't treat this as independent companies. We are one large optimized organization. So we utilize that scale to reduce cost, to increase efficiency. And as we bring on new assets, we utilize the skill sets and knowledge that they have to help make us better as well.

So as we continue to grow, Birch is a great example. We'll pull that into the same umbrella that we're already in. We'll optimize around the larger spends to start with, the compression, the water hauling, the chemicals. And so we'll go through that line item by line item across the entire organization to optimize cash flow and enhance margins.

Got it. Understood. And then since on the cost side, we've seen kind of persistent pressure on both labor and services. Guys can you talk about any impact you guys are seeing on the inflation side, whether it's into '27 or beyond?

When we take a look at inflation as we go into '27 and we can talk about a volatile commodity market. We've had a pretty stable service side market overall. I'd say the biggest change we've seen in '26 and going into '27 is fuel cost. And so we manage that, but I think across the industry, diesel cost, fuel cost is going to be the biggest change you see. We've been watching that. We've been optimizing around that. But the other service costs are staying in line. And we've got great relationships. We work on long-term contracts. We utilize our scale to maintain those costs at a reasonable spend.

At this time, I'll turn the floor back to Mr. Hutson for closing comments.

Thank you all for attending today. I appreciate your time and questions. And if you have any further comments or any other questions, please feel free to reach out to Doug and his team for further comments. Thank you all for attending.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.

Greetings, and welcome to Diversified Energy's Acquisition of Birch Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Douglas Kris, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead.

Good morning, and thank you all for joining us here today, especially on short notice for the Birch Acquisition Conference Call. With me today are Diversified's Founder, Chairman and Chief Executive Officer, Rusty Hutson; President and Chief Financial Officer, Brad Gray; and Executive Vice President and Chief Operating Officer, Rick Gideon. Before we start, I would remind everyone that the remarks on the call reflect the financial and operational outlook as of today, September 3, 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 may materially differ from those 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 fiscal year 2025, which was filed on February 26, 2026, along with subsequent filings with the SEC. During this call, we also referenced certain non-GAAP financial measures. Our disclosures regarding those items are found in our earnings materials on our website and in regulatory filings.

I will now turn the call over to Rusty.

Thank you, Doug, and thank you all for joining the call today. Today, we are announcing the acquisition of Birch Resources for $1.8 billion with an approximate PV-14 value and 3.3 multiple, this highly accretive acquisition is the largest in our company's history and marks an important milestone in the evolution of our long-term growth strategy and an outstanding accomplishment in our 25th year in business. For those of you following along with our acquisition slide deck, which we posted on our website last night, I plan to cover a few slides focusing on the acquisition we announced and its impact in further bolstering our resilient cash flow machine before opening the call for your questions.

I would note that at this time, we are not making any adjustments to our guidance, but we anticipate doing so following the close of the acquisition, which is currently planned for the fourth quarter of 2026. Starting on Slide 3. I want to spend a minute on why we believe in the value of this acquisition because I don't want anyone to mistake the size or location of this deal for a change in strategy. For 25 years, we have done one thing, focused on acquiring established low-decline producing assets, operating them better than anyone else and converting stable production into durable cash flow.

That is who we are, and it's in our DNA. It's our proven business model, and Birch fits that profile extremely well, but it's just bigger and in the most prolific oil basin in the United States. Importantly, the Permian Basin is maturing and as it does, an enormous amount of proved developed producing or PDP assets are in the hands of operators who want to drill and explore rather than focus on optimizing and stewarding them. That is our opportunity. That is our expertise. We have said for some time that we intended to build a scaled Permian position since we first entered with a toehold in 2025 through the acquisition of Maverick Natural Resources.

And today, we are taking a significant step forward in securing scale, achieving operating leverage and capturing potential synergies through the acquisition of Birch Resources. Let me make some key points about why Birch and why now. First, quality. Birch is almost entirely PDP, low decline, predictable, already producing durable cash flow generation. There is no focus on undeveloped inventory in this acquisition. We are buying cash flow that exists today. Second, geography. Birch sits directly alongside our existing Texas assets. The operational overlap is real, economies of scale are real, and it drives synergies and margin enhancement from day 1. Third, diversification. Birch is 70% liquids.

That materially rebalances our commodity mix and adds a larger oil wedge of liquid-based revenue to our cash flow. Fourth runway. This is an anchor position, not a finish line. It gives us the scale and the operating footprint to consolidate additional PDP assets across the Permian Basin for years to come. The bottom line, Diversified is now solidly positioned in a fourth core basin, adding to our opportunity set while materially increasing our overall production by 35% and our adjusted EBITDA by 55%. Now for some additional details on what we are acquiring. This acquisition is composed of approximately 480 net wells with approximately 68 Mboe per day of production and approximately 1.2 Tcfe of reserves.

We are also acquiring infrastructure, which includes 12 centralized production facilities, gathering pipelines and water disposal systems. Notably, there is upside beyond the base production for our portfolio optimization program, including 150 permitted EOR enhanced oil recovery locations and incremental net mineral acres that will provide additional options over time. Turning to Slide 4. Let me walk you through some of the acquisition details. We are purchasing Birch Resources for approximately $1.8 billion on a gross basis, subject to customary purchase price adjustments and effective date cash flow adjustments. The transaction will be funded predominantly through ABS facilitated by Carlyle alongside available liquidity under our senior secured bank facility.

This acquisition is going to be on balance sheet with Diversified maintaining full ownership and the full benefit of the production from the assets being part of the consolidated company. Notably, I am also excited to say that our strategic partnership with Carlyle just got bigger with the ABS funding capacity for pursuing new PDP opportunities now earmarked at up to $10 billion. That's a real runway for growth, and we believe there are many opportunities in the marketplace that fit our strategy. We are buying these assets at a compelling valuation of approximately PV-14 and approximately 3.3x EBITDA.

That is before synergies, before optimization and consistent with the disciplined framework we have historically applied to deals we have done. We expect to close in the fourth quarter, pending customary closing conditions, so the real impact on production and financial metrics will be felt in 2027.

