Geothermal energy is a clean and reliable renewable energy source that has the potential to generate electricity 24/7.
The new US administration’s support for geothermal could streamline permitting, increase research funding, and provide tax credits.
Geothermal energy currently plays a minor role in US electricity generation, but it has the potential to become a major source of clean power in the future.
The bubbling sulfur springs and powerful, majestic geysers of Yellowstone National Park are visible manifestations of the potential for geothermal energy in the United States.
Yet for various reasons — including logistics, economics, and permitting issues — geothermal has not come close to reaching its potential. That could be changing, though, with Donald Trump’s surprising embrace of the deep-seated renewable energy source.
In declaring an energy emergency on Monday, January 20, inauguration day for the 47th president, Trump’s executive orders largely favored oil, gas, and coal, and omitted solar, wind, and battery storage. Geothermal heat was included as one of the domestic energy sources that could help ensure a reliable, diversified, and affordable supply of energy.
“The embrace of advanced geothermal under this new administration I’d say is not a giant surprise,” said Alex Kania, a managing director at Marathon Capital, via The Sun Chronicle. “It’s reliable, it’s efficient, and frankly their ties to the more conventional forms of energy production, I think, is probably not lost on some people.”
Indeed, energy experts note that geothermal can generate electricity 24/7 — which is the largest drawback of solar and wind — and that many people in the geothermal field come from the oil and gas industry, where the same technology is used for drilling wells.
Geothermal works by harnessing steam from Earth’s natural heat and using it to spin a turbine that creates clean electricity. There are three main types of geothermal energy systems: direct use and direct heating systems; geothermal power plants; and geothermal heat pumps.
According to the Energy Information Administration (EIA), the first types use hot water from springs or reservoirs near the Earth’s surface. Ancient civilizations used hot springs for bathing, cooking, and heating, and today they are the most familiar sign of geothermal energy.
Geothermal is also used to directly heat buildings and to provide heat for multiple buildings with district heating systems. An example of the latter is Reykjavik, Iceland, where 66 percent of the island nation’s power comes from the Earth’s heat.
Geothermal power plants are generally built near geothermal reservoirs, close to the Earth’s surface, where water or steam is injected at 300 to 700 degrees Fahrenheit to generate electricity.
Geothermal heat pumps are used to heat and cool buildings. The pumps transfer heat from the ground or water into buildings during winter and reverse the process in the summer.
New geothermal companies are adapting technologies from oil and gas to create steam from hot rock, that is turned into manmade reservoirs rather than naturally occurring hot pools. That would make geothermal possible in many more places, The Sun Chronicle notes, adding:
“The Energy Department estimates the next generation of geothermal projects could provide some 90 gigawatts in the U.S. by 2050 — enough to power 65 million homes or more.”
Still, the United States is a small player in the global game of geothermal energy. In 2022, 24 countries generated about 92 billion kilowatt hours (kWh) of electricity from geothermal. Indonesia was the leader at about 17 billion kWh, or 5 percent of its total power generation. The largest share of annual electricity generation from geothermal among countries with geothermal power plants was Kenya, at 45 percent of its total. Geothermal accounts for less than half a percent of America’s total electricity generation. The biggest geothermal states are California, Nevada, Utah, Hawaii, Oregon, Idaho and New Mexico.
The industry hopes the new U.S. administration’s support for geothermal will lead to streamlined permitting, more federal research and tax credits to promote innovation, states The Sun Chronicle.
A House subcommittee in 2014 heard that an inordinate amount of red tape hampers geothermal in the U.S. For example, the National Environmental Policy Act (NEPA) requires geothermal developers to submit over 175 “document sets” for each project, which could mean hundreds of thousands of pages.
The subcommittee also learned that geothermal power projects can take as many as seven years to develop, compared to three to five years for oil and gas projects, and just 18 months for solar or wind start-ups.
Cindy Taff, the CEO of Sage Geosystems in Houston, was quoted saying she hopes that Trump’s pro-geothermal stance will spur investment in large projects, including those that meet surging demand for electricity from data centers and artificial intelligence, and projects to make military facilities energy resilient.
