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Greetings. Welcome to Diversified Energy Company's 2022 Final Results Conference Call. [Operator Instructions] Please note that this conference is being recorded.
At this time, I'll turn the conference over to Douglas Kris, Vice President of Investor Relations. Douglas, you may now begin.
Good morning, and thank you for everyone who is joining us here in person as well as on the line. We are doing a hybrid call here this morning. So we have a number of our research analysts here in the room with us. Joining me here today for our year-end 2022 call is Rusty Hutson, our CEO; Eric Williams, our CFO; and Brad Gray, our COO. And I will turn the call over to Rusty here to get started with our presentation.
Good morning. Thanks for everybody coming in person and also joining by phone. I'm going to go through a -- from the end of the presentation, talk a little bit about 2022. This was a record year for us in a lot of ways, give some real quick notes about some of the accomplishments from '22, talk a little bit about the natural gas macro, kind of how we see the remainder of '23 and forward playing out, and then finish up with a quick comment or 2 regarding the rest of the year and a forward-looking of Diversified.
I'm going to start here on Page 4, talk a little bit about the strategic objectives that were met in 2022. Obviously, a record year across the board, record production, record revenue, record shareholder returns. If you take a look at all 3 of those, those are the 3 most important things that we look at on a day-to-day basis.
We obviously completed $566 million in complementary acquisitions, including the one we just announced a month ago. With those acquisitions, we expanded the scale and the capacity of our Appalachian asset retirement program and our company that we started there last year. We scaled it up. We also added a lot of additional scale in vertical integration in our central region area, which is extremely important. We've talked about that as we move forward, that we will continue to scale that area to duplicate what we've done in Appalachia.
So we're able to do that in 2022 with the acquisitions that we did. We advanced our emissions reduction programs, made a lot of progress there. You probably saw this morning that our methane intensity rate was down. It's now lower than previous year at 1.2, which is tremendous and puts us in a very enviable position across our industry in the U.S. Completed emission surveys, way ahead of schedule.
We talked about our Appalachian assets and completing that in a certain timeline. We were able to do that far in advance of what our specific targets were. So we now have done over 100% of that and have done duplicate visits to those same sites throughout the year in 2022.
We also progressed our aerial surveillance with over 11,000 miles flown over our midstream assets. We delivered record operational and financial performance. We obviously had a record year of production, 135,000 Boe per day with an exit rate of about 141,000 with the Conoco deal that we did in late third quarter.
We generated over $503 million or generated $503 million in adjusted EBITDA, approximately 50% cash margins, which has been the norm for us now since our IPO back in 2017. Continue to utilize our hedging strategy and our operational efficiencies to maintain that cash margin. This is the one that we're most proud of. Obviously, not only are we focused on our shareholders, but I'm also a big one.
So being able to return capital to our shareholders is what we really put our time and attention to. We paid the company's high $0.17 in 2022, which is 6% above the 2021 mark. And we distributed over $178 million in dividends and share buybacks to our shareholders. So that was a record for us also.
We maintained a strong and differentiated balance sheet. We obviously finance our business differently than most E&P companies. We use ABS amortizing notes to fund and create liquidity, which we have been very successful in doing. We maintain leverage. It's a long-term financing with a [indiscernible] principal amortization allows us to maintain a 2x -- in that ballpark of 2x levered over the course of those notes.
And also in 2022, we were able to align those notes and also our RBL with long-term ESG commitments. So that was tremendous for us to accomplish also in 2022.
I think the box to the right says a lot on this slide. If you look over the last 3 years, increase in our PV-10 PDP reserves, only PDP. It's about 166% average increase. And if you look at it on a per share basis, which we started to do here recently. You can see, and this is net of ARO and hedges and assets et cetera, you can see that, that on a per share basis, a tremendous increase in value that should be starting to flow through to the share price. We're lagging that significantly as you look at our reserve increase, which is at a record $6.1 billion at the end of 2022.
Looking to Page 5. The hallmark of our business model has been our hedging strategy. Sometimes, as I said last year, sometimes it makes you look foolish, other times it makes you look great. We came out of 2022 with people asking us if we were going to reduce our hedge strategy moving forward. I obviously said no.
And 2023 makes me look good. So hedging has always been integral for what we do as a business, making sure that we're locking in our cash flows. That's the most important part of what we do.
So we derisked it, derisked the model, taking that pricing volatility out of it, and it helps us to generate pretty robust margins. I think the key thing, and this is as we look at 2023, we're 85% hedged at about $3.39 on average. If you look at our peers in the U.S. gas market, there are 7 of them on this page, or 8 of them, I'm sorry. You can see the differences in how the companies are approaching the hedging their portfolios.
And I think what you're going to see, especially now, I think the next closest peer was hedged at around 80%. On average, around 50% of their production is hedged. That's going to put a pretty nice drag on -- from what they're able to accomplish as these prices have rolled off over the last few months, and it has been a substantial drop in a very short period of time.
So there, I think period number 8 is going to be really having a difficult season or a difficult year as they only have 6%. So we've managed to continue to hedge at a pretty high rate, making sure that we're locking in our -- the margins we need to be successful.
