United States securities and exchange commission logo
June 30, 2022
Benjamin Sullivan
Executive Vice President, General Counsel and Corporate Secretary
Diversified Energy Co PLC
1600 Corporate Drive
Birmingham, Alabama 35242
Re: Diversified Energy
Co PLC
Draft Registration
Statement on Form F-1
Submitted June 3,
2022
CIK No. 0001922446
Dear Mr. Sullivan:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form F-1
Commonly Used Defined Terms
Proved Undeveloped Reserves or PUDs, page v
1. Your definition
includes language indicating a requirement for certainty that there is
continuity of
production for the existing productive formation that appears to be
inconsistent with the
definition in Rule 4-10(a)(31) of Regulation S-X. Please revise the
disclosure to resolve
this inconsistency or tell us why a revision is not needed.
Presentation of Financial Information
Use of Non-IFRS Measures, page viii
2. We note the definition
of Adjusted Net Income does not appear to provide a complete
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
June NameDiversified Energy Co PLC
30, 2022
June 30,
Page 2 2022 Page 2
FirstName LastName
explanation of the reconciling items reflected in the reconciliation
on page 18. We also
note the definition indicates this measure is intended to represent an
adjusted income
(loss) available to shareholders after taxation. However, it
appears that the most directly
comparable IFRS basis measure as shown on page 18 is Net income
(loss). Please revise
your disclosure as necessary to address these inconsistencies.
3. We note you use Adjusted G&A because this measure excludes items
that affect the
comparability of results or that are not indicative of trends in the
ongoing business.
Please revise to provide further clarity regarding the reasons why
management believes
that presentation of Adjusted G&A provides useful information to
investors regarding
your results and ongoing business trends.
Prospectus Summary
General, page 1
4. In the list below, we note discussion of non-IFRS measures that are
not identified as such
and do not include disclosures necessary to comply with Item 10(e) of
Regulation S-K.
Please revise your disclosures as necessary.
Hedge Adjusted EBITDA multiple of 2.5 to 1.0;
PDP coverage ratio of 4.0 to 1.0;
$412 million in liquidity after giving effect to two new asset
backed security
financings but without giving effect to issuance of the ABS V
Notes;
Total capex, excluding acquisitions, in FY 21 is disclosed as
14.6% of total Hedge
Adjusted EBITDA.
In responding to this comment, tell us more about how you were able to
calculate a
comparative non-IFRS measure for your U.S. public Appalachia peers.
Commitment to Operational Excellence and Our Environmental, Sustainability and
Governance
Goals, page 2
5. Please revise the disclosure, where applicable, to clarify what is
meant by vertically
integrated asset retirement infrastructure.
6. We note your statement here and elsewhere that "[you] adhere to
best-in-class operating
standards, with a strong focus on health, safety and the environment
to ensure the safety of
our employees and the local communities in which we operate." Please
provide us with
the basis for this statement.
Summary Reserve Data
Summary of Reserves as of December 31, 2021, page 4
7. Your filing refers to a summary of reserves and PV-10 using NYMEX
forward-month
contract pricing as of December 31, 2021; however, this summary was
not included in the
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
June NameDiversified Energy Co PLC
30, 2022
June 30,
Page 3 2022 Page 3
FirstName LastName
filing. Please revise your filing to include this presentation or
remove the reference if you
do not intend to include this information. Refer to Item 1202(b) of
Regulation S-K.
8. We note your presentation of PV-10 on page 5 under the column labeled
SEC Pricing as
of 12/31/21 and references to footnotes (a), (c) and (d). Please
clarify for us whether your
PV-10 is calculated using SEC pricing or NYMEX strip pricing. If your
PV-10 is not
calculated based on SEC pricing, it is not clear that an adjustment
for taxes would be all
that is necessary to reconcile to the standardized measure.
Recent Developments, page 10
9. We note that you have identified the expansion of your plugging
operations from one
team as of December 31, 2021 to nine teams as a milestone, and your
observation that this
will allow you to comfortably achieve your goal of plugging 200 wells
a year by 2023.
Please expand your disclosure to address why you have identified
plugging operations as a
goal of your business model. In addition, explain whether the increase
in your plugging
operations subsequent to year end will impact your recorded asset
retirement obligation in
future periods.