Trump’s return heralds a robust shift in US energy policy, emphasizing domestic production, energy independence, and rescinding Biden-era restrictions.
Despite fueling unprecedented domestic manufacturing, global dominance, and technological advancement throughout the last century, the American energy industry has been playing defense in recent decades. [emphasis, links added]
Activist environmentalists and liberal government bureaucrats have vilified oil and gas (not to mention nuclear), aggressively lobbying to curtail the discovery, drilling, and development of America’s natural resources.
The return of Donald Trump to the White House, however, has heralded a dramatic shift in the government’s approach to domestic energy policy.
Trump’s inauguration and his day-one executive orders marked not only a return to the energy-friendly policies of his first administration but also a robust effort to reestablish America as the heart of global energy production.
Trump declared in his inaugural address, “The golden age of America begins right now.” Such a vision demands energy production on an unprecedented scale.
Amid priorities like border security, bureaucratic reform, and addressing government overreach, Trump outlined a bold strategy for powering America’s future.
“Today I will also declare a national energy emergency. We will drill, baby, drill,” Trump announced after taking the oath of office. He elaborated:
America will be a manufacturing nation once again, and we have something that no other manufacturing nation will ever have: the largest amount of oil and gas of any country on Earth. And we are going to use it. We will bring prices down, fill our strategic reserves up again, right to the top, and export American energy all over the world. We will be a rich nation again. And it is that liquid gold under our feet that will help to do it.
That “liquid gold” has been the foundation of America’s economic success, national security, and sovereignty for over a century.
Domestic energy production was a cornerstone of the American Century and remains indispensable for sustaining America’s future.
Trump’s day-one executive orders emphasized that achieving energy independence is paramount to putting America first.
One of his first orders, titled “Unleashing American Energy,” set the framework for addressing the nation’s energy challenges:
It is thus in the national interest to unleash America’s affordable and reliable energy and natural resources. This will restore American prosperity—including for those men and women who have been forgotten by our economy in recent years. It will also rebuild our Nation’s economic and military security, which will deliver peace through strength.
The rest of the energy EOs staged a major comeback for American energy. In the emergency declaration, Trump explained,
“Our Nation’s current inadequate development of domestic energy resources leaves us vulnerable to hostile foreign actors and poses an imminent and growing threat to the United States’ prosperity and national security.”
He ordered the department and agency heads to use all emergency powers to jumpstart the use of federal lands for production.
The EO also floated the necessity of invoking eminent domain powers under the Defense Production Act to override certain obstacles that might restrict the immediate development of such lands.
Alaska, in particular, stands to benefit from this policy shift. Trump declared Alaska “open for business,” unlocking the state’s vast untapped potential, previously stifled by governmental interference.
As Trump stated, developing Alaska’s resources will “address trade imbalances, reinforce America’s global energy dominance, and protect against foreign powers weaponizing energy supplies in geopolitical conflicts.”
Additionally, Trump terminated U.S. participation in the Paris Climate Agreement and ensured that no international environmental agreements would undermine American interests.
Illinois’ federal funds for EV chargers face uncertainty after Trump’s executive order, which may affect clean energy projects and state emissions rules.
In its quest to get a million electric vehicles on the road by 2030, Illinois was counting on $148 million in federal funding to help build a statewide network of public EV chargers. [emphasis, links added]
Now that funding has been frozen — and targeted for possible reduction or elimination — under a wide-ranging executive order that President Donald Trump signed on his first day in office.
Also in limbo: another federal program that was to provide Illinois with millions of dollars for public EV chargers. …
EVs and their chargers appear to be a prime target of Trump’s “Unleashing American Energy” executive order, but they are by no means the only Illinois clean energy projects that could be in for a bumpy ride as the president takes bold steps to reverse the ambitious clean energy policies of his predecessor.
The executive order pauses funds coming from President Joe Biden’s signature climate law, the Inflation Reduction Act, including incentives for solar and wind projects and a federal tax credit of up to $7,500 for EV buyers.