Moving on to Page 6. Just talking a little bit as we enhanced our operational scale in the central region. You can see here, we've done the 2 upstream assets in 2022, the Texas bolt-on, the ConocoPhillips assets in late third quarter of 2022. Obviously, those were at very attractive multiples. PB values, which is, again, a hallmark of what we do as a business.
We actually added some strategic midstream assets in that central region to help enhance control of the product, flow of where we want to put our gas and to take out some of the margin that we're paying others to move gas. And then we obviously scaled up our asset retirement company, now adding around 12 retirement rigs and giving us the ability to do up to 350 wells per year, which some of those will be for external parties like the State with the federal money that they're getting to reduce their orphan wells in the State's portfolios.
We also did the Tanos acquisition in the first quarter of 2023. And if you flip to Page 7, a lot of you have seen this slide. But again, very attractive multiple in a lower price environment. We were looking at this asset in 2022, and we're looking at $350 million to $400 million purchase price. We were able to get it for $250 million by waiting to the first quarter, prices rolled off and gave us the ability to buy it at a much more attractive price than what we would have been otherwise.
And again, I think the important thing about this transaction was it continued to beef up our undeveloped capabilities and value in the central region, adding about 50 new undeveloped locations. And when you combine that with what we already had in the central region, we now have over 300 undeveloped locations that we will be looking to monetize and determine how to create value for our shareholders moving forward. So all in all, a very attractive acquisition that will add value on a going-forward basis.
Page 8, we talk a lot about our undeveloped. We've really started here recently to leg in and try to determine what's the best way to get value for our shareholders out of that and developed. This is an illustrative example of one of the things that we've been looking at. It's an acreage position in Louisiana, where we would essentially divest about 50% of the PDP on a certain -- on a lease acreage position, also be carried in a drilling program of 1 to 4 wells, get carried interest, and this will be shared with Oaktree, obviously, as our partner in this area. But giving us the ability to sell the assets, the 50% of the assets are much better and more attractive price than what we bought them at, and also to be able to participate without any capital in a drilling program in that -- on that leasehold that would then kind of risk out that leasehold and give us the ability to be part of it going forward if the wells turned out to be profitable.
So it keeps us out of the capital expenditure for the wells, gives us the ability to monetize at a more attractive price than what we acquired them at and then also be carried in some of the wells that they're drilling on them. So it's a win-win across the board. And this is just 1 example of how we're approaching the undeveloped acreage in this region and parts of the portfolio.
Turning to Page 9. Again, we generated a lot of cash flow and shareholder returns. $503 million of EBITDA, $178 million of dividends and shareholder -- share repurchases. Paid over $230 million of debt amortization, continue to see 50% cash margin, free cash flow yield 18% and a too high 15% dividend yield. The dividend yield is too high based on the share price, it should be lower.
And we've been doing this now for -- going on 7 years. We've proven the model. We've proven that it's doable, sustainable. We feel like that the share price should reflect that.
You can see over the course of -- since 2017, total shareholder return of 204%. Some of that has been affected by the share price reduction here recently, which has kind of tailed off, obviously, with the nat gas price. But at the end of the day, we're still returning a lot of capital to our shareholders over a long period of time.
Flipping to Page 11, let's talk quickly about the natural gas macro. The macro -- don't let the price of natural gas that we're seeing right now pull you into what it's going to be long term. There definitely has been a very mild winter, especially in the U.S. I know it has been in Europe also. We also had 2 Bcf a day of natural gas production at Freeport LNG facility offline for almost 8 months.
Those 2 things together, if you put the LNG capacity back online for that period of time, even with the mild winter, the storage story in the U.S. will be average. It would be right on par with where it normally is. That says a lot. If we would have had any kind of winter, if that would have been online and we would have had any kind of winter at all, natural gas prices would be very, very high right now. So we need to look at it in terms of the macro. The macro steel is very strong.
On Page 11, you can kind of see that right now, we're doing about 12 Bcf a day off the Gulf Coast of Louisiana and Texas in LNG exports. By 2025, that's going to increase by another 6 Bcf a day. By 2030, were more than doubling. That's a lot of capacity coming online over the next few years. Production is not expected to grow that much.
The infrastructure situation in the U.S., a lot of tier -- what we consider to be Tier 1 drilling has been -- we've come through that already. And so I believe that we're setting up for a very, very strong macro for natural gas in the next few years. And this year just kind of shows you -- gives you an idea of the stuff -- the LNG export facilities that are coming online by 2030.
Page 12, I thought this was very interesting. And I think especially for those who aren't real educated on how the situation in the U.S. works. This was the Christmas holiday weekend, where we had some of the coldest weather. We called it Winter Storm Elliott. It pretty much covered the whole Continental U.S. in terms of the cold spell that went through. It was all over the weekend of Christmas.
You can see here that during that 24-hour period, which was the strongest power demand that we had, on December 23, that the peak time, natural gas represented over 70% of the demand -- of the power demand. It kicked in the wind and the solar and all the other types of renewables kicked off. And I believe this is indicative of where we're going not only in the country, but across the globe, is that natural gas will be part of the equation, and we're going to show some slides in here that will show that. But natural gas is not going anywhere. It's going to be part of the equation for a long period of time, and it's going to be a strong supply of power, not only in the U.S. but across the globe. And we'll talk a little bit more about why that's important.
