Diversified Energy Co (DEC) 2020 Q4 法說會逐字稿

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the cash flows, paying good wages to our employees from a social perspective, compliance with our debt covenants, and then we're safely and systematically retiring wells as they become uneconomic, which has been a problem in the U.S., in general, because plugging and getting -- and abandoning these wells, not a lot of companies have been doing that responsibly, we are. There's efficient use of capital.

And you can see the governance initiatives that we've done as we've moved throughout 2020: the Enterprise Risk Management, enhanced company-wide risk management programs to identify and assess and prioritize risks; the TCFD and the disclosure requirements that come there and how we are integrating and making that a big emphasis in our disclosures; and then the -- all of our comp now is -- a large percentage of our comp is linked to ESG, 25% of our executive bonus plans in 2021 versus 10% in 2020. So all these things, as we say, good ESG is good business for us.

With that, I'm going to turn it over to Brad to talk some operations highlights, and then I'll come back at the end and talk a little bit about the strategy going forward.

Thank you, Rusty. First thing I'd like to say is thank you to our employees for delivering great results. Any time we're in front of our investors and we have the opportunity to show appreciation for the employees and their efforts, I'd like to take that opportunity. So we thought they stayed committed to our strategy and our priorities and produced some terrific results.

Over the next few slides, we're going to pull the layers back just a little bit more on some of the highlights that Rusty shared. And we'll first start with ESG, and we'll hit each one of these categories. From an E perspective, we've historically always had a strong E. That has been a foundation as a part of our business, as our business model really is a sustainable business model. When we acquire existing assets, wells, pipelines and compressors, that really sets us up for a strong E.

So what we've highlighted here are our emissions data that we are presenting and reporting on in our annual report and sustainability report. Last year in our inaugural sustainability report, we indicated 2 things: one is that we were -- that we have reported some very conservative numbers as we were pulling together our different data sets; and two, during 2020, we would work on improving and solidifying our data sets for our emissions information. And we were able to accomplish both of those.

That, along with the benefits of our Smarter Asset Management programs of eliminating compression, repairing leaks and improving lift techniques, we were able to report a 27% decline in our overall CO2e emissions. That also led into our GHG emissions intensity factor, which is our numerator being the CO2e and our denominator being our production. Along with our emissions reductions as well as the additional volumes that we brought on from our acquisitions, our intensity ratio also declined 37%.

From a social aspect of our business, we're very much aligned. Our business strategy is very much aligned with the S category. When we acquire assets, we strive to incorporate the number of employees from the seller and bring them into our family. We pay -- we save jobs with these acquisitions, and we pay competitive to top wages in the areas as well as provide great benefits. So we really empower these new employees to come in, drive success and be able to provide for their families. But our social category really starts with safety. It's our #1 priority. We were able to reduce our total reportable incident rate by 34% while maintaining our ratio of motor vehicle accidents per million miles at a 1.0x.

From a governance perspective, the percent of female Board representation has increased from 0% in 2018 to 29% in this past year. And you'll see in our annual report that our Board is targeting to continue to improve that and increase that percentage as we move forward.

Rusty mentioned the executive comp as well, increasing from a 10% performance standpoint up to 25%. And also, we talk about our TCFD framework. That's going to be an important part of our business model going forward, and there'll be more disclosures coming out on that. One other significant governments activity during 2020 was the formalization of our Enterprise Risk Management program. Our Board, our Board Committees and our senior leadership are highly engaged in our risk management process.

Moving on to the next slide, we'll turn our attention to our Smarter Asset Management program. That is our operating philosophy. Rusty mentioned that. We talk a lot about it. When we first coined our smarter management philosophy, we started with smarter well. But as our assets have diversified, our asset types have increased, we've changed it to Smarter Asset Management as we look at all operational aspects of the business. Smarter Asset Management really starts with the empowerment of our employees to create value for their businesses and for their company. And by being successful in creating value for their businesses and their company, we're also clearly creating significant value for our stakeholders.

And this success in driving effectively flat production for the past 10 quarters has generated an additional cash flow of what we've calculated to be around $58 million. And so it really is a combination of small gains that add up to big wins. And as I mentioned, it really starts with the culture that we've developed to look at all aspects of our business. So it's one thing to talk about programs, brands and priorities, and I'm moving on to the next slide here, but it's much better to really show real-world examples, tangible examples of our Smarter Asset Management practices.