“Here the administration does have a degree of flexibility and can decide, with regard to new expenditures, whether to move forward or not,” Learner said. “If (the expenditures) have been congressionally authorized and appropriated, the administration has to follow what Congress has decided.”
Of the $148 million in money for an electric charger network that Illinois was expecting from the EV formula program, the state announced $25 million in grants in September for 37 projects with 182 new charging ports.
Applications are currently open for a second round of funding, expected to distribute about $24 million in grants.
It’s unclear how much of the money could be vulnerable under the Trump executive order, but Urbaszewski said the state has to first spend its own money and then get reimbursed by the EV formula program or the federal Charging and Fueling Infrastructure Grant Program.
That reimbursement system means money stays in federal hands longer, which could be a disadvantage if funding is cut off.
“That, and the fact that those two programs are specifically called out in the executive order — specifically — makes me a little nervous,” Urbaszewski said. …
The executive order is not expected to have much impact on residential solar in Illinois, according to Illinois Solar Energy & Storage Association Executive Director Lesley McCain.
The federal government currently offers a tax credit worth up to 30% of the cost to install a solar roof.
“The executive order does not impact (that tax credit), as it is part of the federal tax code, but we will keep a close eye on further developments,” McCain said in a written statement.
Urbaszewski, who supports a bid to adopt the California-style clean car and clean truck rules in Illinois, said those rules could help Illinois meet its EV goals if federal EV-charger funding were cut.
“This is all going to end up in court, and it’s going to take years to figure out whether the U.S. EPA under Trump actually has the authority to take back a waiver once it has been granted,” Urbaszewski said.
In the meantime, he’d like to see Illinois adopt the California standards, which he said would accomplish the EV formula program goal of expanding the Illinois charging network.
Financial and Strategic Accretive Acquisition Provides Opportunity for 95% Increase in Revenue, Enhanced Margins, Expense Synergies, and 55% Increase in Free Cash Flow
Unique & Differentiated Business Model Offers Reliable Production, Multi-Basin Commodity Diversification, and Strong Hedging Program that Enables Consistent Free Cash Flows
Significant Operating Scale Provides Optionality for Organic Growth Through Established Low-Risk, High-Return Development Partnership
Expands Proven Roll-Up Model to the Permian Basin and Forges Partnership with Energy Focused Investor EIG
Modern Field Management Philosophy of Experienced Diversified Team Well Positioned to Leverage Technology, Capture Synergies and Unlock Portfolio Value
BIRMINGHAM, AL / ACCESS Newswire / January 27, 2025 / Diversified Energy (LSE:DEC)(NYSE:DEC), today announced that it has entered into a definitive agreement to acquire Maverick Natural Resources, a portfolio company of EIG for total consideration of approximately $1,275 million. The Acquisition combines two complementary asset packages, pairing high-quality Proved Developed Producing weighted production assets with the lowest corporate decline and capital intensity among peers. The acquisition of Maverick by Diversified adds immediate scale, increases liquids production, and creates a combined company with long-term free cash flow generation, superior unit cash margins, and a compelling sustainability profile.
The Acquisition further executes upon Diversified’s strategy for maintaining the optionality of multiple development opportunities through established joint venture partnerships across the combined portfolio of vast undeveloped acreage in multiple high-returning basins. A portion of the acquisition directly offsets Diversified’s core Western Anadarko position with active development in the Cherokee Play, and provides a new Permian asset base with multiple zones in the Northern Delaware Basin.
The combined company is expected to generate substantial free cash flow, delivering strong, consistent shareholder value creation through disciplined debt reduction, a sustainable fixed dividend, and strategic share repurchases. The combined company will have an enterprise value of approximately $3.8 billion and operate across five distinct operating regions, with a combined production base of approximately ~1,200 MMcfe/d (~200 Mboe/d).