If you flip to Page 13, emissions. You can see from 2005 to 2021 in the U.S., power generation has more than doubled from that in natural gas from 18% in 2005 to 37% in 2021. And over that same period of time, CO2 emissions have dropped in that same proportion. It's not a coincidence. Natural gas is the way that we're going to reduce emissions across the globe long term as we move coal.
Toby Rice, CEO of EQT, says this all time, we need to unleash the U.S. LNG. It will help to reduce emissions globally that we can't do otherwise. And so this is going to be the way we do it. So it's going to again contribute to a very strong natural gas macro as we move forward.
Moving to Page 14. You can see here, there's lots of these surveys and there's lots of these charts that show this. But they're all pretty -- they all look about the same, comparable. We're going to see a reduction between now and 2050. We're going to see a reduction in coal.
Coal will come down. It will come down pretty substantially over that period of time in terms of power generation. Renewables will have a steep increase. There's no doubt about that. And we'll continue to -- and we're supportive of that.
We think we need it. But the thing that will continue to go up is the natural gas. And you can see here the natural gas -- global natural gas demand is set to increase by 36% over that period of time.
Fossil fuels will be forecasted because oil doesn't really come down that much either over that period of time. But fossil fuels will be 63% of the market till 2050. So not much of a drop, even with the increase in renewables over that same period of time. I've seen multiple studies on this now. This is -- they're all very comparable in what they're showing.
On Page 15, as we look at our CO2 emissions in the United States, we've dropped. Since 2017, we dropped over 12% our CO2 emissions over that period of time. Again, mostly because of the coal to natural gas switching that we've seen. But over that same period of time, China has increased over 7%. China continues to build a significant amount of coal power generation and will continue to be on the increase.
We've got to make changes across the globe if we're going to bring emissions down. It's going to be done utilizing natural gas over that same period. China's coal power generation was 5x what the U.S. was in 2022. So it's significant.
On Page 16, I'll just finish up with a few comments here as we look at the future of Diversified. We obviously believe that the future is extremely bright. We think that there's going to be, and I made this comment multiple times, but 1 or 2 publicly traded consolidators of mature producing assets. We're going to be one of them. And I'll talk it in my closing remarks about the way that the strategies around that.
We want to be the consolidator of mature producing assets, We're going to see opportunities to do that. We'll continue to focus on vertically integrating the business, becoming as efficient as an operator that possibly can, taking that production to end of life, deploying smarter asset management across our portfolio of assets and across our operations, to drive down cost to get every molecule of production we can out of these wells.
It's extremely important. We've got to keep all the existing wells producing as long as we can that the supply is needed. We can't continue just to drill our way through this. We've got to make sure that we're producing the mature assets just like we are the ones that are being drilled. And so -- and as a result of that, we're not only going to deploy smarter asset management to increase production, but we're also going to deploy it to lower our emissions.
And we're highly, highly focused on that.
And then lastly, we've expanded our retirement capacity where we want to be in the technology realm of leading the industry and finding ways to retire wells more -- with more innovation, more technology, lowering the cost of being able to do it long term so that the retirement will doesn't become burdens on companies, it becomes part of their process.
We believe we're in a very good position to work with regulators, State and even up to the EPA and finding ways to be able to do that and lead the industry from that perspective.
So with that, I'm going to turn it over to Brad to talk to some of our operational updates in 2022.
All right, Rusty. As you said, we had a great year. Our teams had a great year in 2022. So I'm really pleased to share some additional highlights on the results that we had. And I know that many of our employees will be listening to this call later in the day.
So I do want to say thank you to the teams that we all have the opportunity to work with that deliver these results each and every day. They're dedicated to our company. They're dedicated to our shareholders, and we're very proud of the great team that we have.
I'm going to start out here on Page 18. And we all know that our cash flows come from our production. And as Rusty said, we had record production. We had record reserves, record production. We ended the year with an average annual production of 135,000 Boe per day, which represented a 16% increase over 2021.
And since 2020, with our entry into the Central region, our production has increased to 35%. With that increase in production, we're also very proud to talk about our corporate decline rate, which we've maintained at an 8.5%, which is, if not the lowest, it's one of the lowest against our industry peers.
With the Tanos acquisition that we had in the first quarter this year, that corporate decline rate will slightly increase due to some newer vintage wells that are coming online. In addition, Rusty mentioned our reserves. And this is something that is, I believe, is very impressive for our company. So we've had increasing production. But if you look at our -- the PV-10 value of our reserves, it is now at $6.1 billion.
And just 2 years ago, it was at $1.9 billion. So if you look at our company, and you look at the value of the future cash flows that we have available to us is significantly increased.
And then I also want to point out at the top of the page here on Page 18, Rusty already commented on this but this is the PV-10 value on a per share basis at $3.29 versus our stock price around $1.15. Our reserves and our assets are resilient, they're consistent, and they have a predictable future cash flow that we believe supports a much higher stock price.
Moving on to Page 19. Like we said, we had a record year in many areas, but we had a tremendously successful year with our sustainability projects in 2022. and our teams are committed to diligent stewardship of our assets. And I'm going to highlight a few of the activities and accomplishments that we had in 2022 here on this page.