Turning to Slide 5. Now let's look at what this does to our Permian position. Production goes from approximately 9 Mboe per day to 77 Mboe per day, an approximate 800% increase. In addition, adjusted EBITDA from our Permian assets goes from $64 million to $612 million, an approximate 800% increase. That is not just incremental growth. In one transaction, we go from a modest Permian Basin position to a scaled operated premier position in the most prolific oil basin in the United States.

And as the Permian matures, the consolidation opportunity in front of us only gets bigger. We intend to be the operator of choice for those PDP assets. And with our strong strategic partnership with the Carlyle Group, which brings attractive investment-grade financing to help execute and support our growth, I believe we are extremely well positioned for success.

Turning to Slide 6. Something we always focus on in an acquisition is our proven integration playbook and its importance at the field level, corporate levels as well as in the technology stack. The Birch position is highly contiguous, concentrated and is vertically integrated.

From an infrastructure of 12 central production facilities and 9 well gathering facilities, they have been able to keep operating costs low, which today run approximately $5.70 per BOE and achieve approximately 81% adjusted EBITDA margins. That is a low-cost operation before we have touched it, and we will touch it. With this acquisition, we will accelerate synergies by increasing asset density within the basin of our field operations, integrating processes and systems into our [ OneDEC ] platforms and consolidating applicable corporate and technology functions. Our teams are already identifying expense reductions through our Smarter Asset Management framework, which is the same playbook that has driven margin expansion across every asset we have acquired. We use every lever at our disposal to extract free cash flow from our assets.

Turning to Slide 7. On this slide, we show what we have timelessly built with the hard work and devoted effort of the best-in-class operating team in the field and in the corporate office. I'm extremely proud of this accomplishment. Diversified has grown to 4 scaled core basins, Appalachia, Oklahoma, Mid-Con, East Texas, Haynesville and Cotton Valley and now the Permian Basin. The Permian becomes our largest basin by PV-10 reserve value of $2.3 billion and by adjusted EBITDA of $612 million, supported by 71% liquids production. 25 years ago, we started with a simple idea.

If you focus on establishing producing assets and operate them efficiently, you will generate durable cash flow. That thesis has not changed. What has changed is our scale, our diversification, the capabilities of our team and the quality of the platform. These attributes are the foundation for the next 25 years and importantly, having the core production and scaled operations we have across these basins now gives us the optionality within our consolidation strategy to take more shots on goal with PDP acquisition opportunities.

Turning to Slide 8. The next slide puts the impact of this acquisition in market terms. Diversified has again delivered meaningful growth in key operational and financial metrics, improving our position among peers and enabling the company to benefit from further expansion in trading multiples. The relative performance and the significant increase in cash generation have now allowed us to compete with peers with larger market capitalizations and production profiles. Specifically, with this acquisition, we have a step change in free cash flow generation, increasing by over 100%. Now let's zoom in and look at that middle row on the slide. We trade at approximately 3.9x EV to EBITDA.

Our closest peers on that metric trade between 5.7 to 6.2. We are delivering the same scale, cash generation and commodity diversification of a company valued materially higher than we are today. Importantly, we think that gap closes.

Turning to Slide 9. I'm going to close out where we started today. Diversified is a cash flow machine and Birch makes it stronger. Birch delivers high-quality PDP assets with predictable production and durable cash flow, contiguous Permian Basin position that adds to our acquisition and portfolio optimization opportunities and scale and vertical integration that enhance our margins. We have now announced more than $8 billion in acquisitions since our IPO in 2017.

We have built an innovative financing structure with a partner in Carlyle, who is prepared to fund up to $10 billion more, and we have a significant runway of opportunities ahead of us. While this is the largest acquisition we have ever made, it is also probably one of the most natural ones.

We have conducted disciplined valuation analysis for 25 years, and we applied the same discipline to our valuation of Birch. 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 partnership with Carlyle. I'm excited to work with our teams to integrate the Birch Resources assets into our great company.

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

[Operator Instructions] Today's first question is coming from Neal Dingmann of William Blair.

Congrats on the deal. It looks very positive. Rusty, my first question, just -- I like your point about, hey, this certainly doesn't change the strategy you've done for 25 years. I guess my question is around, does it provide -- you've talked about recently in the Mid-Con having the opportunity to potentially operate a little bit. Do you see any opportunities to do that in this area? So I guess, number one, and maybe just ask my second question at the same time. I mean, besides potentially, would you consider operate anything here with around this new area? Is there a lot of low-hanging fruit, if you will, just on the mature PDP improvement side that you can do as well?

Yes. Thanks, Neal. Yes, on the first question around the operated drilling, not part of this deal. It's a PDP -- straight-up PDP deal for us. Free cash flow generation, you've seen all the metrics that we talked about during the call, increase in EBITDA, increase in reserves, increase in free cash flow generation. I mean, think about it, 100% increase in free cash flow. I mean that's material. So that's not on the radar in terms of the operated drilling program in this acreage position. The other question related to -- was it...

Sorry, I did you all...

Yes, the low-hanging fruit. Yes. Just synergies. I mean we -- every time we look at a deal like this where you're adding additional geographical concentration around our existing operation, you find ways to find efficiencies within the expense base. And so we'll continue to do that. We've already been monitoring kind of where are the opportunities, the low-hanging fruit. This was a well-operated asset. So the Birch team did a fantastic job in building and operating this. But when you add geographical concentration to an area where we already had assets, there will be synergies that we can leg into.

Yes. Neal, you're very familiar with our 2 programs that we've named, our Smarter Asset Management program and our portfolio optimization program. So we will bring both of those mindsets and focus to this acquisition. And we've always been successful with our team to be creative and look for ways that we can bring value forward and drive additional cash flow. And I'm sure we'll be successful with this asset as well.

The next question is coming from Jonathan Mardini of KeyBanc Capital Markets.

The first is on the asset base. You note 75% of the wells are 2022 vintage or older, implying 1/4 are more recent. Can you just help us think through what the decline rate looks like on the Birch assets and how you see the liquids mix there trending over the next few years?

