United States securities and exchange commission logo
August 16, 2022
Benjamin Sullivan
Executive Vice President, General Counsel and Corporate Secretary
Diversified Energy Co PLC
1600 Corporate Drive
Birmingham, Alabama 35242
Re: Diversified Energy
Company plc
Amendment No. 1 to
Draft Registration Statement on Form F-1
Submitted July 29,
2022
CIK No. 0001922446
Dear Mr. Sullivan:
We have reviewed your amended 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. Unless we note otherwise, our references to prior comments are
to comments in our
June 30, 2022 letter.
Amendment No. 1 to Draft Registration Statement on Form F-1
Use of Non-IFRS Measures, page viii
1. Your description of the
calculation of Cash Operating Margin and Total Cash Operating
Margin on page iv is
exactly the same. Please revise your disclosure to clarify the
difference between how
these two measures are calculated.
2. Your description of
Total Cash Cost per Boe states this measure is based on the operating
costs it takes to
produce each Boe, which includes operating expense, employees,
administrative costs
and professional services and recurring allowance for credit losses.
However, we note that
the difference between Cash Operating Margin and Cash Margin is
that Cash Margin
includes expenses beyond operating costs (i.e. employees,
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
August 16, NameDiversified
2022 Energy Co PLC
August
Page 2 16, 2022 Page 2
FirstName LastName
administrative costs and professional services and recurring allowance
for credit losses),
which implies these expenses are not considered operating costs.
Therefore, it appears
you should revise your characterization of costs included in Total
Cash Cost per boe to
state that it includes amounts in addition to operating costs.
Prospectus Summary
Disciplined growth through accretive acquisitions of producing assets, page 7
3. We note your disclosure that four acquisitions contributed
approximately 40 MBoepd to
December 2021 production, at an aggregate net income (loss) multiple
of 2.1 and
Adjusted EBITDA multiple of 2.5 to 1.0. Please clarify how these
multiples are
calculated.
A proactive and innovative approach to asset retirement, page 9
4. The schedule of well retirements per year provided in response to
prior comment 44 is
inconsistent with and does not appear to support your goal of plugging
200 wells per year
by 2023. Please explain the reason for this discrepancy or revise your
disclosure as
necessary.
Recent Developments, page 11
5. You disclose that in May 2022 you successfully completed the issuance
of your wholly
owned subsidiary s ABS V Notes representing your third
sustainability-linked asset
backed securitization of 2022 and the first whose terms are aligned
with the International
Capital Markets Association s framework for sustainability-linked
bonds.
For the prior sustainability-linked ABS offerings and ABS
V notes, please discuss
the impact of aligning with the International Capital Markets
Association s
framework for sustainability-linked bonds, and what the
sustainability-linked
designation means, including whether this designation carries any
legal meaning.
For any "sustainability-linked" asset backed securitization,
please discuss if there are
any restrictions on the use of proceeds or if there are any
financial aspects of the ABS
Notes that can impact you. In this regard, you disclose on page
75-76 that based on
whether certain performance metrics are achieved, ABS III, ABS IV
and ABS V are
required to apply up to 100% of ABS excess cash to pay down
additional principal,
with the remaining proceeds remaining with you.
6. We note your disclosure that you joined the Oil and Gas Methane
Partnership 2.0 to
further advance your commitment to reducing emissions. Please explain
the activities or
purpose of the Oil and Gas Methane Partnership 2.0 and what impact
joining this initiative
will have on your operations.
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
August 16, NameDiversified
2022 Energy Co PLC
August
Page 3 16, 2022 Page 3
FirstName LastName
Free Cash Flow and Free Cash Flow Yield, page 21
7. We note your disclosure on page ix that Free Cash Flow Yield is an
indicator of financial
stability and reflects your operating strength relative to your size
as measured by market
capitalization. We are unable to locate a similar usefulness statement
regarding Net Cash
Provided by Operating Activities Yield. Please revise your disclosure
to provide
(i) further context regarding how the Free Cash Flow Yield is to be
used to evaluate your
financial stability and operating strength, and (ii) a usefulness
statement regarding the Net
Cash Provided by Operating Activities Yield.