So we were 1 of 5 U.S. operators that received a gold standard for our emissions reporting by the United Nations led OGMP 2.0 organization. This is a tremendous accomplishment for our company. It's very appreciated recognition by the OGMP for all the work that our teams do each day to aggressively manage and lower our emissions.
Rusty mentioned the mission detection surveys that we completed this past year. We had tremendous activity with great success. We did over 174,000 surveys in our Appalachia assets. And these surveys, they really validated the effectiveness of our zero-tolerance policy that we've had for numerous years. And we determined with these surveys that over 90% ended up being around 95% of the wells that we surveyed had no unintended emissions or no leaks. And so that was a great result there.
We have a very robust aerial LiDAR program, where we were able to survey over 11,000 miles of our Appalachia Midstream. That represented about 65% of our midstream assets. These surveys were very effective in helping our teams identify leaks and be able to repair as necessary. Also down the graph here at the bottom of the page, our methane intensity ratio, our methane intensity ratio has declined significantly. In fact, 20% this year down to 1.2.
And that's really reflective of the tremendous investment focus and projects that our company has implemented over the last several years as we really started to focus on reducing emissions.
We had a solid year with our safety results. Our safety metric ended at 0.73. And as you can see in this graph that over the last 3 years, our rolling 3-year average has continued to improve. This is extremely important to us. We talk about it every day with our employees, and we're very pleased with our continued improvement here.
Finally, with our asset retirement program, since 2020, the number of wells that we've retired has increased by 117%, and we were able to retire 200 wells this past year.
Also in connection with our earnings release today, we issued our 2022 climate risk and resilience report, which includes our TCFD-related disclosures. Also, towards the end of April -- excuse me, the beginning of April, we'll be issuing our 2022 sustainability report, which we're very excited about. 2021, we earned numerous awards on a global basis. And we believe our 2022 report will provide additional disclosures about all the efforts that we're doing from a stewardship and a sustainability perspective.
Moving on to Page 20. We talked -- Rusty talked about our acquisitions that we did this past year, both in our upstream and our midstream business. One great thing about doing bolt-on acquisitions in our central region, just like we have in Appalachia, is we're able to leverage our G&A infrastructure. We're able to leverage the existing management team that's in place, which provides us great expense efficiencies.
One of the midstream opportunities that we have with one of the acquisitions was an NGL processing facility in Louisiana. And this is a -- we believe this has great revenue generating potential for us. It's an underutilized facility. And we're working right now to bring in additional volumes to that so that we can vertically integrate, lower our cost and increase our margins.
Over the last several years, we've done 25-plus acquisitions. So our post-acquisition integration process is a very disciplined approach that we take to drive value as quick as possible. We start with on-boarding employees very early. We work on the integration and standardization of our business processes and our technology. And then we focus on optimization, consolidation, expense efficiency.
And we're really -- and the ultimate goal of our integration process is to focus on our One DEC culture of operational excellence through people, process and systems.
Smarter Asset Management. This is a concept that we have implemented now for several years. And our teams were extremely busy in 2022. And they had some -- they had a very successful year in identifying and delivering some very, very strong and value-added projects. I'm going to highlight 4 of those categories of smarter asset management.
First category is RTP wells, that stands for return to production. We were able to return to production 340 wells in our central region during 2022. 340 wells in many cases is larger than a lot of private companies in the United States. These were wells that were producing zero the year before that we were able to bring back into production. So a great year with our RTP program.
From a work-over standpoint, we also completed 305 work-over projects. A very successful year, added 40,000 Mcfe per day at an average cost of $45,000 and a cash-on-cash payback of 2 months. From an optimization and expense standpoint, our midstream just continually provide cost savings to our company. We were able to generate $1.5 million of expense reductions or annualized savings with the consolidation and reduction of compression assets in our central region. And we also were able to accomplish in our Appalachia area just a very successful, tremendous project where we were able to reroute some gas to a different processing facility, which allowed us to have a 10% uplift in our NGL volumes and provides an opportunity of about $15 million on an annual basis.
Our smarter asset management programs are supported by our daily operating priorities. These priorities that we established several years ago, our safety, production, efficiency and enjoyment. And what these daily priorities have done for us, they've allowed us to connect our teams across the 10 different states in which we operate.
So one of the specific projects I did want to highlight, and it really is an example of operating in multiple basins and having a vast pool of resources and experience. And this was an artificial lift technique that is used significantly in our central region, but we had not used it in our Appalachia region. We brought our teams together because we were having a -- one of our larger wells in the Appalachia Basin was having some loading issues, we needed to improve the production on it. We brought our central region upstream team together with our Appalachia team. And we said, let's look at this capillary string lift process that we use in our Central region and see if it will work in Appalachia. Up until this point, we had not used a capillary string lift method in Appalachia.
We've implemented it numerous times now. It's been a great success to allow us to efficiently improve production without a lot of capital expenditures. The charts on the right there shows the stabilization in the uplift that we received from that capillary stream project. So we're very pleased with that with that ability to share ideas across our different basins.
Moving on to Page 23. One thing we don't talk about often are really enough is the significant investment in efficient technology that we've deployed. We are a large data company. We've worked extremely hard to deploy safe, efficient and standardized technology across all of our operations. We are a 100% cloud-based company.