And on this slide, we've provided 3 examples of how our employees, as they run their businesses, have added value to the company. The first example is what we call Pennsylvania Pipeline. We acquired -- in 1 of our acquisitions, we had a field of wells, 25 different wells that were stranded. They were shut in. They were not producing. Through our diligence efforts, we determined that the wells were shut in because the pipeline was not connected. So we worked with the pipeline company. We utilized our equipment, our employees, reconnected the pipes, and those wells are now producing.

Our second example is a similar situation, although these were shut-in oil wells. They were shut in primarily due to neglect, lack of capital maintenance from the previous operator. And we actually identified this opportunity during our diligence efforts. And so our team put together a plan, executed the plan, same result. A relatively small investment producing some excellent value for all of our stakeholders.

Our last example, we call Pennsylvania Pump Jack. But this one occurred through a very disciplined process that we employ on a daily basis, and that's doing detailed well reviews. And we determined that the historical production of the well was higher than the production that we were currently getting after our acquisition. We changed the equipment on the well and produced a tenfold increase in production.

Our last example is a what I really call a win, win, win. When we acquire assets in the areas that we operate in, we're also bringing over a very experienced workforce. With this experience and with how we cultivate a culture of driving efficiency by using practical solutions, our field employees determined that we had a well that was not producing as it should due to salt buildup. And so we employed a or deployed a very simple solution of using vinegar, white vinegar to dislodge the salt, opened up the wellbore and increased production. So it's a very creative, yet a very cost-effective solution that was also environmentally friendly.

Moving on to the next slide. This is really just showing a visual of the increases in our production that we achieved both on an annual basis as well as comparative December exit rate. For the year, overall production increased 18%. And for December, our exit rate increased 10% to 105,000 BOE per day. You can see from the bar charts that this production increase came from both our conventional and our unconventional production. And as Rusty mentioned earlier, the 7% corporate decline rate is a decline rate that we're very proud of. But through our Smarter Asset Management, it's an item that we work on every day with an attention to offset production declines and drive additional value.

A few additional stats on this slide. Our product mix continues to be 99% natural gas, natural gas liquids. Our year-end reserves increased 7.8% to 607 MMBoe. And our PV10 value, which is only on our PDP reserves, ended the year at $1.9 billion. The next couple of slides are really focused on technology, scale, integration, capability as well as data and the value that we can derive from having this information.

So over the last 4 years, we've integrated $1.7 billion of acquisitions, which was 11 transactions, added over 1,000 employees, implemented numerous systems and loading millions of rows of data. We've also invested in and continue to invest in very skilled resources while constantly driving for improvements in our processes, in our systems. We are a 100% cloud-based company, which gives us a significant advantage and ability to quickly scale our systems as well as the ability to standardize our process and our data structures.

Also, as it relates to the cloud perspective, we were very successful because of the decisions and investments we made back in 2018 and early '19 to be 100% cloud-based. We were very successful and efficient in our systems and connectivity response for our need to work remotely with COVID. So really, our systems and our employees did not miss a beat as a result of that.

Moving on, on this next page, really talking about the -- and highlighting the importance of our systems and our data. The amount of data we process is significant, and it does require very powerful and efficient tools. As I mentioned earlier, we are 100% cloud-based architecture. But we've also implemented some very powerful data warehouse technologies and some powerful and efficient analytical tools that we are using to analyze our data. Our data warehouse does allow us to drive a consistency of our data attributes and usage from all the different applications that we operate in our business.

And as I mentioned, the analytical and reporting tools that we have allow for a much higher speed of analysis than the transactional systems that we use on a daily basis. Additionally, our entire network and application layer requires robust security and business continuity processes. We continue to enhance all of our processes related to security and controls, and we're pleased with the progress our teams made during 2020 on this important part of our business and really all businesses today.

I'm going to wrap up my comments by discussing another very successful year with our asset retirement and plugging programs. We have proactively completed 4 consent agreements with our top 4 states where we have the majority of our wells. Those consent agreements require us to plug a minimum of 80 wells per year. During 2020, again, which was a very challenging year due to COVID just to navigate around, our teams exceeded this requirement and successfully plugged 92 wells. Our average plugging cost continues to be about $25,000 per well, and we spent about $2.4 million during 2020 on our plugging activities, which was less than 1% of our EBITDA.