Yes. Jonathan, thanks for your question. In regards to the decline rate, we're going to see kind of mid-teens with this asset base for the next several years. I think that's pretty common in this area. And so we've modeled all that and comfortable with it. It is a 70% liquids weighted asset. And so we'll have those type of cash flows and that mix, which we're excited about. So when you blend it into our overall portfolio, it will have a minor or kind of immaterial impact overall to that corporate decline rate. But that's how we're viewing it. We've got Rick Gideon here as well, and Rick probably has some perspective.

Yes. I mean when you take a look, these are mature assets even at those dates. And we've got a pretty good mix of lift methodologies and last and life lift methodologies when it comes to different gas lift or rod pump, still have a portion of ESPs, but they've already been stepped down in a number of cases. So we'll continue to manage that and we'll manage that decline, but we'll continue to manage the cash flow is what we'll do.

Yes, that makes sense. I appreciate the detail on that. Just a follow-up on the balance sheet. So you expanded the Carlyle framework to $10 billion. Just with the acquisition, it could push pro forma leverage maybe towards the higher end of your 2 to 2.5x target. How are you just thinking about the near-term balance between continued deal making and prioritizing debt paydown, especially as you stand up this -- the operated rig program in the Mid-Con?

Yes. I'll let Brad elaborate a little bit more. But if you look at over the -- including the Birch's transaction and you look out over the next 4 years, we're going to be delevering close to $2 billion. I mean that's a lot of debt reduction in a 4-year period just through amortization on the ABS notes. And I think that gets missed a lot with some of the folks that don't pay a lot of attention to us that our debt is amortizing, and it amortizes a lot over a period of time. And so we feel pretty comfortable with that. I mean this is an on-balance sheet transaction. To your point, it might increase our -- to the upper end a little bit, but the delevering aspect of our business helps to alleviate that over time. Brad, do you want to add anything else to that?

Yes. And that was part of my answer. But Jonathan, the timing of this acquisition is really very good. Our balance sheet is the strongest it's been in our company history. We've got great liquidity. We've got great support from our commercial banks. Obviously, we've extended our relationship with Carlyle and having access into a growing and deep ABS market at a very low cost of capital. And so the way we've capitalized the business within the ABS market, we're getting that low cost of capital, and it works with these type of assets. So we're very comfortable with the balance sheet where it is right now. And we're pleased that we've been able to build in the strong liquidity that we have at this point.

The next question is coming from Gabe Daoud of Truist.

Congrats on the transaction. I was curious if we could just maybe get a bit more color on the 150 permitted EOR locations. Just curious, I guess, what the strategy or plan is there?

This is Rick Gideon. The strategy, as we operate these later in life assets, we're always looking for the best way to optimize and gain recoveries. And so as you well know, we operate EOR floods in the Permian. Now we operate them in Oklahoma. So we've got a lot of experience in this space. So we're always looking to optimize and what our optionality for later in life EOR and secondary recoveries.

I think it's interesting to note as well, we hear a lot of the bigger companies even to date in the Permian, a lot of their discussions have turned from additional inventory to getting more oil from their existing fields, and they're going to do that through these EOR recovery programs. And so this was already permitted. It was part of the deal that we're acquiring, but it's just optionality for us at this present time.

Understood. Okay. Cool. And then I guess just as a follow-up, you talked about the Smart Asset platform and how that will drive costs lower over time. And I guess with this transaction, you noted about $5.72 per BOE in LOE. So just curious, I guess, where do you think the Permian LOE figure could go over time just as you start to optimize and take control of the assets?

Well before Rick probably has a thought on that, Gabe, as Rusty indicated in our comments, we're not really updating any additional guidance at this point with this acquisition. So we think that the cash flows on this asset are very positive and strong, and we're going to continue to do what we do, as you indicated, with our Smarter Asset Management to look for ways to drive costs down. And the other thing that Rusty mentioned, in his comments, we're well positioned now with this asset with scale to look for additional opportunities, just like we've done in Appalachia, just like we've done in the Mid-Con, like we've done over in East Texas. And so that will -- we believe that we'll be in a position to further drive down cost with some additional opportunities in the future.

Yes. The only thing I would add to that, Gabe, is scale matters. And with the scale that we have through our central region and then even into our Appalachian region, when we talk about lift methodologies, when we talk about chemical programs, compression programs, scale matters. And so it gives us the ability to drive those costs down.

The next question is coming from Sam Wahab of Peel Hunt.

Congratulations again for another pleasing acquisition. There's 3 questions from me. The first is that given that this acquisition falls outside of the off-balance sheet Carlyle structure, what did you see in terms of return hurdles that made it more accretive to be a 100% owner relative to having it off balance sheet? The second one probably answers a little bit of the first, but very compelling EV/EBITDA metrics as usual. How competitive are you seeing the market for PDP gas assets today versus 2 years ago? And then finally, sort of referring to Slide 8 in your presentation.

Clearly, there's been a big uplift in available financial capacity with Carlyle going from $2 billion to $10 billion. As that grows, there are a number of peers that you've sort of highlighted there that if they did become sensible acquisition targets and you grow outside of that financial capacity, would you consider adding more strategic partners alongside Carlyle?

Okay. Sam, thanks for your questions there. I'm going to hit the first one related to the on-balance sheet nature of it. I think the word that you used in your question is really the answer, and that is this is a highly accretive transaction for our company. The cash flows are very robust. on a gross basis and a per share basis. You saw the growth in the Permian Basin. I mean it's going from like our third contributor -- third or fourth contributor of the 4 basins that we operate in into the first.

So that, as Rick mentioned, the scale matters that we're going to be able to generate, it just made sense for us to maintain this on the balance sheet. And so that's what we did. Now clearly, Carlyle is still a very strong partner, even though they're not participating in the equity in this transaction. They've increased their commitment to us 5x. And then they're also heavily involved in the syndication of this ABS debt. So -- it's just -- it's a great transaction for us and the cash flow contribution is significant.