Hedged Adjusted EBITDA and Unhedged Adjusted EBITDA, page 18
10. We note your presentation of Hedge Adjusted EBITDA and Unhedged
Adjusted
EBITDA. Revise your disclosure to reconcile these measures to Net
Loss, the most
directly comparable IFRS measure. Refer to Question 103.02 of the
Non-GAAP Financial
Measures Compliance and Disclosure Interpretations regarding measures
characterized as
EBITDA for further guidance.
11. With regard to Unhedged Adjusted EBITDA, tell us how you considered
the guidance per
Question 100.01 of the Non-GAAP Financial Measures Compliance and
Disclosure
Interpretations regarding normal, recurring, cash operating expenses.
Summary Consolidated Financial and Other Data
Non-IFRS Financial Measures
Adjusted Net Income and Adjusted EPS, page 18
12. Please include a footnote that provides a description and
quantification of each component
of the adjustment labeled Other adjusting costs here and in each
location it is included as
an adjustment. In this regard, we note such footnote disclosure is
provided on page 20.
13. Please revise your presentation to include a reconciliation of
Adjusted EPS-basic and
diluted to the most directly comparable IFRS measure per share. Refer
to Question 102.05
of the Non-GAAP Financial Measures Compliance and Disclosure
Interpretations.
Adjusted Total Revenue; Cash Operating Margin and Cash Margin, page 19
14. We note your presentation of Adjusted Total Revenue. Please revise the
title to more
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
June NameDiversified Energy Co PLC
30, 2022
June 30,
Page 4 2022 Page 4
FirstName LastName
clearly describe the nature of the this non-IFRS measure, considering
the adjustment
relates to the impact of commodity hedges.
15. We note your presentation of Total Cash Operating Income, Cash Margin
and Cash
Operating Margin. Please revise to include reconciliations to the most
directly comparable
IFRS basis measures. Refer to Item 10(e)(1)(i)(B) of Regulation S-K.
In addition, expand
your description on page ix to more clearly explain the usefulness of
these non-IFRS
measures. Refer to Item 10(e)(1)(i)(C) of Regulation S-K. As part of
your response, tell us
whether you consider these to be measures of performance or liquidity.
Free Cash Flow and Free Cash Flow Yield, page 19
16. We note that your computation of Free Cash Flow appears to differ from
the typical
calculation of this measure (i.e., cash flows from operations less
capital expenditures), and
that a reconciliation to the most directly comparable IFRS basis
measure has not been
provided. Please revise the title of your non-IFRS measure to avoid
potential confusion
with free cash flow and reconcile to net cash provided by operating
activities. In addition,
revise your description on page ix to more clearly explain the
usefulness of this measure.
Refer to Item 10(e)(1)(i)(C) of Regulation S-K. In this regard, it is
not clear what is meant
by stating that this measure is an indicator of your ability to
internally fund your activities
and to service or incur additional debt. Refer to Question 102.07 of
the Non-GAAP
Financial Measures Compliance & Disclosure Interpretations.
17. We note your presentation of Free Cash Flow Yield. Please revise to
include a
reconciliation to the most directly comparable IFRS basis measure.
Refer to Item
10(e)(1)(i)(B) of Regulation S-K. In addition, expand your description
on page ix to more
clearly explain the usefulness of this measure. Refer to Item
10(e)(1)(i)(C) of Regulation
S-K.
Hedge Adjusted EBITDA per Share, page 19
18. We note your presentation of Hedge Adjusted EBITDA per share. Tell us
how you
considered the guidance per Question 103.02 of the Non-GAAP Financial
Measures
Compliance and Disclosure Interpretations regarding presentation of
measures of
EBITDA on a per share basis.
Employees, administrative costs and professional services and Adjusted G&A,
page 20
19. We note that Adjusted G&A makes an adjustment for Recurring
allowance for expected
credit losses. Please tell us your basis for this adjustment. Refer
to Question 100.01 of the
Non-GAAP Financial Measures Compliance and Disclosure Interpretations
regarding
normal, recurring cash operating expenses.
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
June NameDiversified Energy Co PLC
30, 2022
June 30,
Page 5 2022 Page 5
FirstName LastName
Risk Factors
We may face unanticipated increased or incremental costs in connection with
decommissioning
obligations such as plugging, page 26
20. We note that you are party to agreements with regulators in the states
of Ohio, West
Virginia, Kentucky and Pennsylvania with regard to your asset
retirement obligations.