Also for 2021, we have commissioned an internal plugging team for our West Virginia operations, and we're excited about that, not only what we're going to learn, but we also believe that's going to allow us to continue to control our cost for years to come.

So with that, I will turn it over to Eric Williams, our CFO.

Thanks, Brad. So I'll pick up on Page 19. Just as a reminder, for any of you who weren't able to join our results call on Monday of this week, we do have that full transcript available and reporting on our website. I went through some IFRS to alternative performance measure numbers in that presentation. You may find it helpful. But for this presentation, in the interest of time, I'll stick to the slides. And so we'll pick up on Page 19.

As Rusty said, we've got a track record now of 4 years as a public company and demonstrated that a very disciplined strategy, works in any price environment and, frankly, in the operating environment, as we navigated a global pandemic. And you can see, we've made that point that the average price that we saw in 2020 of $2.13 per MMBtu, you had to go all the way back to 1998 and early '90s to see prices that were similar. And yet, in spite of that, we showed that efficiencies and scale allow us to deliver strong results. $553 million of revenue, inclusive of about $145 million of hedge proceeds against just $253 million of expenses allowed us to deliver more than 50% in cash margins.

And when you take and you combine that strong cash flow with a low capital intensity business, because our largest CapEx is acquiring the assets, not running the assets and growing and completing assets, we were able to distribute nearly $200 million of that cash in the form of shareholder distributions and debt repayments, which we'll look a bit more closely at on Page 20.

You can see that during the year, nearly $200 million splits to $115 million in dividends and share buybacks, about $100 million of which was dividends to you. That included the [14%] increase or 2 consecutive increases on the back of the acquisitions we did in the middle of the year, just reflective of the times that we do grow the business through larger step changes, where we ultimately look for an equity infusion, we're always mindful of [an addition] for the share dilution [and the] accretion to the dividend per share is always moving in the right direction.

And so to see that dividends per share moved from $0.02 a share back in 2017 all the way to $0.16 per share annualized, 70% compounded annual growth rate is really a remarkable achievement. In addition to the dividends and share repurchases, we did pay down $82 million of debt. And when you look at our track record since the IPO, and we've always been a cash flow-focused business, over $0.5 billion returned in those same ways, $287 million back to shareholders and $245 million in debt reduction.

I'll move on to -- we talk about being an efficient organization and very much focus on our cost. Brad's team does an exceptional job of being very mindful that every dollar matters, every unit of production counts. And those 2 work together to deliver the unit cost that we talk about. Importantly, that base LOE, the bottom portion of the stack you see contracting 30% from '18 to '19 and a further 24% coming into 2020. And that's just reflective of how focused we are on being very efficient across an ever-growing asset base and the employees that we use to run those wells.

When you put everything together, including the midstream assets that we'll talk about in a moment and the administrative structure that we've built to support the organization, you see a 10% compounding reduction year-over-year in our total cost. And that's inclusive of some significant investments that we made in the company. As Brad talked about, not only in technology that will underpin our future efficiency but also in good governance that is a premium-listed company having moved to the main market in May of this year or last year is extremely important to us on a go-forward basis.

Moving to '22, we talk about scale and what that has afforded us, and it really does show up in the margins. Despite a 30% decrease in price from 2018 to 2020, we've been able to maintain consistent margins of 53% to -- increasing all the way to 54%. Despite that challenging price environment, we've done that by using both hedging to protect cash flow and also responsible management of our assets to reduce our expenses. But importantly, if you focus on the right-hand side of the screen, we're encouraged to see natural gas prices beginning to rebound, as the sentiment around commodities is meaningfully improved.

The forward strip is -- for '21 is 31% higher than it was just a year ago and 10% higher for 2022. And of course, as Rusty said, we're focused exclusively on 2022 and '23 and beyond to continue to layer in that price protection. So you will continue to see us build that because, ultimately, protecting the dividend and protecting our debt repayments will always be a key focus.

Moving to 23. This is a new slide, and I'll move through this one quickly. Just as -- we get a lot of questions about what our midstream assets do for us because we, ultimately, believe in vertical integration and what that affords us. So what we've illustrated here by using numbers that you can pull straight from our financial statements is that we effectively are able to deliver the value of a midstream asset at less than half the cost of what we would pay a third party to do it for us.