Further to this, we note that based on the calculations necessary to
derive these yields,
including the average per share price of your common stock, it appears
that the result is a
non-GAAP liquidity measure presented on a per share basis. Tell us how
you considered
Question 102.05 of the Non-GAAP Financial Measures Compliance and
Disclosure
Interpretations.
8. We note your disclosure of Average Share Price without explanatory
disclosure
regarding the nature of this amount and how it was derived. Please
expand your
disclosures to explain what Average Share Price represents and how it
is used in the
calculation of the surrounding measures. Your disclosure should
address the reason for
using Average Share Price in these calculation as opposed to other
share prices available.
Summary Consolidated Financial and Other Data
Non-IFRS Financial Measures
Hedged Total Revenue; Cash Operating Margin and Cash Margin, page 21
9. We note you revised the title of Adjusted Total Revenue to Hedged
Total Revenue in
response to prior comment 14. In terms of consistency, however, we
note MD&A refers
to Total Revenue excluding hedge impact and including hedge impact.
Therefore, it
appears that this type of title, referring more specifically to the
impact of hedging
activities excluded or included, may be more meaningful than Hedged
Total Revenue. In
addition, please include a footnote that describes the adjustment
Net gain (loss) on
commodity derivative settlements.
10. Further to the above, we note you have retained a reconciliation to
Adjusted EBITDA that
begins with Total revenue. However, this presentation does not appear
to comply with
Question 103.02 of the Non-GAAP Financial Measures Compliance and
Disclosure
Interpretations regarding measures characterized as EBITDA. Please
remove the non-
IFRS reconciliation to Adjusted EBITDA on page 21 or tell us why you
believe such
reconciliation is appropriate.
11. You state in your response to prior comment 15 that Total Cash
Operating Income, Cash
Margin and Cash Operating Margin are performance measures. The
reference to "Cash"
in the title of these measure are more indicative of a measure of
liquidity. To avoid
confusion, please consider revising the titles of your non-GAAP
measures of performance
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
August 16, NameDiversified
2022 Energy Co PLC
August
Page 4 16, 2022 Page 4
FirstName LastName
that use "Cash" in its title. Further to this, we note your reference
to Adjusted EBITDA
margins of approximately 50% on page 6. Please clarify the difference
between Adjusted
EBITDA margin and the Cash Margin disclosed on page 21.
12. Based on your disclosures on page ix, Total Cash Operating Income is
described as a
measure of cash flows, not a measure of profitability as noted in your
response to
comment 15. Therefore, as it appears Total Cash Operating Income is a
measure of
liquidity, please provide a reconciliation to the most directly
comparable IFRS measure.
13. We note that the revised description of the usefulness provided in
response to prior
comment 15 for Total Cash Operating Income appears similar to the
description provided
for Free Cash Flow. Therefore, please provide further explanation in
support of your
presentation of Total Cash Operating Income as a useful measure.
Risk Factors
Inflation may adversely affect us by increasing costs beyond what we can
recover..., page 35
14. We note your risk factor indicating that inflation could affect your
costs of materials,
equipment, labor and other services. Please update this risk factor if
recent inflationary
pressures have materially impacted your operations. In this regard,
identify the types of
inflationary pressures you are facing and how your business has been
affected.
An increase in interest rates would increase the cost of servicing our
indebtedness, page 39
15. Please expand your discussion of interest rates to specifically
identify the impact of rate
increases on your operations and how your business has been affected.
For example,
describe whether your borrowing costs have recently increased or are
expected to increase
and your ability to pass along your increased costs to your customers.