USD Millions unless otherwise noted
Diversified
Maverick
Current Production (MMcfe/d)
~850
~350
Commodity Mix
~85% Natural Gas
~15% Liquids
~45% Natural Gas
~55% Liquids
Total Revenue, Inclusive Settled Hedges (a)
~$940
~$900
Adjusted EBITDA (b)
~$555
~$380
Free Cash Flow (c)
~$220
~$125
EV/EBITDA (d)
~4.5x
~3.3x
Leverage (e)
2.9x
1.8x
PV-10 of Total Proved Reserves (f)
~$3.9 Billion
~$2.1 Billion
PV-10 of PDP Only (f)
~$3.9 Billion
~$1.7 Billion
For the twelve-month period ended September 30, 2024 unless otherwise noted
CEO COMMENTARY
Rusty Hutson, Jr., CEO of Diversified, commented:
“This acquisition expands our unique and highly focused energy production company with a complementary portfolio of attractive, high-quality assets. We have a proven track record of unlocking value from acquisitions while maintaining our commitment to sustainability leadership, and this acquisition provides us with great assets and employees that complement this strategy. The acquired producing assets have demonstrated leading well performance and are a natural fit with our operating advantage and existing acreage. Notably, the combined footprint in Oklahoma and the Western Anadarko Basin creates one of the largest in terms of production and acreage, which includes the emerging Cherokee formation.
Diversified shareholders will share in the significant upside potential of the combined company, with its cash flow projected to provide durable and consistent returns and enabling significant debt reduction, further enhancing our long-term value creation proposition. We view commodity, geography, asset, and business segment diversification as strategic advantages that drive more resilient and consistent free cash flow and long-term value creation for our combined company.
Diversified anticipates benefiting from the additional capital investment optionality for organic cash flow generation from joint venture partnerships that continue to optimize our combined high-quality asset base. We plan to leverage Maverick’s experienced technical asset development team to unlock undeveloped acreage potential through an even larger combined footprint, and I am confident that Diversified’s management team will bring its expertise in efficiently integrating acquisitions to further expand our Smarter Asset Management practices.
We have created a strong platform of people and financial resources to build and operate an organization that continues to be the Right Company at the Right Time to responsibly produce American energy, deliver reliable free cash flow, and drive shareholder value.”
Rick Gideon, CEO of Maverick Natural Resources:
“Today marks an important milestone for all of us at Maverick Natural Resources. We have great respect for the innovative approach and stewardship demonstrated by the team at Diversified and are pleased to enter into this partnership. Maverick has built a strong foundation of execution and efficiency across our portfolio, and we look forward to combining our complementary portfolio of assets with Diversified. I would also like to express my gratitude to the team at Maverick for their hard work and dedication in supporting our strategic efforts and contributing to this achievement.”
Jeannie Powers, Managing Director and Head of Domestic Traditional Energy, EIG:
“We are extremely pleased to have entered into this acquisition and look forward to contributing as a core shareholder. We aim to work closely with the Diversified management team and Board to support the Company’s focus on delivering long-term value. Diversified is uniquely positioned in the upstream space with a differentiated business model and a history of operational excellence. The combination of Maverick’s assets with Diversified’s existing footprint represents a strategic opportunity that we believe can support value creation for all stakeholders.”
COMPELLING STRATEGIC AND FINANCIAL RATIONALE
Value Maximizing Combination: The Acquisition is expected to be accretive to key metrics including cash flow, leverage, and valuation multiples. The assets are being acquired at approximately 3.3 times LTM Adj. EBITDA (g). The combined company had approximately $1.8 billion in combined revenue (g), and approximately $345 million in combined free cash flow (g). The acquisition provides meaningful free cash flow accretion, with combined adjusted per unit EBITDA margins in excess of 2.00 per Mcfe (g).
Strong Financial Position, Liquidity and Capital Markets Access: Leverage accretive acquisition that integrates additional investment-grade ABS notes, allowing for a natural deleveraging process. Additional size and scale enhances the Company’s trading liquidity and access to capital markets, bolstering its ability to efficiently finance its business and pursue bolt-on accretive acquisitions.