And in addition to that tremendous cost savings, we're afforded several other control premium benefits, including the ability to realize higher pricing. We can do that by moving our production to better end markets as well as moving more of our own production, as we enlarge the system and we increase the interconnects, moving production off of a third-party system onto our system, which allows us to move that production to do better pricing. It also affords us flow assurance. So it's across the entire basin. Various portions of the third-party system go into scheduled maintenance or perhaps go into unscheduled downtime due to compression or other curtailment issues. We can keep our production flowing by simply changing the direction of where it moves.

It allows us to optimize our expense, and that was rather obvious. I just talked about the fact that if we were to flow this production on someone else's system, it would cost us 50% more to do so. So not only do we eliminate the cost of the third party, but we also eliminate the third party's inefficiencies because, as you've heard, our business is focused on the existing assets and producing assets, which allows us to ultimately deliver better uptime and better performance over time.

And then importantly, it also diversifies our revenue. You'll see in the table to the left that we earn over $25 million or earned over $25 million last year in third-party revenue. If you annualize that for the additional revenue that we will have on a full year basis from the Carbon acquisition that we did midyear, you're looking at around $30 million of revenue coming from the midstream system, which ultimately allows us to reduce our net expense while having that third-party revenue is very consistent, very durable and complement our commodity revenues.

Moving to 24, another new slide. And what we wanted to illustrate here, we'll get a lot of questions because we have been acquisitive, we've been active in the equity markets to raise equity for the larger acquisitions we do. But we thought it was really important to remind that to sustain the business and live within our means so that we're not dependent upon either the debt or the equity capital markets for the sustainability of our business model and our dividend, we wanted to show how that ultimately plays out.

And you can see that with the benefit of a low corporate decline or a low base decline rate across your assets is that it takes much less cash to ultimately replace and sustain the business model on a go forward. And so we've taken that decline. We've illustrated that essentially, it amounts to about 15 Bcf a year, which is about $20 million of EBITDA based on our current margins and current cash flow. And if you take that $20 million and you pay the top end of the multiple that we paid for assets and then leverage at 2.5x, which is what we said we're comfortable levering an asset of this type, you can fund that production replacement for just $30 million, which equates to just 10% of our EBITDA. And when you think about the allocation of our EBITDA being 40% to dividends and 20% to our scheduled debt amortization, you can see that 10% is very comfortable and would even allow for growth within cash flow if we chose not to do a larger or more transformative acquisition in any given period.

Moving on to our capital structure. This is a slide that's familiar, but it includes some really important differentiators about Diversified. The first is that 70% of our debt sits in fully amortizing, hedged, protected financing structures. And so you can see that glide path over the next 10 years to be completely paid off on our long-term fixed borrowings. And when you think about the way, and we talked about that earlier, the way that we allocate our excess cash flow on a discretionary basis to our RBL, that also is paid off over that period of time.

Today, because of the way our debt is structured, the RBL sits at less than 1x levered, which allows us to have a very supportive and a very healthy 17-member bank group so that as we do look to grow, it gives us that much more added flexibility with respect to the way that we think about financing our growth. And very importantly, we've maintained a low cost of financing. You certainly saw some defensive raises over the last year, where companies had to pay significantly higher premiums to get financings completed. But ultimately, all in, inclusive of our long-term and our RBL structures, we're at under 5%, just 4.7% weighted average cost of borrowing. And today, we sit at a very comfortable 2.2x lever on our assets.

I'll wrap up on 26 and just remind, as Rusty said, hedging as part of the Diversified DNA, we're always focused on protecting the downside. We recognize that means that [at times we'll] give away upside. But when you're locking in north of 50% margins that will allow us to maintain our dividend, with added clarity, for your benefit, maintain our debt and debt repayments and delevering, we think the trade-off is certainly worthwhile. Very well hedged at $2.94. When you think back to that cost structure of $1.15, you can see where those margins come from. And 2022, well hedged as well.

And if you took that out further, which you can certainly see in our -- in the footnotes to our financial statements, those long-term financings give us a long-term hedge protection footprint across the portfolio for about a decade. So we sit very well positioned, and we will continue to be opportunistic and layer in additional hedging and better pricing as we see the forward strip improve. So with that, I'll hand it back to Rusty.

