Growth through strategic acquisition and the disciplined and responsible stewardship of oil and gas assets, coupled with a pro-active plan to clean up orphaned wells is a unique business strategy which Diversified Energy has adopted, starting with Appalachia and then moving to the Midcontinent and beyond. Welcome to an interview with Brad Gray, Executive Vice President and Chief Operating Officer with Diversified Energy.
What is your name and your role in the company?
Brad Gray, Executive Vice President & Chief Operating Officer
What is your background?
Initially a CPA by schooling. I have held several CFO and COO like roles during my career and I have worked with large private and large public companies in various roles. As a CFO, I was always very involved and interested in the operational aspects of business and I actually started with Diversified as both the CFO and COO. Several years ago, I determined that I enjoyed the people side of business more than I did the columns and rows on a spreadsheet or the drafting of financial presentations. At Diversified, I lead all aspect of field operations, which includes Upstream, Midstream and our recently expanded plugging operations. Additionally, I am responsible for leading our Engineering, EHS, ESG and our important Information Technology team.
What is the overall philosophy of Diversified Energy? What is a bit of its history?
Diversified Energy focuses on the responsible operations of existing natural gas and oil producing wells. We acquire mature assets, invest in those assets to improve production and environmental performance, and then responsibly retire at the end of their productive life.
Founded more than 20 years ago, we started with just a few wells in West Virginia and have grown substantially through acquisition to now operate in both Appalachia as well as the mid-continent region that includes Louisiana, Oklahoma and Texas. Across our approximately 1,500 employee-strong company, we know we have a responsibility to be good neighbors in the communities where we operate. A key part of who we are is our focus on employing local people to do local work, and the goal is always to encourage diverse, safe, and sustainable growth.
What are a few of Diversified’s latest activities?
Diversified has made six major acquisitions in the Central Region, so that now means approximately 35% of our total production is taking place in Oklahoma, Texas, and Louisiana, with the remainder of our business in Appalachia. We’re always looking for growth opportunities to apply our operation model to often overlooked, non-core existing assets.
Our operations model revolves around what we call the Smarter Asset Management system, which enables us to analyze and improve well performance at each of our sites. Smarter Asset Management involves empowering our field teams to make operational improvements, leverage synergy opportunities from our scale and providing the appropriate funding to execute their projects. As part of our commitment to responsible operations, we’re focused on making methane leaks rare by investing in emission reduction strategies that include eliminating pneumatics, supplying our well-tenders with hand-held emissions detection devices, and conducting ariel surveillance over our operating footprint. This blended approach of aerial and on-the-ground analysis enables us to spot and fix leaks quickly to ensure we’re moving as much gas as possible to market. We like to say…. “make leaks rare by land and air.”
Outside of our business operations, we feel that it’s incredibly important to give back to the communities where we operate. In 2021, we gave $1 million dollars to a variety of organizations, and we have plans to invest $2 million this year to additional programs. Those programs consist of various charitable contributions for educational grants, local food banks, as well as the general health and wellness of our communities. For example, we recently had a group of employees participate in Operation Warm, which is a non-profit that helps provide coats to school children ahead of winter. We also provided boots-on-the ground relief, supplies and donations immediately following the devastating Kentucky flooding earlier this year. A number of our employees and assets are in Eastern Kentucky and we’re proud to have delivered assistance for our neighbors in need.
How does the work of plugging and abandoning wells fit into that?
We’re focused squarely on the responsible operation of our assets, and that includes retiring wells when they’ve reached the end of their useful life. As a result, we’ve built the largest well-plugging operation in the Appalachian region, growing our internal plugging capacity to 15 rigs. Vertically integrating our asset retirement teams gives us the economic benefits of scale and helps control costs. Further, we’re able to apply our excess plugging capacity to state-led plugging programs, helping to plug orphaned wells across the region. And, with our additional capacity, we provide our plugging expertise and services to other operating companies in the Appalachian basin.
How and why can they be a problem? What do you do to make sure they are properly plugged?
Orphaned wells can create problems for landowners and communities, especially the wells that were abandoned by previous operators, and we’re proud to be part of the solution to helping states tackle the backlog of wells that need plugged. To this point, the asset retirement industry has been fractured, with small, very specialized outfits. With states focused on plugging orphaned well inventories, it’s a sector ripe for consolidation and we’re doing our part to be a resource for states and peers needing plugging expertise.
How does a proactive approach to plugging wells make good economic sense?
We have a commitment to be a responsible operator, and one of the ways we do that is asset retirement of our own wells when they reach the end of their production ability. Through our internal asset retirement program, we are seizing on an opportunity to build a new revenue stream for the business, as well. With our vertical asset retirement program, we can deliver efficiencies that are lost elsewhere and reduce the costs associated with retirement of wells.
Please describe a few plans for the future.
We’ve delivered consistent, steady value for stakeholders since going public on the London Stock Exchange in 2017. That moment was a key point for our company – it provided access to capital and enabled us to expand our assets through key acquisitions in Appalachia and beyond. Today, we’re a well-capitalized, disciplined, and responsible operator advancing a business strategy that’s unique among E&P peers.
Consistent with our strategy, we will continue to seek accretive acquisition opportunities, particularly in the growing Central Region, where initial results are showing the success of applying our Smarter Asset Management progress. In addition to our upstream production and midstream infrastructure business, we’re also excited about the growing vertical integration of our well plugging teams.
From an operating, investing and governance perspective, at our core, our company’s business strategy is built around ESG principles. We take a targeted, focused approach to environmental performance and have a long-term goal of reaching 50% reduction in methane emissions intensity by 2030 and net zero carbon emissions by 2040. To achieve these goals, we committed $15 million in funding in 2022 and additional funding over the next several years that’s going to help reduce our emissions through various approaches, including aerial surveillance, equipment modernization, and equipping each well-tender with emissions detection technology.
We’re proud to be a leader in industry and in the communities in which we operate. Our business model provides very important pieces to an energy transition. We believe that natural gas is a safe, reliable, abundant, and clean energy source that can meet the growing energy demands of the world. We are excited to have positioned ourselves in a way that will set us up to thrive in the energy transition by creating a safe and sustainable way of producing natural gas to power not just our communities, but the future.