Yes. And as it relates to the PDP market and the PDP acquisitions versus a couple of years ago, it evolves every year, it seems like. And some years, you have more assets available than others. I think you've seen a spike in some of the oil deals this year, primarily just because of the oil price getting to a level that it hadn't seen in a while. Gas seems to be still kind of a challenging market in terms of PDP acquisitions as we sit here today. But ultimately, we're set up because of our capital structure, the liquidity that we have, the partners that we have like Carlyle, we have the ability to stay disciplined, watch the market, adapt. We've got a low cost of capital.

And it just leaves us in a very good position to take advantage of the market that we're in. You asked about Carlyle and their capacity, $10 billion is a lot of capital, and that doesn't include what we would be able to put into those deals as well. So $10 billion is really $15 billion, $20 billion when you really look at it. So we feel really good about Carlyle and their partnership. We don't need another partner. But at the same time, we have opportunities we could partner with a lot of people. I think there's a lot of people that would like to be doing what Carlyle is getting the advantage of right now. So -- but they're great partners. We continue to have a great relationship. We're like-minded in the market and what's going on. And so we feel good about where we are.

Ladies and gentlemen, this brings us to the end of today's question-and-answer session. I would like to turn the floor back over to Mr. Hutson for closing comments.

Thank you all for attending today. I know it's short notice and look forward to answering your questions as you digest the information and looking forward to getting Birch under our belt and moving forward. Thank you all for attending today.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines and log off the webcast at this time, and enjoy the rest of your day.

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

Good morning. Thank you all for joining us today, and welcome to our second quarter 2026 results conference call. With me today are Diversified's Chairman and Chief Executive Officer, Rusty Hutson; President and Chief Financial Officer, Brad Gray; and Executive Vice President and Chief Operating Officer, Rick Gideon.

Before we get started, I will remind everyone that the remarks on this call reflect the financial and operational outlook as of today, August 6, 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 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, and subsequent filings with the SEC. During this call, we'll 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'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 results slide deck, which we posted to our website last night, I plan to cover a few slides focusing on the results that we announced and our introduction of a development program. I will then turn the call over to Rick to provide some greater detail on that program, and Brad will provide a look at the financial rationale and our updated 2026 guidance. After Brad's remarks, I will provide some closing thoughts before opening the call for your questions.

We'll start on Slide 3. This slide tells the story of how we run the company through disciplined capital allocation priorities that are core to our differentiated business model. Not only is our business model differentiated, it is proven. Our model continues to deliver durable free cash flow from a low-decline asset base, along with continued portfolio optimization of noncore assets that we can deploy to our 4 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.

Going into the second half of the year, we are in one of the strongest fiscal positions we have been in during our 25-year history, and notably after closing 3 acquisitions for over $2 billion in headline value within the last 12 months. I'm extremely proud of our team for delivering outstanding results. As you can see on this page, we reinforced our track record across all our shareholder priorities during the first half of this year. During the first half of 2026, we repaid approximately $233 million in debt principal, which also includes the retirement of debt associated with our noncore Barnett assets, which was recently sold.

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 extends our capacity to deliver consistent results and to create long-term value for our shareholders. With our pro forma leverage at approximately 2.45x, within our target range, and over $678 million in liquidity at the end of the quarter, we are operating from a position of strength. We returned approximately $136 million to shareholders through dividends and strategic share repurchases. At current levels, that is an approximate 14% shareholder return on capital yield. We are confident in our durable cash generation abilities, and we were pleased to provide our shareholders with this level of return thus far this year.

Worth noting, we have demonstrated a track record of robust and disciplined capital allocation with approximately $2.5 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 $440 million this year.

Turning to Slide 4. For the second quarter of 2026, starting with production. The daily production exit rate for June was approximately 1.3 Bcfe per day, and our production for the quarter averaged approximately 1.3 Bcf per day. And importantly, we maintained our industry-leading consolidated production decline. Our low-decline predictable base is the foundation of everything else on this page. Total commodity revenue was $504 million, equating to approximately $4.23 per Mcfe, and adjusted EBITDA was $240 million for the quarter with our adjusted EBITDA margin at 52%.

Notably, our portfolio optimization processes, or better known as the POP program, allowed us to generate approximately $126 million in additional cash proceeds during the first half of 2026. That POP program is the ongoing work of monetizing noncore acreage and surface assets, which adds to our robust cash generation. In addition, we completed the strategic sale of noncore, lower-margin Barnett and Arkansas assets for $147 million, enhancing corporate profitability and further strengthening near-term adjusted free cash flow. As the largest well owner and third largest leaseholder in the Lower 48, these noncore assets are something that we are continuously evaluating and anticipate having additional opportunities to high-grade our portfolio in the future.

Our adjusted free cash flow for the second quarter was $115 million and was burdened with approximately $10 million of transaction costs. On the balance sheet, we closed the quarter with $678 million of liquidity as of June 30. As mentioned previously, leverage stood at 2.45x, inside our stated target range of 2 to 2.5x. And I would point you to the last bullet. 76% of our outstanding debt is non-recourse investment-grade rated ABS. Our efficient financing strategy is fundamental to how we finance PDP assets, and in a rate environment like this one, it matters. The table on the right frames the trailing 12-month picture: 1.2 Bcfe per day of production, $1.9 billion of commodity revenue, $1.1 billion of adjusted EBITDA and $578 million of adjusted free cash flow. Those results show the run rate cash engine of this business.

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. This is what operational innovation looks like in the real world, a relentless, systematic, compounding improvement in everything we do, and the financial results reflect it.

Turning to Slide 5. Slide 5 is the most important strategic page of this deck, so I want to spend a little time on it. For 25 years, our identity has been clear. We acquire proved developed producing assets. We operate them better, more efficiently, and at a lower cost than the seller did through focus, vertical integration, scale, and the use of modern technological innovation. We ultimately convert that commodity stream into cash, and that is not changing. What I am announcing today is adding to the playbook, not replacing it.