Dividend Policy, page 59
16. We note your revisions in response to comment 23 and reissue the
comment in part. Your
revised disclosure states that your credit facility contains a
restricted payment covenant
that limits your subsidiaries ability to make certain payments
based on the pro forma
effect thereof on certain financial ratios. However, this restriction
in is not disclosed in
your risk factor on page 37, which addresses restrictions in your
credit facility. Please
revise that risk factor to address this apparent discrepancy. Also,
please expand your
disclosure here regarding the restricted payment covenant in your
credit facility to
describe the applicable financial ratios and pro forma effect thereof
that would limit your
subsidiaries ability to pay dividends.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page
63
17. Please include a discussion of interest rates to specifically describe
how increased interest
rates impact your results of operations, including:
Benjamin Sullivan
FirstName
DiversifiedLastNameBenjamin Sullivan
Energy Co PLC
Comapany
August 16, NameDiversified
2022 Energy Co PLC
August
Page 5 16, 2022 Page 5
FirstName LastName
Adjustments to your planned capital expenditures;
Expected impacts to your short-term funding costs, including
working capital for
inventory and labor costs; and
The impact on liquidity resulting from your material
variable-rate debt outstanding.
Liquidity and Capital Resources
Overview, page 73
18. Please include a discussion of interest rates to describe their impact
on your financial
condition, including your balance sheet. For example, given rising
rates, describe any
resulting impacts on your inventory, accounts payable, long-term debt,
or accrued expense
balances. Expand your disclosure to describe how you are funding these
additional costs.
Business
Reserve Data
Summary of Reserves, page 85
19. We note the first sentence under "Summary of Reserves" has been
revised to exclude
"presents our estimated net proved reserves." Please revise the
sentence to include the
prior wording or advise us why the inclusion would not be appropriate.
Productive Wells, page 86
20. We have read your response to prior comment 34, but note your
disclosure on page 87 that
$1 million of development costs were incurred in 2021 related to five
in progress wells
acquired in the Tapstone acquisition. You also disclose on page F-21
that the Tapstone
acquisition included six wells under development at the time of
closing which the
Company was responsible for completing. Please revise your filing, if
necessary, to
ensure these two disclosures are consistent, or explain to us why the
well count differs.
Furthermore, please expand your disclosure to provide the gross and
net number of all
wells in the process of being completed or waiting on completion at
year-end 2021 or tell
us your rationale for not including these wells as part of your
present activities at year-
end. Refer to the disclosure requirements in Item 1206 of Regulation
S-K.
Notes to Consolidated Financial Statements
Note 25 - Financial Risk Management
Liquidity Risk, page F-63
21. We are unable to locate the maturity analysis described in IFRS
7.39(b) for derivative
financial liabilities in Note 13, as referred to in your response to
prior comment 46. The
guidance in Appendix B11 and B11D of IFRS 7 indicates that an
appropriate number of
time bands should be used and that the amounts disclosed are the
contractual undiscounted
cash flows, which may differ from the amount included in the statement
of financial
position. Please clarify for us why you believe the disclosure in Note
13 is responsive to
the requirement in IFRS 7.39(b).
Benjamin Sullivan
Diversified Energy Co PLC
August 16, 2022
Page 6
Note 29 - Supplemental Natural Gas and Oil Information (Unaudited)
Estimated Reserves, page F-65
22. We note your revised disclosure in response to our prior comment 47 and
reissue the
comment in part. It appears that you continue to provide separate
disclosure of total
proved reserves and proved undeveloped reserves by individual product
type. Please note
FASB ASC 932-235-50-4 requires the separate disclosure of proved
developed and
proved undeveloped reserves by individual product type at the beginning
and end of each
year presented in the reserves reconciliation, e.g. as of December 31,
2019, 2020 and
2021. Please revise your disclosure accordingly. You may refer to FASB
ASC 932-235-
55-2 and the illustration presented in Example 1 for further guidance.
You may contact Jennifer O'Brien, Staff Accountant, at 202-551-3721 or
Shannon
Buskirk, Staff Accountant, 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, Staff Attorney,
at 202-551-
6548 or Kevin Dougherty, Staff Attorney, 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
August 16, 2022 Page 6
cc: Ryan J. Lynch, Esq.
FirstName LastName