Please expand your disclosure to provide further clarity regarding
your statement that
These agreements may be subject to different interpretations or
amendments leading to
an increase in our plugging costs.
Our hedging activities could result in financial losses or could reduce our net
income, page 38
21. You disclose on page 71 that you reported an operating loss of $467
million compared
with an operating loss of $78 million for the years ended December 31,
2021 and 2020,
respectively. We also note you disclose that this year-over-year
increase in net loss was
primarily attributable to an increase of $414 million in the
mark-to-market loss on your
derivative financial instrument valuations to $652 million in 2021
from $239 million in
2020. Please revise this risk factor to disclose your recent losses.
ADS holders may not be entitled to a jury trial with respect to claims arising
under the deposit
agreement, page 51
22. We note your disclosure here that the deposit agreement governing the
ADSs representing
your ordinary shares provides that, to the fullest extent permitted by
applicable law,
holders and beneficial owners of ADSs irrevocably waive the right to a
jury trial of any
claim that they may have against us or the depositary arising from or
relating to your
ordinary shares, your ADSs or the deposit agreement, including any
claim under the U.S.
federal securities laws. Please revise your disclosure to more fully
address the impact of
this provision on the rights of investors, including without
limitation, the risks of
increased costs to bring a claim, limited access to information and
other imbalances of
resources between you and investors, and that these provisions can
discourage claims or
limit investors ability to bring a claim in a judicial forum that
they find favorable. Please
also clarify whether purchasers of ADSs in a secondary transaction
would be subject to
the waiver of the right to jury trial.
Dividend Policy, page 57
23. You disclose that you intend to, consistent with your historical
performance since the LSE
IPO, use a portion of your cash flow to pay regular dividends on your
ordinary shares, as
well as, on a proportionate basis, our ADSs. Please revise your
disclosure here and
elsewhere, as appropriate to describe the limitations on your ability
to pay dividends under
your existing credit facility. In this regard, we note you disclose on
page 37 that your
credit facility contains a number of significant covenants that may
limit your ability to,
among other things, pay dividends.
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
June NameDiversified Energy Co PLC
30, 2022
June 30,
Page 6 2022 Page 6
FirstName LastName
Please also disclose whether your dividend policy will be reflected in
any written policies
of the Company.
Hedge Adjusted EBITDA per Share, page 63
24. We note your statement that Hedge Adjusted EBITDA quantifies our
ability to repay
indebtedness and interest, internally fund future growth and declare
and pay dividends to
our shareholders. Please tell us whether you consider this measure
to be both a
performance and a liquidity measure. If used as a liquidity measure,
it appears an
additional reconciliation to net cash provided by operating activities
is required.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Key Indicators of Performance and Financial Condition, page 63
25. We note your presentation of tabular disclosure of key indicators of
performance and
financial condition. When you present tables and a discussion of
non-IFRS measures,
please include similar tables and discussion of your comparable IFRS
results with equal or
greater prominence. Refer to Item 10(e)(1)(i)(A) of Regulation S-K and
Question 102.10
of the Non-GAAP Financial Measures Compliance and Disclosure
Interpretations.
Liquidity and Capital Resources
Overview, page 72
26. We note your disclosure regarding your ability to satisfy your working
capital
requirements, debt service obligations and planned capital
expenditures beyond the next
12 months and your reference to Note 13 for information regarding your
hedging program
to mitigate the risk associated with future cash flow generation.
Please expand your
discussion to analyze material cash requirements from known
contractual and other
obligations. Such disclosures should specify the type of obligation
and the relevant time
period for the related cash requirements. Refer to Item 303(b)(1) of
Regulation S-K.
27. Given that the undiscounted value of your asset retirement obligation
of $1.6 billion
appears to represent more than 60% of the net book value of your
proved natural gas and
oil properties, please address the significance of the obligation in
your liquidity and
capital resources discussion within MD&A. For example, this may
encompass the nature
and timing of the costs that you anticipate incurring and the
identification of the properties
on which the work will be performed and their current status.
28. With regard to the tabular computation of Liquidity on a pro forma
basis on page 73,
please add quantitative disclosure to footnote (a) that sums to the
pro forma available
borrowings under the credit facility. In addition, please revise to
include the impact of the
ABS V Notes issuance or tell us why it has been excluded from your
presentation.