Thanks, Eric. So I'll close up here just with an outlook of how I see Diversified performing over the next 12 months and some of the strategic things. Partnering with Oaktree Capital, on Slide 28, it's a big opportunity for us, big agreement with a large capital provider. They've committed up to $1 billion over a 3-year period with us to co-invest, not equity invest, but co-invest with us as a nonoperated working interest partner, 50-50 on deals of size $250 million or more.

And as part of that, they will promote us 52.5% of the economics on a going-forward basis would come to us as a 5% promote and then a reversion. After they hit a 10% stated internal rate of return, they'll revert 15% of their interest back to us, which would then leave us with a 60-40 split in the asset. It's very strategic. The biggest positive for me in this deal was that it gave credibility to our strategy, a large capital provider that was looking to do the same thing we were doing and saw an opportunity to partner with somebody who is already doing it and doing it well.

The other thing that it does for us is it gives us an inventory of assets that we already operate that at any point in the future, we can accelerate the reversion or we can buy back additional interest on top of that. So it's an inventory of $1 billion worth of assets that we can then acquire at some point in the future once our stock price is at a level where we don't mind raising equity or we have liquidity on hand to take advantage of it. So it's a big opportunity for us to partner with someone with a lot of capital.

Strategic priorities. As we look out over 2021, they really don't change. Sustainability initiatives. ESG is a big, big opportunity for us to continue to improve and to monitor and to show improvement year-over-year. We're going to have another sustainability report, which will be out in the next month or so. That will be -- that I believe will even be better than the first one, and we'll have some additional disclosures in there that will -- around the TCFD and such. We'll continue to maintain our growth strategy in a very disciplined manner, maintaining our balance sheet strength, not over-levering. As I've told over and over again, we'll never risk the balance sheet just for the sake of growth. We'll continue to protect future cash flows with our hedging strategy.

But also from a production perspective, really focusing on the operations of the business and really tightening up and making improvements along the way. As we've grown the business, now it's really just focused on operations and maintaining every unit of production we possibly can. All of these will continue to be very strategic priorities for us as we move throughout '21.

And then lastly here, just stating some of the obvious for us, but why invest in Diversified? We continue to show stable cash flows. We've done it now 4 years. We've done what we said we would do. We've paid our shareholders a very reliable and stable dividend and actually a growing dividend. We continue to integrate our operations and provide a low-cost structure, which has really been the emphasis in allowing us to operate at such high margins. Keeping our balance sheet strong, underpinned by low leverage, hedging our production. Keeping our declines in check by maintaining a very flat production profile in our conventional production and keeping our unconventional production in the mature state, not acquiring assets which have high declines. And then just the low capital intensity of our owned assets. All these things really provide for a very stable business, a very strong business and, as you have seen on our previous slides, a return on equity-focused business.

So with that, I will stop the comments and open up, I believe, for some questions.

That's great. Thank you very much, Rusty. And many congratulations on an excellent performance in a tough year. As you said, we're now going to go over to questions from the audience. We've got a couple of ahead of time. And just as a reminder, if you don't want to ask a question, there's a Q&A box at the bottom of the screen, just type it into that, and we'll try and cover as many questions as we can in the time available.

First one, just a straightforward one on the cash margin. Where can the cash margin get to or is 54% as good as it gets?

Well, I think there's a balance. We have to look at -- you look at our cost structure and getting down around $1.15 per Mcf, which includes G&A, by the way, we can't cut too much. You've got to keep reinvesting back into the business. And so we're comfortable in that cost of $1.15 to $1.20. The margins -- if we can maintain a 50% to 55% EBITDA margin, we're going to be very successful as a company. So we're very comfortable in that range.

Could we get above that? Possibly, as we add some unconventional production at very low operating costs, but we're very comfortable with the margins that we're currently experiencing.

Okay. I got a couple of questions here on acquisitions, and I'm going to ask them together because I think they come together. So the first one is, what kind of acquisitions can we expect? And then secondly, on the acquisition strategy, who are the seller of assets at these gas prices? What do you do to persuade them to sell? And if you look at, I guess, the deals that are coming ahead, how they're going to be split between Diversified's involvement and Oaktree's involvement?

Yes. Well, I think the acquisition market is pretty -- it's robust, but there's a lot of different types of assets for sale. So there's a lot of development assets that are out there in the market, which obviously doesn't fit our profile at all. We try to stay away from development projects. We don't want to be on the drill bit. So we're very selective. And so we're focused on the PDP ones and the ones that have a profile of asset that looks a lot like ours.

