Diversified Energy Company M&A announcement

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 3rd, 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 3.3x 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 U.S.

Importantly, the Permian Basin is maturing, and as it does, an enormous amount of proved develop 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. 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's 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 one. 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 finished one. 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's an 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 3.3 times EBITDA. That is before synergies, before optimization, and consistent with the discipline 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 1,800% 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 U.S. 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 am extremely proud of this accomplishment. Diversified has grown to four 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 impacts of this acquisition in market terms. Diversified Energy 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.