Here's the strategic logic. Through consolidation, we have assembled an expansive footprint across 4 basins. Inside that footprint sits a deep inventory of undeveloped locations that we acquired essentially with little ascribed value. In most instances, we underwrote and paid for the PDP cash flow, not the development upside. For years, we chose not to develop it because in our view, the returns on acquisitions and the long runway of accretive opportunities were our focus. With the exponential growth we have achieved and the scale of the company we sit at today, we now have a team capable of capturing value and importantly, growing our underlying free cash flow in a highly capital-efficient manner. This is not a strategic pivot, but a natural extension of optimizing upside from our acquisitions and extensive portfolio of assets. In essence, we are pulling forward additional net asset value, which we believe the markets have not appropriately valued.

So we expect to allocate $250 million to $300 million of annual run rate capital, which is approximately 25% to 30% of expected run rate EBITDA based on our current operating outlook across 3 buckets you can see in this chart: approximately 50% to operated development, 30% to non-operated programs and approximately 20% to our core PDP maintenance capital. Let me make 5 key points about what this additional capital allocation does and just as importantly, what it does not do. First, the operated Oklahoma program is a genuine expansion of the playbook. When we operate, we control the pace, we control the cost, and we control the returns. We are not a passive participant in someone else's development schedule. That control makes this strategy an effective extension of our vertically integrated operating platform, not a pivot into a one-off high-risk program to grow production volumes.

Second, the operated program provides incremental volume with manageable capital. This program is designed to offset our corporate production decline while preserving the balance sheet. We will have the opportunity to benefit from unhedged production, providing upside exposure to the commodity price. And importantly, we retain the long-term upside. Third, this program is built around optionality, not obligation. We drill when the risk-adjusted returns justify it versus other uses of our capital. If the acquisition market gives us a better opportunity, we will have the ability to execute on it. If prices deteriorate, we will slow down. There is no mandatory treadmill or mandate to grow in this program, and that is by design.

Fourth, the non-operated program complements rather than competes. Our Anadarko and Permian non-operated programs, where we contribute acreage to joint ventures, give us access to the highest caliber private operators, enhanced well-level economics and organic production growth without carrying the development burden in areas where we have less scale. And fifth, we did the work before we made the commitment. Significant technical and economic analysis underpins this decision. Our conviction is that this level of development strengthens our long-term cash flow profile and improves long-term financial stability, which is precisely the opposite of what most investors assume when an acquirer picks up a drill bit.

The bottom line, we are applying a proven playbook to a flexible, operated development program focused on attractive risk-adjusted returns inside a footprint we already own.

I'll now turn the call over to Rick, our Chief Operating Officer, to discuss our development program in greater detail. I've been extremely impressed with Rick and his capabilities since joining Diversified. The breadth of his experience throughout his career and his knowledge base reinforce the confidence we collectively have in adding the development programs and his ability to execute and deliver results.

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 from high-return development. I appreciate the dedication and commitment of our teams in analyzing, identifying, and establishing the operational development programs we have begun to execute.

And turning to Slide 6. Here, we put some specifics behind the strategy that Rusty has outlined. I want to start with the framing on the left of the page because it is the discipline the team operates under. Our focus is on extracting cash flow from the commodity, not simply extracting the commodity from the ground. Let me repeat that. Our focus is on extracting cash flow from the commodity, not simply extracting the commodity from the ground. Those are 2 very different mandates, and they lead to different decisions at the wellhead. Our core business at Diversified is focused on cash-generating energy assets, and that does not change with our operated development. It is a natural extension and an additional opportunity to grow that long-term cash flow.

Turning to the operated Oklahoma plan. We have identified approximately 450 highly economic locations at $65 oil and $3.25 natural gas. In the program currently contemplated, which covers the 12 months from September 2026 through September 2027, we plan to drill approximately 19 gross or 17 net wells. As you can see, these wells have a high average working interest of roughly 90%. Net capital would be approximately $145 million on an annualized basis. Average lateral length is approximately 11,000 feet. The production split is approximately 15% oil, 35% NGLs and 50% natural gas, giving us meaningful liquids exposure along with our traditional gas-weighted portfolio.

Looking ahead, given the current start time and the typical turn-to-sales cadence, while capital is being deployed today, we anticipate a production contribution beginning in 2027. At a 1-rig pace, that type of program equates to more than 20 years of remaining inventory. It's worth mentioning that the main areas identified on the map where the program is starting were specifically part of the recent Camino acquisition. Prior to that acquisition, Camino was running a multi-rig development program on that acreage during a time of lower oil prices. But importantly, we are not drilling to maintain leasehold, keep a growth trajectory intact, keep a narrative going or to ultimately monetize the asset. We are executing on an operated drilling program to generate a high rate of return and grow bottom-line cash flow.

On the non-operated side, we are currently running 3 programs, which are highlighted on the right side of the slide. In the Oklahoma and Anadarko Basin, we participate with Mewbourne. 150 wells have been drilled to date with approximately 145 remaining locations, about 3 years of inventory and program IRRs exceeding 60% to date. Those are tangible realized results. In Texas, we are participating with Continental Resources on the Central Basin Platform with initial drilling expected in the fourth quarter of 2026. This is an exciting development opportunity in the new emerging Barnett, Miss and Woodford, or BMW trend, and we have already seen Continental expressing excitement about the results to date. And in New Mexico on the Northwest Shelf, we are participating with a private operator with initial drilling beginning in the third quarter of 2026.

Taken together, we expect our non-operated development to help meaningfully replace the base production decline in our core PDP business. We continue to evaluate our acreage position and see additional opportunities to participate in non-operated partnerships. Acreage contributions to the programs give us opportunities to have carried interest or enhanced economics in these partnerships, and we continue to see significant opportunities for outsized returns in non-operated positions due to our unique acreage position across the Lower 48.

One final note on execution. This program is supported by a highly experienced internal development team of approximately 10 industry professionals with vast engineering and technical capabilities, and they are excited to show the results that they know they can deliver.