The market is pretty good right now, and we're evaluating things. I think that if you looked at the transactions that we're going to enter into in the near term potentially, those would be deals that could be done without Oaktree's involvement, but not necessarily that they won't be involved because we can involve them in any transaction regardless of the size. We're only required to show them everything over $250 million.

But I would venture to say that the $1 billion that Oaktree has committed to us, there won't be a problem making a large dent in that in 2021. So we'll be out there. We'll be active. The acquisition market will be robust, but we'll be selective. We want to make sure we're not overpaying. We want to make sure we're getting the assets that we feel like fit the best profile, but also have the best value and long-term value to our shareholders.

Sounds like you're going to be quite busy. Just a linked question on the Oaktree tie-up. Now that you have that, does that mean you're considering a dual U.S. listing?

Well, I don't think there's any intention on doing that anytime soon. But the intention, obviously, is to move into the U.S. markets at some point in some manner, whether that's a dual listing or if it's a full listing. I think we need -- as I've stated on various calls, we need to be bigger. We need to be $2 billion or more in market cap. So it's going to take some bigger deals over the next 12 to 24 months to get us in a position to be able to take advantage of that opportunity.

Okay. Moving on to the operations and the assets that you've got. Could you try and explain the reserve profile a little bit? How many years reserves left do you have at the current volumes if you exclude acquisitions?

Well, I'll let Brad pipe up on this a little bit, but I mean our reserve base is 60-plus years of reserves. So the type of assets that we operate just have a very long and extended life. Appalachia probably has the longest and lowest decline type assets in the country. So most of these assets will long outlive everybody that's on this (inaudible) right now. But the way we operate those, you have to operate them in an economic way because they're not big producers individually. And so the Smarter Asset Management comes into play to extend those lives and to give them a much more longer and enduring life.

Well, I'll just add to it. Rusty mentioned this on the acquisition strategy. But as you've seen, we've grown production, but we're also growing reserves. And so we're replacing our reserves through the acquisition. Eric walked through an example on the cash flow side, [with] the reserves followed with that. So we do have a very long life. And our task is to arrest that decline as much as possible.

Okay. Here's a question, which I think is a good question here. What are the biggest risks that Diversified faces over the next 3 to 5 years? And are you concerned about President Biden's policy focus on renewables??

Not really on the Biden question. I think that -- I don't think it's just Biden, I think renewables are emphasis everywhere. But definitely, in the U.S., it's going to be more of an emphasis than it was previous. But I do think that anybody who thinks that natural gas, for sure, is not part of that equation is just holding themselves. It's too much of our power grid, it's too much of our chemical supplies, it's LNG, all these things that are taken into consideration. Renewables can't replace it in a very short period of time.

And honestly, I think oil is going to be much more part of the equation going forward than what people think. So I think that, overall, the regulatory environment will be a little harder to deal with as we move forward, mostly from pipelines and federal lands, drilling on federal lands. But the one thing I think people are not really focused on is that these regulations come at a cost. And what you're seeing in oil prices and other things, you're going to see prices move up for these commodities as a result of these kind of regulations and the focus on renewables.

Okay. Going back again to the assets and the acquisitions, are there sizable areas of the Marcellus or the Utica plays, where PDP reserves have reached a point in their decline profile where they fit your acquisition model?

Yes. And we are -- 30% of our production today is in those types of assets. So it's not something that's new to us, but what we are is discussing these kind of packages with operators. Once they hit that 3- to 5-year mature state in terms of their production profiles, that's when we're interested. When they hit 3 to 5 years of age, that's when we'll start to take a look. That's when the decline rates start to marginalize where they can be managed much better.

Excellent. We've got a question here on the dividend. And I know the dividend has been growing very nicely since you floated, and it's clearly important to a lot of U.K. investors. So the Diversified dividends remitted to the U.K. are subject to a U.S. withholding tax. And this means, I guess, tax-free pension funds and [ISAs] in the U.K. have difficulty reclaiming these amounts. And this does not encourage investment by overseas pension funds and other tax shielded investors. Is there any way that Diversified can help mitigate these withholden amounts?