We have no physical servers, and we do not maintain technical debt from the acquisitions that we complete. And this cloud strategy has provided us with significant flexibility in not only integrating assets but also operating at a very low cost with our cloud strategy, with our electronic measurement, we also have a very efficient telecommunications infrastructure that allows us to quickly aggregate and provide information to our teams in a real-time basis.
We're leveraging this real-time information both in our midstream and our upstream operations with a centralized operations center and a centralized operation center, the way I'd like to describe it is like an AUX plane in the military. It provides reconnaissance information to the teams on the ground so that we can be very efficient with our operations and be able to address any issues whether it's production, environmental or safety in a much quicker manner.
Also, with this Tanos acquisition, Tanos had both Project Canary and Qube for a real-time continuous monitoring program. And we're also going to build that into our centralized operation centers. Finally, as we've talked about numerous times throughout the year, and as Rusty mentioned, we made a real tangible commitment to our asset retirement with the expansion of our plugging operations.
This is -- our next level energy subsidiary we believe has tremendous opportunities to generate value for our company. Next Level Energy is a full service, well services company. We have construction, cementing, wireline, transportation, all the well plugging equipment. But also what we've done is we've invested in our land and our permitting resources so that we can provide a full service, both internally but also externally to third parties.
And as Rusty mentioned, we believe that the plugging industry in the United States and really across the world is ripe for innovation. We are very well positioned to not only participate in that innovation but also to benefit from it. And so it's going to be exciting to see what will happen in the U.S. and really across the world as to how we can participate in that innovation and see what happens. So the Next Level Energy has been a very nice addition to our team.
We're really excited about it.
So with that, I'll turn it over to Eric.
Thank you, Brad. So those following along, I'll pick up on Page 26 of the presentation, really, with more of a reminder that this morning, we did issue our full 2022 annual report that you can pull from our website in which we've included our full audited financial statements with the accompanying footnotes and all of the other accompanying parts that you would expect from a premium listed company on the exchange.
We do talk about alternative performance measures and throughout our results, and we've included reconciliations to the closest IFRS measure, both in the appendix of the presentation that we're going through this morning as well as within that annual report. So please refer to that as appropriate.
I'm going to focus my prepared remarks more around the cash-generative nature of our business and what we do to mitigate the volatility that we find, whether it'd be in the macro, a lot of conversations around the banking environment right now. or more specific to our industry and commodity price volatility.
So you can see sort of featured in the center of our financial results is that 50% cash margin. So I'm going to talk about what we do to provide consistent cash flow and margin through the cycles.
So turning to Page 27. If we just look at the last 2 years alone, you can see consistent results across the period. 50% cash margin in dramatically different price environment. And we've done that by focusing on the components that both Rusty and Brad talked about, relentless focus on cost and a very -- a lot of intentionality around vertically integrating so that we have greater control over that cost structure and then a focus on maximizing realized prices. And we do that in a number of different ways.
And when you do those 2 things in conjunction, you can drive consistent margins across periods. But if you look at those margins year-over-year, you can see that the components for the makeup have changed.
In 2021, our cost structure was just under $8 per Boe versus realized price of just under $16 per Boe. That step change as we had the full annualization of our central region assets in 2022 and continue to grow in that region. It does have a notionally higher cost structure with cost moving closer to $10.50.
But importantly, and as Rusty talked about, that access to the Gulf Coast market realizes a premium price associated with its production. So correspondingly, you see that step up in our realized price to just under $21 in 2022. If we talk about the vertical integration, it has been a journey. Brad talked about the great work the team has done. You go all the way back to 2017, it started off as smarter well management when we were a company focused on aggregating wells.
But with the acquisition of assets in midstream from EQT in 2018 and following on with Core Appalachia and then continuing to acquire midstream assets from midstream companies where we were the largest producer into that pipe or to vertically integrate a midstream system into our portfolio.
Today, with just under 18,000 miles of midstream and gathering, that allowed us not only to take third-party margin out of our cost structure, but ultimately have greater flow control over where those molecules go to realize higher prices on that production.
We moved from midstream to marketing. We, previously back in 2018, used a third-party marketing firm to market our gas. We ended up buying that platform and significantly invested and grown it where today, it is a top 24 marketer in the United States. So once again, that not only allowed us to remove the margin associated with paying a third-party, but importantly, gives us the opportunity to maximize the return on that production by selling those molecules into the optimal market, whether it's selling high BTU gas or stripping the gas of its liquids content and monetizing the component.
And then you step all the way through to vertically integrating, as Brad just touched on, the asset retirement aspect of our business. We demonstrated visibility associated with our asset retirement program by working with the States to negotiate long-term agreements. We've demonstrated consistent costs associated with that program over the last several years. But I believe that the next step was to vertically integrate that to make sure we had control over the process, ultimately can maximize the ability to provide services to third parties and generate margin that will essentially cover the cash costs associated with our programs and ultimately just position us to meet that long-term obligation as we move forward.
So I'll move on to Page 28. And just remind that hedging is the last piece of the equation. So Rusty talked about our asset profile of long life, low decline assets. Brad talked about the cost structure of vertically integrating to make sure that we have consistent costs. So consistent cash flow is the last piece of that equation to make sure that we can deliver consistent results regardless of what's going on in the macro and hedging is how we do that.