With that, I will turn the call over to Brad.

Thank you, Rick. We'll start on Slide 7. Slide 7 is where the numbers validate the strategy. And I would encourage anyone that's skeptical about a low-decline consolidator adding development capital to focus on this page. The top chart shows annual base production decline across the natural gas peer group. Diversified sits at approximately 10%. The peer average is 31%, and the peer set runs from 22% all the way to 44%. That structural advantage is a function of how we deploy capital and of the assets we choose to buy.

Below each bar, look at capital intensity, which is measured by capital expenditures as a percentage of adjusted EBITDA. Diversified lands at approximately 25% on a go-forward basis, which is inclusive of our planned operated drilling. The peer group runs roughly 40% to over 110%, with several peers spending meaningfully more cash than they generate. And even with the development program fully layered in, our capital intensity remains the lowest in the group by a wide margin.

The bottom chart is the output of these 2 inputs, free cash flow conversion. Diversified converts approximately 47% of adjusted EBITDA into free cash flow versus the peer average of 28%, and 2 peers in this set have a negative free cash flow. So the message on this page is very straightforward: Our capital investment plan does not compromise our differentiation, our unique business strategy, or our competitive advantage. Rather, it complements it. Low decline plus low capital intensity plus high-return development equals durable free cash flow conversion and long-term cash generation. We are flattening go-forward production within cash flow while bolstering long-term cash flow durability and stability. And we are doing it before we layer on incremental accretive acquisitions.

Now on Slide 8, we are updating our full year 2026 guidance today. This update will encompass the Sheridan acquisition and the recently closed Camino acquisition as well as capital spending associated with the 2026 operated development program. We expect total production of approximately 1.2 Bcfe per day, with a mix of approximately 29% liquids and 71% natural gas. Adjusted EBITDA guidance has increased and now sits in a range of $0.960 billion to $1 billion, with adjusted free cash flow also increasing to approximately $440 million. Total capital expenditures are expected in the range of $225 million to $255 million, with operated development for the second half of 2026 of approximately $35 million to $50 million. Worth noting, we have decreased our non-operated CapEx to a range of $115 million to $125 million, which was primarily due to some reallocation from non-op to operated development, timing and some changes in working interest levels within the non-op development.

We remain committed to our leverage target of 2 to 2.5x. The headline here is really capital allocation flexibility. Approximately $440 million of free cash flow after a $225 million to $255 million capital program means that we retain the flexibility to allocate capital across the highest and best uses of capital rather than being forced into any one of them. Additionally, I'll call out that we have included a line item in our guidance to account for the minority ownership of our Camino special purpose vehicle that will sit off balance sheet.

I'll now turn the call back to Rusty.

Thanks, Brad. Before we take questions, I want to take a step back for a moment to provide some final thoughts on our investment thesis and our strategic outlook. Turning to Slide 9. I want to close on a strategic note and zoom out on who we were, who we are today and who we plan to become. 25 years ago, this company started with a simple unfashionable idea that the wells that everyone else had written off still had decades of value in them if someone was willing to do the unglamorous work of operating them efficiently and with a high degree of focus. We were told that it was a small idea.

Today, it is a 4-basin vertically integrated platform, generating more than $1 billion of annual adjusted EBITDA. And I can tell you with confidence that we are operating from the strongest fiscal position in the company's history. Our scaled, stable core production base generates durable cash flow. Our balance sheet is anchored by investment-grade ABS financing that no one else in our public peer group has replicated, allowing our cost of capital to decrease and have better terms. And importantly, we have the opportunity, but not the mandate, for organic high rate of return growth from a deep inventory of high-quality undeveloped locations.

I want to emphasize that last point of distinction because it is the strategic addition to our playbook, and we have the opportunity to optimize our inventory for the next 25 years. Optionality without obligation is a rare thing in this industry. Most companies must drill. We get to choose. The 4 pillars on this page are what we are building upon. They are core to our strategy, and we are steadfast in our execution. Scale, vertical integration and technological innovation all enhance margins in our core cash flow business. We are built to consolidate, and that engine is not slowing down.

Here's what I would leave you with. The energy transition conversation has spent a decade asking who will steward the assets that keep the lights on and the heat running when others step away. We have spent 25 years answering that question with our capital, our people and our track record. We plug the wells. We reduce the emissions. We pay the dividends. We deliver the gas. We power the communities. We provide energy security. Our 25th anniversary seal this year reads "Built by the Proven," and that is not a marketing line. It is a description of how we got here: proven strategy, proven assets, proven cash flow, proven people and proven results.

We built the first 25 years on doing the hard, patient work others avoided. We are going to build the next 25 on exactly the same thing, but with more scale, more optionality, greater innovation and technology and a stronger balance sheet than we have ever had. We look forward to the opportunities ahead, and we are just getting started. We are excited about what comes next, and we appreciate you being on this journey with us.

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

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

My first question is just, of course, on the operated development program, specifically around that. Given you have such a -- that you just described this morning, such a large acreage footprint, not in Oklahoma, but your other 3 basins, how big could this operated program potentially get? Or maybe -- again, I'm just thinking of the balance between that and the way Brad described it, I'm just wondering, could that -- could it continue to grow?

Well, I mean, look, we have 450 locations in Oklahoma. Rick said it earlier, we had 20-some years of drilling. Obviously, it could grow as big as we want it to be, but it's really about the optionality for us. We get excited when we look at the impacts to our production over the next few years just from being able to run a 1-rig program. Obviously, if prices ran up and you wanted to put more capital to work with even higher IRRs, we would do that. But it's really -- Neal, it's really about the optionality and the ability to do it on our terms. We don't have to do anything.

But it's a big opportunity. We have a lot of acreage up there, a big footprint. We have acreage positions in the Permian. We have acreage positions in Appalachia. So it's not just about Oklahoma, but Oklahoma is really where we have the size, scale and the ability that we felt was able to generate good returns.