29. You disclose that your capital expenditures were $50 million for the
year ended
December 31, 2021 compared to $22 million for the year ended December
31, 2020.
Please expand your disclosures to quantify your material commitments
for capital
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
June NameDiversified Energy Co PLC
30, 2022
June 30,
Page 7 2022 Page 7
FirstName LastName
expenditures as of and subsequent to December 31, 2021. Refer to Item
4 to Form F-1 and
Item 5.B.3 and Item 5.D. of Form 20-F.
Contractual Obligations and Contingent Liabilities and Commitments, page 76
30. Please add footnote disclosure to the Asset retirement obligation line
that provides the
amounts on an undiscounted basis for the time periods presented.
Business
Reserve Data
Productive Wells, page 83
31. Your disclosure of total gross and net productive wells is not
expressed separately for oil
and gas wells. Please revise your filing as necessary to comply with
the requirements in
Item 1208(a) of Regulation S-K.
32. Please expand your disclosure to provide the number of net productive
and dry
exploratory and development wells drilled in which you owned an
interest, including
wells drilled by operators other than you, during each of the last two
fiscal years. If you
did not participate in any such wells, please clarify your disclosure.
Refer to Item 1205 of
Regulation S-K.
33. To the extent there were any proved reserves added for wells drilled
and completed by
you or other operators on leases in which you own an interest
subsequent to your
acquisitions, including wells that were not assigned proved
undeveloped reserves at the
beginning of the year, please modify the reserves reconciliation
presented on page F-66 as
necessary to disclose these reserves as extensions and discoveries.
Refer to FASB ASC
932-235-50-5.
34. Please expand your disclosure to provide a description of your present
activities, including
the number of gross and net wells in the process of being completed or
waiting on
completion and any other related activities of material importance at
the end of your most
recent fiscal year and any subsequent updates to these activities as
of the date of your
current filing. Refer to Item 1206 of Regulation S-K.
35. You disclose you do not have a development plan, but as part of some
acquisitions you
acquire wells that are in progress. Your disclosure includes proved
undeveloped reserves,
as of December 31, 2021, associated with in process wells acquired as
part of the
Tapstone Acquisition. You also disclose you spent $1 million in
development expenses
during 2021. Please expand your disclosure to clarify the nature of
the costs associated
with the capital expenditures incurred during 2021 on development
activities. Refer to
Item 1203(c) of Regulation S-K.
Production Volumes, Average Prices and Operating Costs, page 86
36. Tell us how you considered the requirements with regard to disclosure
of production, by
final product sold, for each field that contains 15% or more of your
total proved reserves
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
June NameDiversified Energy Co PLC
30, 2022
June 30,
Page 8 2022 Page 8
FirstName LastName
for each of the last two fiscal years. Refer to Item 1204(a) of
Regulation S-K and Rule 4-
10(a)(15) of Regulation S-X.
Management
Executive Director Employment Agreements, page 105
37. We note the disclosure that you have entered into employment
agreements with your
executive directors. Please file such agreements as exhibits to your
registration statement
or provide analysis explaining why this is not necessary. For
guidance, refer to Item 8 to
Form F-1 and Item 601(b)(10)(iii) of Regulation S-K.
Index to Consolidated Financial Statements
Consolidated Statement of Financial Position, page F-4
38. Please revise your presentation to present non-controlling interest
within equity but
separately from parent shareholders equity. Refer to IAS 1.54(q)
and IAS 1.IG, Part I.
Notes 3 - Significant Accounting Policies, page F-11
39. Please revise the reference to the "UK-adopted international
accounting standards" as the
audit report states your consolidated financial statements are
presented in conformity
with International Financial Reporting Standards as issued by the
International
Accounting Standards Board.
Oaktree Capital Management, L.P. ("Oaktree") Participation Agreement, page F-12
40. Please expand your disclosures to address how you account for the
proportionate interests
acquired in conjunction with Oaktree under the Strategic Participation
Agreement.
Note 5 - Acquisitions and Divestitures, page F-20
41. We note that you accounted for the acquisitions of Blackbeard, Indigo,
and EQT as an
asset acquisition rather than a business combinations under IFRS 3.