Well, importantly, the pension funds are eligible for 0% withholding, but that has to be achieved at the custodian or the benefits to the holder level. And so my suggestion would be to work with your broker to make sure that you're holding behind one of the funds that's claiming that because we do have a meaningful number of investors who qualify for and receive 0% withholding on those. There's U.K./U.S. tax free that affords you, I believe, 15% withholding as opposed to 30%, if you're holding with a broker who makes that election and files the appropriate paperwork.

And then for anyone who is paying 30%, it's an important reminder that -- and I would advise you to, of course, consult with your own tax professional, but it's certainly our understanding that you should be able to claim a foreign tax credit on your return to receive back the value of any excess withholding over which you would otherwise pay on a typical dividend in your ordinary course. And so that's how we, ultimately, have navigated it, but that generally sits more at the broker level than at the [holder] level.

Okay. Do you intend to maintain your acquisition focus on -- in Appalachia? Or will you look at long-lived, low-decline gas or oil assets in other basins?

Yes. Well, we'll continue to look in Appalachia for sure. Everything we do there from here on is bolt-on. It's very synergistic. We get a lot of cost savings out of it. So we'll continue to be -- our primary focus will continue to be Appalachia. But the size of the company now and the scale of the company gives us, we've built a very nice and significant backroom operation that allows us and affords us the opportunity to add -- continually add additional assets to that portfolio.

And we -- so we're looking outside of Appalachia also. So we can look at some areas of the country that fit our asset profile, longer-life, low-decline places where we can scale up like we've done in Appalachia and build a similar-type operating structure in that region. And so those are the areas we're focused on. But Appalachia will always be the primary focus.

Great. And in terms of acquisitions, would you consider acquiring more midstream assets?

If they're, in some way or another, tied to our existing upstream business, then yes. Would we go out and just acquire a midstream asset just to be acquiring it without any of our production flowing through it? No. It would have to be something that fits well with our existing upstream assets. But yes, if it has that type of ability to flow our gas through it, whether it already does or it has the ability to, then yes, we would definitely look at it.

Okay. There are a lot of happy shareholders over here. And the TSR performance that you reported was very strong, but we always want a little bit more. So there's a question here that says, look, the stellar performance still seems to fail to be reflected in the share price. While the strong flow of dividends is very welcome, what do you think -- why do you think the share price has not risen to bring the dividend yield in line with competitive businesses?

Well, I think in the last month or so -- up until the last couple of days, actually, but most -- we had seen a pretty steep rise in the share price. And I thought when you're trading at levels of 6.5x EV to EBITDA and your dividend has come down to 8%, 8.5%, you're starting to get price pretty close to where you think you should be. We're always going to have to pay dividend that's a little higher than Exxon or Shell or BP, simply because on a risk-adjusted basis, if we're both trading at the same dividend yield, most people -- most funds are going to go into those larger, in their minds, less risky companies.

But 8% dividend yield, 7%, 8% is really where we should be trading in terms of the dividend yield. And so we were almost down to that level here not too long ago. Over the last couple of days, we've seen a little bit of a downtick in the share price. But I think if you look at us based on our U.S. yield play stocks, we're still trading under those. Most of those are trading at some level of, what -- yes, 7 to 10x EV to EBITDA. And we're trading at 6 to 6.5. So we've got -- I think if you're comparing us to U.S., we've got some room to move up.

But if you're just looking at it in terms of just purely on the dividend yield, I think we're starting to get around to close to where we should be, although I think right now with this downtick the last couple of days, this is a really, really good buying opportunity.

I just got one further question here. Just a comment on e-mail. Are there any future potential liabilities once you have retired a well? Are all liabilities removed at that point?

Well, the good news is, once you plug and the states sign off on the well, all liability is released at that point. So you plugged it, the state signs off that you've done it properly and safely, they sign off on the -- I think it's like a permit or some type of sign off and then that's it, you're done.

That's great. There aren't any further questions at the moment. So unless any come in the next second or 2, this brings us to the end of today's webinar with Diversified Gas & Oil. Thank you very much, everyone, for attending. As you leave, you will come to a short survey. So we very much appreciate it if you could complete that. If you've got any questions that haven't been answered and wanted to send them through, please send them through to info.yellowstoneadvisory.com. And I just wanted to say thank you very much for attending, and goodbye. Thank you.

Thank you. Appreciate it.

Thank you.