I totally agree. And then my follow-up just on M&A for you all specifically. Is there much of your current position? As you just mentioned, you have such a large position that, I don't know, you consider noncore or still ideal for divestitures you've done just even recently on a couple of deals. And then just looking out in the market, what does the PDP market look like now? Is it still real active?

Well, we're always looking for opportunities to acquire, but we're also looking at ways to take our existing portfolio and make it more profitable. And so that was part of why we chose to divest the Barnett and the Arkansas assets. We felt that those were lower margin. We didn't have the chance or the ability to really scale those anymore. And so it just made all the sense in the world. And the value that we got for them was top end. And so we felt that, that was the best -- but we have other opportunities in the portfolio to do the same thing, and we'll continue to evaluate that.

The PDP market, I would tell you, is very, very strong. We continue to evaluate a lot of things. I think it's -- we do a lot of deals, and I've said this on some of the other calls, people don't realize we don't -- we walk away from a ton of them. We don't do all the deals. We like some. We don't like others, and we're going to be competitive and do the best we can on the ones that we really like, but we're not forced into doing anything. I could sit here right now for the next 5 years and do nothing. And so it's just a good position to be in. But obviously, we're looking at the next 25 years. Now that's going to go way past my time, as you know, Neal. But you have to look at the company from the longevity and the sustainability and doing all the right things today that will add to the sustainability to the company for the long haul. So we're evaluating a lot of PDP deals.

And Neal, I would just add, Rusty mentioned this in his comments, the company is in the strongest financial position it's been in 25 years and definitely since we went public. And so we worked very hard to achieve that position. And so we're going to be very -- we're going to continue to be disciplined in the deals that we look at to ensure that we maintain that balance sheet strength.

Our next question comes from the line of Gabe Daoud with Truist Securities.

I was hoping to maybe just go back to the decision to stand up an operated program. Could you maybe just quantify the production impact that you expect by September '27?

Yes. I think right now, we're going to evaluate that probably in the third and fourth quarters and give much better guidance around that production. I will tell you it's meaningful. And so we're pretty excited about it. But a lot of that is going to depend on, we're standing up the rig, we're getting it moving as we speak, when those wells come online. So I would rather give you a much more precise number later, at the end of the third quarter, most likely, than to try to do that today.

But I will say that the whole strategy really came down to 2 things for me. Number one, do we have the type of IRRs and the running room to operate a rig comfortably where we had enough acreage position, where we didn't have to rely on others, those kind of things. And then having a significant amount of confidence in our internal team led by Rick to make it happen. That's one of the things that -- until we bought the Maverick transaction last year and Rick came on board and his team came on board, there was -- we didn't have a lot of that expertise. We now have a very technical and reliable group that can look at all of our acreage positions and help us make good decisions around drill it, sell it or JV it. And so those are going to be continual as we move forward. But the production will be impactful. And -- but I think just to give you a number today, I think, is too early. We'll come back to it.

Rick, do you want to add to that?

Yes. The only part I would add to that, Gabe, is please remember as we went through what our focus is. And our focus is helping to offset the declines we have right now as well as growth on cash flow. So those are the things that we're looking at. That's our intent as we stand up this program. It's focused on those 2 things.

Understood. Understood. That is helpful. And then I guess a follow-up, just sticking to that, 1-rig program for a year, you highlighted 20 years of inventory. I mean, should we just assume this kind of continues? Or do you need to kind of see results before you feel comfortable keeping the rig from September '27 to September '28? Like, should we expect this to be an ongoing 1-rig program?

I think you should expect us to continue to be good stewards of our capital and place it to the highest return within the organization. So dependent on commodity prices, service costs, a number of things, if that is the highest return, absolutely, you should expect that. If there's other opportunities that outcompete, you should expect us to do those things.

Our next question comes from the line of Jonathan Mardini with KeyBanc Capital Markets.

Just as the operated rig program starts generating some cash flow, where do you see yourselves allocating those returns? Towards accelerating ABS note paydown, funding shareholder returns or reinvesting in the program? Just looking to get a sense of where you're seeing capital allocation priorities from -- as the program ramps.

I'll let Brad chime in here as well. But really about -- we talk about our 4 pillars and what our options are. It's always going to be the best use of our cash. And so we obviously have a distribution policy that's in place. If shares are -- if we have excess cash and shares are trading below what we feel the true value that they should be, we'll put it there. We'll continue to grow the business either through reinvesting in additional wells or into additional acquisitions. So it's really -- we have options. We've mentioned that word multiple times, but we have the ability to move cash to where we feel like is the best shareholder returns.

Do you want to add?

I can't add anything to that. I fully agree.

Understood. Yes, that makes sense. Okay. Just as you're putting more capital to work from the operated program, and you mentioned this briefly in the prepared remarks, but do you see yourselves layering on some hedges to protect those returns? Or do you prefer kind of keeping that exposure to commodity price upside?

Are you talking about on the new wells we're drilling?

Right.

No, I think we'll use our discretion there because, obviously, if prices -- if we're drilling into a commodity price environment that has significant movement up, then we may take some of that risk off the table. But one of the things that we really like about this program, it does give us the ability to have some exposure to the unhedged commodity. And so we want to retain as much of that as possible. Because I'm sitting here today and I'm looking at natural gas prices at $2.68, I don't believe that in 2027 -- late '27, early '28 that gas prices won't be at $2.68, if you just look at all the demand that's coming to the market. So I want to have ability to leg into that, and this gives us the ability to do so.

And Jonathan, we've always been thoughtful and had a disciplined hedging program in place. We do like the optionality with that exposure to commodity price. But we've always had a disciplined hedging program in place to ensure that we can continue to provide consistent, reliable cash flow generation to our shareholders.

Our next question comes from the line of Charles Meade with Johnson Rice.

Rusty, I want to go back to your -- kind of the conclusion of your prepared comments. And I think it's on Slide 9, where you said that you could -- this operated drilling program could let you reinvest for low-risk growth. And characteristically, you guys have been -- you take a step up with volumes when you make an acquisition and then you kind of -- it slightly declines from there. And that's kind of the way Rick talked about it. He said one of the goals here is to offset the decline. So this doesn't have -- this question doesn't have -- I don't expect a precise answer, but what is the thinking here? That you're still going to stay on that previous slight decline before acquisitions? Or is this something that you could actually flex up to really deliver organic growth maybe in '28 or beyond? What's the vision?