You can see that the cash flow that we generate has primarily 2 functions because we're not a development-oriented company, we simply steward the asset that we acquire responsibly into their lives, which allows us to focus the margins, the cash flow from our margin on delevering and making sure that we maintain a healthy balance sheet and returning value to shareholders through that dividend strategy that we talked about.
It's worth reminding that Rusty mentioned the growth in our PV-10 reserves. If you went back to 2017, the PV-10 value of our PDP was $260 million. And today, that's $6.1 billion. We have raised up to 2022, $1.2 billion of equity, but we've returned half of that through a dividend and share buyback. So if you think about, that's a net $600 million equity investment to take $300 million of reserves up to $6 billion.
So it's tremendous value generation along that horizon. And if you look over that, zoom out from the last 2 years, where we talked about consistent 50% margin and look at the -- what we've done since the IPO, you see just the consistency that hedging has afforded us across the period.
The gray line that you see zig zagging through the bars is the price of natural gas. It's moved from $3 down to nearly $2 in 2020 and up to over $6.50 in 2022. And yet across that horizon, regardless of what's going on with the commodity, you see our margin, absent the very first year before that vertical integration strategy was really employed, 50% or better margins across the cycle. So really impressive place to be.
If you look at 2023, you can see that we've hedged a significant portion of our production, and Rusty talked about this is differentiated across our peer group. And by peer, really just other E&Ps, recognizing that our model is unique. But we're hedged anywhere from 85% to 90% at $3.83 on the natural gas side. And if you flip back a page and look back at where our realized price was in 2022, you'll see that, that price is 12% higher than last year's and certainly puts us in a very good position as we move into the current year.
Moving on to Page 29. This should look familiar, and it's just a reminder that we've been committed to hedging over the long term since we listed back in 2017. Although the -- we'll say the motivation or the construct around that hedging has evolved. You can see that the next 2 years, we're hedged at 85% to 90% in 2023, above the current strip price of $3.15, which is in line with our strategy of being anywhere from 70% to 90% hedged over the next 12 months. Always focused, really, on derisking the current period so that you have a clear line of sight to the dividend distributions and the delevering that we commit to.
Looking up to 2024, you can see that we're around 80% hedged at $3.32, while the strip is at $3.70. So we'll have the opportunity to opportunistically continue to layer in additional protection as that moves into the 12 month -- next 12-month horizon and move that notional price higher.
But our longer-term hedge strategy, you can see that 25-plus month portion is really linked to our financing strategy, we come on to that if we move to Page 30, which is to remind that our debt structure is quite simple. It used to simply be 100% credit facility, represented by the gray portion of the upper bars.
You can see in 2017 and 2018, 100% of our financing was done with the credit facility. But we recognize that long-term assets needed a better home than living on the corporate credit card, but also recognize that the long-term structure for us was not high yield, not only does the name that it's expensive. But it isn't reflective of the low-risk nature of our business model with low decline assets.
And so we pioneered a well-established financing class asset-backed securitization into the E&P space. And in 2019, initiated the first ever operated securitization in E&P and have since grown what you see by the blue bars to represent 95% of our borrowings at the end of 2022.
And what's important about that is that, that the blue bar or the asset-backed securitization is investment grade, fixed rate, fully amortizing debt. So very different than either an RBL or certainly the high yield that would be at a much higher rate. We're proud of the fact that we did lock in our fixed rate debt at 5.7% on a blended basis. That sits well below where variable or certainly fixed rate debt would sit today.
And while you see an increasing debt stack as we move forward, remember, that's been matched with growing cash flows in tandem. So if you look at the orange boxes or the yellow boxes across the top, whether you're back in 2017, when we had $267 million of borrowing, or fast forward to $1.5 billion this year, that leverage profile of 2 to 2.2x has been very consistent across the period, which demonstrates the discipline with which we use to finance these assets.
And importantly, with interest -- with investment-grade debt, not all debt is created equal. And it's the lower portion of this graph that really illustrates the power of that. But unlike high yield, it has a bullet maturity where you never know at what rate will be refinancing and in what market, whether the window will even be open.
With ours, you can see that glide path to being debt free on a 50-year asset over just the next 9 years. In fact, in the next 4 years alone, we'll repay over $800 million of that debt with hedge protected cash flows that underpin that delevering, which is 55% of that stack. And then over the next 5 years, you see that remaining $600 million repaid.
If we play that out, as it's illustrated here, then at year 9, you're essentially debt-free on an asset that still would have around 40 years of productive life, which means that all of the incremental cash flow rather than just a portion of that would be available to -- for an increase in the dividend. And so it's a differentiated model finance, a differentiated way that we believe has yielded that differentiated result that we walk through this morning.
So with that, I will hand it back to Rusty for some final comments.
Thanks, Eric. Appreciate it. Real quickly, I'll just close with a few things. 2023, of course, we're already 3 months in, but just it will be a transformational year for Diversified. I will make you that commitment.
It will not be a quiet year by any stretch of imagination. In fact, I'm 100% focused on a 3-year strategic plan that will give investors comfort around sustainability of cash flow dividend, and we're highly focused on that. Some of the main initiatives as I look at 2023. Obviously, the U.S. listing is the most important. It will get done. It will get done.
