Diversified Energy Company DEC used its second-quarter 2026 earnings call to frame operated drilling as an extension of its acquisition-and-optimization model, not a strategic pivot. Management said that the new Oklahoma program is designed to offset natural production declines and grow cash flow while preserving capital flexibility.
The company also updated 2026 guidance after recent acquisitions and divestitures, while emphasizing debt reduction, portfolio optimization and shareholder returns.
DEC Adds Operated Drilling to Its Playbook
Co-Founder and CEO Rusty Hutson said that Diversified Energy plans to add a one-rig operated development program in Oklahoma after building a large undeveloped inventory through acquisitions.
Chief operating officer Rick Gideon said that the company has identified about 450 economic locations using $65 per barrel oil and $3.25 per MMBtu natural gas assumptions. The initial 12-month program calls for roughly 19 gross, or 17 net, wells with about 90% average working interest.
Gideon said that the program represents more than 20 years of inventory at a one-rig pace, with production contributions expected to begin in 2027.
Diversified Energy Updates Its 2026 Capital Plan
President and CFO Brad Gray said that 2026 production is expected to be 1,180 to 1,210 MMcfe per day, with total capital expenditures of $225 million to $255 million.
The updated plan includes $35 million to $50 million for operated development, $115 million to $125 million for non-operated partnerships and $75 million to $80 million for maintenance and other spending.
Adjusted EBITDA guidance is $960 million to $1.01 billion, while adjusted free cash flow is expected to be about $440 million. Gray said that the company remains committed to a 2.0x to 2.5x leverage target.
DEC Defends Its Free Cash Flow Model
Gray said that Diversified Energy’s low-decline production base remains central to the economics of adding development capital. He said that the company expects go-forward capital intensity of roughly 25% of adjusted EBITDA even after including operated drilling.
Second-quarter adjusted EBITDA was $240 million and adjusted free cash flow was $115 million. The quarter ended with leverage of 2.45x and $678 million of liquidity, respectively.
The company reported revenues of $503.7 million, which beat the Zacks Consensus Estimate of $492.5 million. The reported loss was $0.29 per share, which missed the consensus estimate of $0.20.
Diversified Energy Keeps M&A and Divestitures Active
Hutson said that the PDP acquisition market remains active, but management continues to walk away from deals that do not meet its return requirements.
He also said that the company sees additional opportunities to sell lower-margin or noncore assets after divesting Barnett and Arkansas properties for $147 million.
In Q&A, a William Blair analyst asked whether development could displace acquisitions. Hutson said that the new program creates another option for capital deployment rather than reducing the company’s interest in acquisitions.
DEC Stresses Flexibility Around Growth and Hedging
A Truist Securities analyst asked how large the operated program could become. Hutson said that the company could scale it, but the pace will depend on returns, commodity prices and competing uses of capital.
A KeyBanc analyst asked whether new production would be hedged. Hutson said that management wants to preserve some unhedged commodity upside, while Gray emphasized that Diversified Energy will continue using a disciplined hedging framework.
In another exchange, Hutson said that the operated and non-operated programs could offset most or all the company’s underlying production decline, with stronger commodity prices potentially creating room for organic growth.
DEC Keeps Capital Allocation at the Center
Management’s message was that development adds another tool without changing the company’s core focus on long-life producing assets, free cash flow and disciplined capital allocation.
Hutson and Gray kept debt reduction, dividends, share repurchases, acquisitions and selective development positioned as competing uses of capital, with returns determining where cash is deployed.
Zacks Signals for DEC
DEC currently carries a Zacks Rank #3 (Hold). Its Value Score is A, Growth Score is C, Momentum Score is D and VGM Score is B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Under the Zacks framework, stronger Style Scores are more favorable, and A or B scores are preferred complements to top-ranked stocks. DEC’s Value and VGM scores are favorable, while Growth and Momentum are more moderate. The Zacks Rank can change as analysts revise earnings estimates after the just-reported results.
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Diversified Energy Company PLC (DEC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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