Well, we know that between our non-operated program and this operated program that we're kicking off this month that we have the ability to offset a majority, if not all, of our decline rate, which is very, very impactful. Now look, gas prices go to $4.50, $5, then you can look at organic growth potentially as an option for the future. But what I would say is, right now, we see it more of an ability to offset existing decline rates completely between the 2 programs, and that's a great place for us to be. One of our directors says it all the time, he said, our 9% to 10% decline rate, with the growth that we have, it becomes larger and larger. That -- what that percentage represents, this has the ability to offset that, which is tremendous.

Right. Yes. It's definitely a new thing. And then if I could -- if we could go back to -- I think the way you described, it was really the Camino acquisition that got you guys over the line as far as really wanting to start up this operated drilling program. So I'm curious, what -- did you guys get a number of offers? Once you announced that you guys were going to do the Camino deal -- I know there were a lot of people looking at it, a lot of people wanted those locations. Did you have a lot of offers come in for -- to do what had traditionally been your MO, which is having a non-op come in? Or was it -- I mean, did you evaluate that also? Or was this just something that you knew you needed to do to start with the drilling program?

No, it's a great question. We always evaluate every option. And yes, we did have inbounds about drilling this acreage for us. We could have participated, we could have sold or whatever. But when we looked at the concentration of acreage -- and it's got a 90% working interest on it. That's pretty good for any acreage position you pick up nowadays, but keep -- that means we don't have to go out and find other people to sublease from and all that other work that comes along with that. This was just a long runway of optionality for us. And we felt like with the information we had on the wells that Camino had already drilled that we had a pretty good idea of what our returns were going to be, and this just gave us the ability to run that rig and feel comfortable from an operating perspective with Rick's team of being able to do it ourselves.

Yes. I'd add to that just slightly. With the scale and consolidated footprint we had there as well as the low risk, high return, the ability to run your own operated, we get to control the pace of the spend. And so that's beneficial to us. Lots of great partners out there. We would continue to work with them. But remember, as I stated, when we purchased this, Camino was running multiple rigs out there and getting very good results. We're running 1 rig. We get to control that pace, and we're not doing it because we have to. We're doing it because we choose to.

Our next question comes from the line of [ Jarrod Giroue ] with [ Starco Brand ].

My first one is just kind of want to clear up one thing. I know it's been talked about a lot, but I just want to confirm that the annual run rate of CapEx of $250 million to $300 million, is that essentially like a maintenance CapEx number that could keep production flat going forward?

Well, that's the total capital allocation for the non-op, the operated and what we call our maintenance CapEx associated with our PDP portfolio. And we've essentially said that we're going to offset our decline rates, and that's our capital number.

Yes. And [ Jarrod ], just one thing. In the event, as we've indicated that we choose to continue with a 1-rig program in the next year or 2, then this level of capital would be somewhat of a run rate. But that's going to be our choice, as we've already highlighted several times today.

That's perfect. That makes sense. And then just one other one, just on the non-op program. So for 2026, the non-op was mainly with Mewbourne, Continental and the private operator starting up in the back half of the year. Just wondering if you could give any color on expectations for those other 2 non-op programs, whether it be production, rigs activity, just anything else you have on those.

I don't think we've given any direction on that yet. What I would tell you is if we are doing it, it competes in our portfolio for capital. So we expect good returns. And both of those, you're going to see the majority of the production in '27 due to the timing in the latter part of this year. As you well know, and we called out kind of the plays, if you look at the ZIP codes in the BMW play and on the Northwest Shelf, you've seen good results to date. So that's why we'll continue to participate in those.

[Operator Instructions] Our next question comes from the line of Paul Diamond with Citi.

Just wanted to quickly stay on the new op program. Is it too early to talk about breakevens? And I guess, what -- how to quantify the modularity of the program, whether you add a rig or take the foot off the gas? Is there a price deck you guys have in mind and kind of I guess how to think about the breakeven and just the strategy around that?

We'll always pay attention to the commodity prices. I don't think we've called out the breakeven, but we did call out what we ran this at, at $65, $3.25 flat price deck, just to understand what those returns would be. So I think we're conservative on that side. We make sure that this will be economic on the decks we see out there now. But we have that ability to pivot at any point, as you well stated. And that could be that we decide not to run the program due to commodity price or we decide to expand the program.

Okay. Understood. And then just one more kind of longer-term question. Can you talk about how you guys see the evolution of your base decline as you kind of layer in additional, I guess, new wells from both the op program and the JV? I understand the design is to replace that 10% base decline. But over time, can you talk about any migration you see there?

Yes. I mean, here's the deal. And I think where people -- they always think about, "Okay, you're drilling new wells, you're going to have these higher declines." But you also have higher declines that are leaving and coming down over time as well. And so the blend of wells that are coming off of high decline into what we call their lower decline years blended with the stuff that we're drilling today, which is significant, but not as significant as our PDP portfolio production, it really marginalizes that. And unless we really just went out and started 60%, 70% capital intensity, which is not what we're going to do, it's not going to have material impacts on our corporate decline rate moving forward. We feel really good about covering our corporate decline rate with these programs, but we don't anticipate significant increases in our decline rates.

And Paul, that structural advantage that I mentioned in my comments, we've got a significant existing or foundational production base at that -- that's already at a lower decline rate. And that's different than just some of the other companies or really all the other companies that are very heavy on the drill business. So we've got that very stable base underneath that supports what Rusty indicated.

Thank you. We have reached the end of the question-and-answer session. Therefore, I would like to turn the conference call back over to Rusty Hutson for closing remarks.

Thank you all for joining today. As always, if you have further questions or clarifications needed, please get in touch with Doug and his team, and they'll be happy to assist. And everyone, have a great day.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.

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.