That's number 1. The market is very active right now. Lots of chatter, lots of stuff, lots of calls, lots of things going on. we'll be focused on strategic opportunities to acquire assets, to look at ways to, as we talked about earlier, enhance production, but also scale up in the regions we operate today. And there could be opportunities to merge and to do things that is a little bit outside the box of what we typically will do.
But there's -- everything is on the table this year. We believe that the opportunity set is large. The other thing that we're going to really focus on heavily in 2023 is finding ways to get that value from our undeveloped assets. And so we're having conversations with multiple parties about ways to joint venture, to find ways to extract that value out of the end. So we will see opportunities there, and there will be ways to do that in announcements coming.
For the analysts, you're going to be busy with us. There's going to be lots of activity that you're going to have to keep up with. For investors, it's going to be a big ride this year and an enjoyable one.
So with that, I will stop, and I will open it up for any questions.
Yes. So we'll take some questions here in the room first. We do have a somewhat short window here. We appreciate you guys coming in person and meeting with us, as well as spending the time to really go through the materials today with us. We did a very wholesome dive into a lot of the areas.
So I'll just open the room. Matt, go ahead, why don't we start with you for questions, if you could hold it to 1 and maybe 1 follow-up, then we'll kind of go from there.
Okay. Matthew for Peel Hunt. First question around the undeveloped assets. You mentioned excluding Tanos II, you've got 300 undeveloped locations. Can you give some idea of the potential PV-10 value?
Well, I think we -- Eric, we had some information.
We do. Well, on the 50 locations that are coming in with Tanos II, it's estimated to be about $280 million. Okay. So we do not have a valuation on the $300 million -- excuse me, the other $250 million or so that came with our Indigo, primarily with our Indigo transaction. There probably is some extrapolation or correlation that can be done there because it's in the same Cotton Valley area.
And we've also got a lot of vertical integration opportunities in that drilling area as well. That's $280 million at a minimum, and it'd probably be up over $500 million.
Okay. That's great. So they're very similar wells, 280 [indiscernible] comparison would not be miles.
It would not be miles on because it's the same formation.
Okay. That's useful. In terms of plugging. So what sort of plugging costs per well, do you think you might be able to realize this year? And how low do you think that price -- cost could have actually get to?
Well, we think we're going to maintain consistency with where we are. We're pretty low as it was in the $20,000 to $25,000 range. I don't want to step out and say that we can go lower, but we're very focused on maintaining that level even during inflationary periods as well, but a little bit of headwinds we had this past year. But I'm very comfortable in that $20,000 to $25,000 range for our Appalachia well site.
Yes, I think just for context, last year, we plugged around 150 wells at around $20,800 per well. This year, we did 200 at about $23,100. So within $400 difference in a challenging price environment and I think it speaks as vertical integration and just the efficiency becomes reputation so very consistent year-over-year.
David, go ahead.
There's always some nice wins on the Smarter Asset Management. I'm just sort of thinking, though, you've got 70,000 wells and have a certain number of employees. I mean, are you constrained in terms of how quickly you can get after this? And would you like to get after it quicker if you have the man power?
Yes. I think I'll let Brad answer the overall question. But I think what we do is we look at it in terms of the impact. And you go after the highest impact on first or the easiest one first, whichever makes sense. But I've said this in prior years. I don't know if we can ever get to the bottom of the list on the -- I mean, every year just generates more opportunities to do these things. But I mean, Brad, you might –
Well, like Rusty said, just with our scale, we have a robust portfolio of opportunities. And one of the things that we also do is we really empower the team and challenge the team to come up with new creative ideas and they continue to deliver. So I think our manpower set up right now is fine.
Looking at those high-impact opportunities, and really, with our move into the central region, where there's some newer vintage wells that had really been neglected. So that's a great opportunity for us to have newer vintage wells with a lot of reserve left on them, that we're either not producing or underperforming. So it's really not a manpower constraint. It's almost just like a number of days in the year constraint because there are so many opportunities.
And a very quick one. Just obviously, you had a nice reserve jump at the end of this year. Just -- I mean, any comments on that? Was that across the portfolio? Or do you see any particular asset performance?
I mean it was largely driven by a price increase. We know that. But with the addition of all the reserves that we've put on over the last several years and the type of assets that we have added. And when you couple in the fact that we've had the expense efficiencies that we've been able to build in, we're really seeing those pull through into our reserves. And our reserve team does a great job of really understanding the production profile, all the economic inputs.
And so we've had some nice refinements in that process as well.
The great thing about our reserve base is that when you have a low-decline asset, that reserve base is stable with a lot of the drilling companies, it's a quick falloff in reserves because, I mean, Haynesville alone, for example, which is an area we do operate, had 70% decline in rate year 1, 70%. So you've got to maintain reserves on the drilling company you got to spend a lot of capital.
Ours are very steady and consistent. As Brad said, as prices move up, obviously, you have an increase, but you're also having a flattening curve that doesn't give up a lot of reserves year-over-year, which is extremely important to our business model. And so I think that obviously prices will come and go. But I think at the end of the day, our reserve base will stay pretty consistent over a period of time.
