We came across a bullish thesis on Diversified Energy Company PLC (DEC) on Substack by The Oak Bloke. In this article, we will summarize the bulls’ thesis on DEC. Diversified Energy Company PLC (DEC)’s share was trading at $13.28 as of March 19th. DEC’s trailing and forward P/E were 4.19 and 7.18 respectively according to Yahoo Finance.
Aerial view of an industrial landscape showing the scale of oil and gas operations.
DEC has delivered solid FY2024 results, reinforcing its reputation for “Delivering Reliable Results.” Adjusted comprehensive income came in at $100.2 million, factoring out a $189 million loss from unsettled hedges and including a $151.5 million gain on settled hedges. The company reported full-year 2024 average production of 791 MMcfepd (132 Mboepd), with fourth-quarter production averaging 843 MMcfepd (141 Mboepd) and a December exit rate of 864 MMcfepd (144 Mboepd). Adjusted EBITDA for the year stood at $472 million, with free cash flow reaching $170.4 million, reflecting an adjusted EBITDA margin of 50% and a trailing twelve-month free cash flow yield of 33%. Revenue per unit, including settled hedges, was $3.21/Mcfe ($19.28/Boe), while operating costs per unit were $1.78/Mcfe ($10.71/Boe). These strong financials highlight DEC’s ability to generate stable cash flow despite the volatile natural gas market.
The short-selling thesis against DEC continues to weaken. Many critics based their bearish arguments on outdated metrics that failed to account for improving commodity prices and operational efficiencies. Today’s results demonstrate that DEC’s acquisition of Maverick was, in fact, a highly accretive deal. DEC’s updated 2025 guidance forecasts production at 174.4 KBoe/d, down from the current 191 KBoe/d run rate, with 47.8 KBbls/d in oil and NGLs and 143.3 KBoe/d in natural gas. Free cash flow is projected at $420 million, with leverage expected to be in the 2.0x-2.5x EBITDA range. Synergies from the Maverick acquisition are estimated at over $50 million, and forward adjusted EBITDA guidance of $825 million to $875 million suggests EBITDA stability, even accounting for depletion. This marks a $75 million improvement in free cash flow compared to previous projections, or a 19% increase per share versus pre-Maverick levels, further validating the acquisition’s benefits.
Operationally, production increased by 14% in the second half of 2024. While costs rose slightly, gross profit improved as well. The impact of unsettled hedges distorts earnings, but DEC’s strategy focuses on settled hedges, which are the true determinant of profitability. Natural gas prices have strengthened in 2025, reinforcing DEC’s solid positioning. However, a notable concern is the increase in lease operating expenses (LOE), which climbed by 19.2% in the second half of 2024. Management expects synergies in 2025 to mitigate these costs, contributing to $50 million in savings. Adjusted for inflation, the cost increases are relatively minor, but the higher depletion and general and administrative (G&A) expenses remain areas to monitor. The DP Lion disposal slightly impacted estimated proved reserves, increasing depreciation costs.
Several newly announced synergies add to DEC’s upside potential. Recent land sales suggest valuations above previous estimates, with recent transactions pricing acreage at $1,300 per acre instead of the prior $1,100 assumption. The Summit Pipeline opening provides access to Zone 5 of the TransCo system, commanding premium pricing that is $1.80 to $3.70 per Boe higher than Dominion South, a significant revenue boost. DEC also reported $42.6 million in asset disposals, including $32.7 million from undeveloped leasehold sales in 2024. Coal mine methane (CMM) revenue, currently at $8 million, is expected to triple to $24 million in EBITDA by 2026-2027, further enhancing DEC’s diversified revenue streams.
Additional growth opportunities stem from NextLVL, DEC’s internal well retirement division, which is expanding from 17 to 18 rigs with additional capital investment in 2025. The initiative aims to reduce reliance on third-party contractors, lower costs, and improve environmental remediation efficiency. Natural gas fundamentals remain strong, with NYMEX prices averaging $4/MMBtu in 2025, a substantial improvement from the $2.27/MMBtu average in 2024. Additionally, limited capacity at U.S. LNG supply terminals further supports higher pricing trends.
Accounting rules regarding unsettled hedges continue to create confusion. The reported $67.4 million derivative loss stems from mark-to-market adjustments rather than actual realized losses. Given natural gas’s forward pricing, this accounting treatment exaggerates downside volatility without reflecting future revenue that will offset these costs. Stripping out these accounting distortions, DEC’s net asset value actually increased by approximately $20 million, reinforcing the company’s strong financial foundation.
DEC has significantly expanded its property portfolio by over $400 million net in 2024, utilizing leverage to enhance its return on capital employed (ROCE) and return on equity (ROE). While this has increased borrowing and interest costs—currently at 7.37%—the key consideration is whether the additional revenue generated exceeds these costs. If so, this leverage is accretive, enhancing shareholder value. Despite some concerns over debt levels, this strategy positions DEC for stronger cash flow and profitability moving forward.
Another overlooked aspect is DEC’s deferred tax asset. The company reported a pre-tax loss of $224 million, which was reduced to an $87 million loss post-tax due to this asset. If DEC continues generating future profits, this asset will provide tangible tax benefits, further strengthening its financial position. The broader outlook for U.S. oil and gas in 2025 remains favorable, with DEC well-positioned to capitalize on key industry trends.
Despite today’s 9.3% share price increase, the market is merely catching up to what was already evident—DEC is a strategic play on Coal Mine Methane, LNG exports, and data center energy demand. With additional catalysts like tariffs and supply constraints, DEC is set for a strong 2025.
Diversified Energy Company PLC (DEC) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 11 hedge fund portfolios held DEC at the end of the fourth quarter which was 7 in the previous quarter. While we acknowledge the risk and potential of DEC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DEC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.