Key Takeaways
Diversified Energy Co. reported a 157 percent year-over-year surge in first-quarter adjusted free cash flow while announcing a $1.175 billion joint acquisition of assets in Oklahoma’s Anadarko basin alongside investment firm Carlyle, signaling a new phase of expansion and a novel financing strategy for the producer.
"With the Sheridan acquisition recently closed and the innovatively structured Camino acquisition, with our partners at The Carlyle Group, expected to close in the third quarter, we are once again transforming our platform," Rusty Hutson, Jr., CEO of Diversified, said. "Our scale positions Diversified to benefit from powerful, long-term demand drivers, including power generation, data center growth, LNG exports, and the continued importance of U.S. energy production."
The strong results for the three months ended March 31 saw adjusted EBITDA climb 108 percent to $287 million from the prior-year period, while adjusted free cash flow reached $160 million. The performance came despite a reported net loss of $161 million, which the company noted was inclusive of a $398 million non-cash loss on unsettled derivatives, a consequence of significant commodity price volatility during the quarter. Average daily production was 1,198 million cubic feet equivalent per day (MMcfepd).
The transaction with Carlyle to acquire assets from Camino Natural Resources represents a significant strategic move, expanding Diversified’s footprint in a key U.S. energy basin. The deal structure allows Diversified to operate the assets and retain the undeveloped locations while using a bespoke asset-backed securitization (ABS) to finance the producing assets, a model that could pave the way for future large-scale acquisitions. The deal is expected to close in the third quarter of 2026.
Diversified's first-quarter performance highlighted its ability to generate significant cash flow. The company returned $94 million to shareholders through dividends and share repurchases and retired $92 million in debt, strengthening its balance sheet. The leverage ratio stood at 2.2x as of March 31, inside its target range of 2.0x to 2.5x.
Production was composed of approximately 71 percent natural gas, 14 percent natural gas liquids, and 15 percent oil. The company noted that per-unit metrics reflected the integration of more liquids-heavy assets from its 2025 acquisitions of Maverick Natural Resources and Canvas Energy, with cost synergies expected to be realized over time.
The Camino acquisition is structured through a new special purpose vehicle (SPV) that will hold the producing assets and issue the ABS debt. Carlyle will hold the majority ownership interest in this SPV, while Diversified will serve as the asset operator and manager. Critically, Diversified will retain full ownership of the undeveloped assets, including over 100 identified drill-ready locations, outside of the SPV.
This innovative structure allows Diversified to expand its operational scale and add about 300 MMcfed of production for a net outlay of approximately $210 million funded from its existing credit facility. The deal provides an immediate path to operating efficiencies by adding assets contiguous to Diversified's existing Oklahoma portfolio.
The company reiterated its full-year 2026 guidance, which projects adjusted EBITDA between $925 million and $975 million and adjusted free cash flow of approximately $430 million. This guidance does not yet incorporate the impact of the recently closed Sheridan acquisition or the pending Camino deal, suggesting potential for future upward revisions. Hutson expressed confidence that the company's expanded footprint and proven business model position it to capitalize on long-term energy demand trends and drive shareholder value.
This article is for informational purposes only and does not constitute investment advice.