And just 1 other addition to that. When we look at our reserves and our production profile, extremely consistent. We do not have surprises in our production profile. And it's also fun to see the impact of the smarter well -- Smarter Asset Management. When we do have production wins to see that pull through the reserves, and we definitely have been seeing -- for the engineers in the room and on the phone. When you have a reserve to production ratio that's 13% to 15%, that says a lot about the decline rates on your portfolio because a lot of the developers will be single digits.
Just a quick one from me. In terms of where the share price is at the moment, are there any thoughts around reinitiating the share buyback program, particularly when you think about the dividend yield at the moment, is an argument for using or maybe being a bit more aggressive on the share buyback with kind of your liquidity position?
Yes, it's a juggling exercise for us because we do pay such substantial dividend. We've always been in the mindset, I'd rather give the cash back to our investors, like them to determine what they want to do with it to pay some amount of dividend and hold back to buy shares.
I've never been a big share repurchase person. We want to be able to return to our shareholders' cash, but we also want to be able to reinvest in the business. Now that's not to say if there's some substantial reduction in the share price even further, that we wouldn't have to revisit because at some point, we're going to buy the company back at that rate. I mean that's just the way it is. I mean if you get so low that we're so undervalued just make some sense to continue to allow to happen.
But I think at the present time, obviously, the macro environment has just been terrible. It's caused massive sell-offs not only in our sector, but across banking and everything, even staples, you know that people thought were save. So I think that we need to let the dust settle to see where the markets rebound back to at some point, always on the table, but based on the amount of cash that we return to shareholders. It doesn't -- that's a tough situation for us to juggle those 2. But it's not to say that we wouldn't have we had.
Just wondering whether you can talk a bit to the M&A market and how things have moved over the last 3 to 6 months in terms of valuation and availability of assets?
It's amazing what 3 months can do. Last year, we were in a lot of -- we talked about this, but we were in a lot of transactions and a lot of conversations with people and assets. But reconciling the buy -- buy-sell side was tough. Most people -- I heard this a lot last year. That's not -- I can do better if I hold it. They're not saying that so much anymore. Prices have dropped, oil prices have dropped, natural gas has dropped.
People are revisiting their plans and their whole doesn't look as good. So I'm pretty confident this year is going to be, as I said, transformation I think there's going to be opportunities across the board. We're seeing it already. And from our perspective, what we told these guys stick to operations, continue to drive down costs, create as much liquidity as possible it's coming, and we've got to be prepared because it's a transformational year where either acquisition, merger, whatever, there's going to be something out there that's going to transform the company in 2023.
It's very, very active. I had investment banker tell me last night that they have never seen such a quick move into sell mode that they've seen in the last 2 months. The Permian, especially now, we're not Permian players, but the Permian has gotten extremely active in the last 30 days. And I guess that could be part of the oil price drop and such. But we're going to see a lot of activity this year. We're going to be in on a lot of it, which you're going to see a lot in the U.S.
And is that sort of your thinking Central region more than Appalachia in terms of expansion?
We really don't care. I mean, we're open to both. I'd love to do more Appalachia asset acquisitions because it's just more scale. I mean we can just drive cost down like you would believe the more assets we do there. I think we'll have an opportunity there this year.
Just a question on maintaining the 50% cash margin that you've had for the past 3 years. I guess, 30% increase in cost this year, prices kind of tailing off the headcount locks you in, what can really give us confidence that you can maintain that margin for '23-'24 and any inflationary pressures going through the end of the year?
I'll let Eric chime in on this, too. But you will see, we've already started to see it in '23, all those varied costs are rolled back down. Actually, in a lower price environment, our margins are higher. I know that's counterintuitive, but it is. It's because of these variable costs.
We are hedged and when prices go up, we get a little squeeze on the margin. But when prices come back off, we actually get an increase in the margin.
Yes, that's exactly right. So the price linked expenses is a big part of that step-up year-over-year. I mean, gas prices maybe as high as $9, and you're paying a variable production tax on that. Yet if you had fixed your revenue, you feel the squeeze. I think it's impressive that in spite of, as you attributed 30% inflationary pressure, keep in mind, that's really a change in the composition moving from Appalachia to Central that has a corresponding higher price associated with it, that we did see a 4-point margin reduction going from as high as 54% to 50% over that horizon. So demonstrates just how durable they are.
It's also important to remember that when you think about the inflationary pressure, much of that is in the service center. Supporting the industry. Prices have recovered to the vendors that are providing support, we insulate ourselves from that because we're not drilling and completing wells. So seeing a 2x, 3x increase and the total drilling and completion costs has no effect on our business. Most of the smarter asset management that we do, Brad's team vertically integrated.
So we're not buying that off the shelf and paying that inflationary price. So even with the inflationary pressures that we saw last year, you saw margin pull in. And then I highlighted that we do see. We've got a higher hedge price this year relative to last year that will further inflate that cost back.
Well, listen, again, we appreciate everyone joining on the phone. We're over an hour here. Again, we appreciate everyone that came here in person and for your questions, and obviously, did a lot of work leading into that. If anyone has any follow-ups, we're happy to do that, but we're going to end the call here.
So operator, please end the call. And everyone else, have a great day.
Thank you. This concludes today's call. You may disconnect your lines at this time. Thank you for your participation.