Please provide us with
an analysis, on an individual acquisition basis, supporting your
accounting conclusions.
Tapstone Energy Holdings LLC ("Tapstone") Business Combination, page F-20
42. We note your reference to the use of a third party specialist to
determine the discount rate
when determining the fair value of the Tapstone natural gas and oil
properties. To the
extent you relied upon a third-party expert, please disclose the name
of the specialist and
include a consent or clarify your reference to this discount rate.
This comment also applies
to use of a third party expert in the Tanos purchase accounting.
Note 19 - Asset Retirement Obligations, page F-49
43. We note that a calculation of your undiscounted asset retirement
obligation of
$1,615,461,000 divided by your net productive wells of 64,036 results
in an average
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
June NameDiversified Energy Co PLC
30, 2022
June 30,
Page 9 2022 Page 9
FirstName LastName
plugging cost of approximately $25,000 per well. Acknowledging that i)
the costs
necessary to plug a well are dependent upon a number of factors,
including age, depth,
access and general condition, and ii) you have made cost reductions as
a result of the
expansion of your internal plugging program, tell us how this average
compares to what is
typical for wells in the areas where you operate. As part of your
response, please provide
us with an analysis of the factors considered when determining your
undiscounted asset
retirement obligation as of December 31, 2021, including
considerations unique to your
well portfolio.
44. In addition, supplementally provide us with the following:
The number of wells plugged in fiscal years 2020 and 2021 and
the total plugging
costs incurred for each related fiscal year;
A schedule, by fiscal year, that details when the 64,036 total
net productive wells as
of December 31, 2021 are scheduled to be plugged.
Note 24 - Fair Value and Financial Instruments
Contingent Consideration, page F-60
45. Please provide the reconciliation required by IFRS 13.93(e) and a
description of the
sensitivity to unobservable inputs required by IFRS 13.93(h) as it
relates to your
contingent consideration and any other recurring fair value
measurements categorized
within Level 3.
Note 25 - Financial Risk Management
Liquidity Risk, page F-63
46. Please tell us how you have complied with IFRS 7.39(b), which requires
a maturity
analysis for derivative financial liabilities. In addition, revise the
presentation of the asset
retirement obligation in your table to reflect the contractual amounts
on an undiscounted
basis as required by Appendix B.11D of IFRS 7.
Note 29-Supplemental Natural Gas and Oil Information (Unaudited)
Estimated Reserves, page F-65
47. In addition to the reconciliation of the changes that occurred in
total proved reserves
during fiscal 2020 and 2021, you separately disclose the net
quantities by individual
product type for Total Proved Reserves and Proved Undeveloped
Reserves. Please
refer to the requirements in FASB ASC 932-235-50-4 and modify your
disclosure to
separately present the information for proved developed and proved
undeveloped reserves
at the beginning and the end of each year presented in the reserves
reconciliation
including the initial year, e.g. December 31, 2019.
48. Your summary table of changes in net proved reserves indicates a
revision of previous
estimates for the year ended December 31, 2021 of 90,251 MBoe, but
footnote (a) to the
Benjamin Sullivan
Diversified Energy Co PLC
June 30, 2022
Page 10
table states the revision was 91,251 MMBoe. Please revise your disclosure
to correct this
inconsistency or tell us why a revision is not needed. Refer to FASB ASC
932-235-50-5.
General
49. Please provide us with supplemental copies of all written communications,
as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to do
so on your behalf,
have presented or expect to present to potential investors in reliance on
Section 5(d) of the
Securities Act, whether or not you retained, or intend to retain, copies
of those
communications.
You may contact Jennifer O'Brien at (202) 551-3721 or Shannon Buskirk
at (202) 551-
3717 if you have questions regarding comments on the financial statements and
related
matters. You may contact Sandra Wall, Petroleum Engineer, at (202) 551-4727 or
John Hodgin,
Petroleum Engineer, at (202) 551- 3699 with questions about engineering
comments. Please
contact Irene Barberena-Meissner at (202) 551- 6548 or Kevin Dougherty at (202)
551-3271
with any other questions.
Sincerely,
FirstName LastNameBenjamin Sullivan
Division of
Corporation Finance
Comapany NameDiversified Energy Co PLC
Office of Energy &
Transportation
June 30, 2022 Page 10
cc: Ryan J. Lynch, Esq.
FirstName LastName