Multi-Basin Exposure and Scale: Combination enhances position in core geographies across Appalachia, the Western Anadarko, Permian, Barnett, and Ark-La-Tex regions, with commodity product diversification, including beneficial exposure to oil markets, to create a more resilient market cycle risk profile and more durable revenue. This multi-basin scale also provides capital investment optionality for organic growth by acquisition or growth by high returns joint venture partnership development projects.
Unique Operational Approach: Company focused on responsible operations and stewardship of existing energy infrastructure assets, including well optimization and managing the assets by leveraging technology, vertical integration, and scale to the ultimate end of life. By leveraging the complementary operations focus, utilizing technology, aligning resources, and sharing expertise, Diversified is poised to optimize performance, extract substantial value, and drive growth.
Commitment to Stewardship and Environmental Performance: Combined company focus on achieving tangible targets, and dedicated actions to driving sustainability, transparency, and environmental progress through asset improvement and optimization practices, data-driven innovation of ongoing measurement, monitoring, and mitigation of emissions.
Proven Process to Capture Synergies: Diversified’s established integration playbook and corporate infrastructure are anticipated to unlock significant and sustainable value with fast, effective and efficient integration. Familiarity with the asset base and the combined density provides considerable expense savings and a meaningful earnings contribution.
TRANSACTION DETAILS
The gross Acquisition value of $1,275 million (inclusive of debt assumption) represents an approximate 3.3 times LTM EBITDA (g) multiple. Consideration is expected to be satisfied through the assumption of approximately $700 million of Maverick debt outstanding associated with its RBL, an ABS amortizing note and other outstanding credit, the issuance of approximately 21.2 million new U.S. dollar-denominated Diversified Ordinary Shares to the unitholders of Maverick valued at approximately $345 million at signing, and approximately $207 million in cash, with the mix of Ordinary Shares and cash subject to adjustment based on the outstanding amount of Maverick’s RBL at Completion.
The combined company will have an enterprise value of approximately $3.8 billion as of signing. Upon completion, EIG will own approximately 20% of the outstanding Ordinary Shares, inclusive of the Ordinary Shares currently owned from previous transactions. The Ordinary Shares will be subject to a customary lock-up agreement.
The Company has received commitments for $900 million on a new upsized $1.5 billion, four-year credit facility which incorporates both the existing Diversified RBL and the new RBL assets from Maverick as collateral. The amended and restated credit facility provides necessary liquidity for the cash consideration of the acquisition and to refinance Maverick’s RBL. Additionally, the Company intends to undertake potential refinancings related to other credit products outside of the Company’s credit facility.
The Acquisition is subject to a $50 million break fee payable by Diversified Gas & Oil Corporation in certain circumstances.
LEADERSHIP AND GOVERNANCE
The Company will continue to be led by its proven management team that reflects the strengths and capabilities of the organization. Upon closing, Mr. Hutson will continue to serve as Chief Executive Officer and as a member of the Board. Diversified’s current Chair of the Board, David Johnson, will continue to serve as the Chair of the Company’s Board.
Upon completion of the Acquisition, the Company’s Board will consist of eight directors, six of whom are members of the current Diversified Board, including Mr. Hutson, and two of whom will be designated by EIG.
Due to other commitments, Sylvia Kerrigan has resigned from the Company’s Board of Directors effective as of January 24, 2025. Ms. Kerrigan, who has been a member of the Board since 2021, is leaving the Board in good standing and on amicable terms. Upon her departure from the Board, it is expected that the current Board and Remuneration committee member David Turner has been appointed chair of the Remuneration Committee and join the Nomination and Governance Committee effective January 25, 2025. Additionally, Sandy Stash will be appointed lead independent director effective January 25, 2025.
David Johnson, Non-Executive Chairman of the Board, commented:
“On behalf of our Board and Diversified’s management team, we thank Sylvia for her service to the Company. We have valued and appreciated her insight and industry expertise. We wish her well in her future endeavors.”
BOARD STATEMENT
The Board unanimously considers the Acquisition to be in the best interests of the shareholders of the Company as a whole. The Board believes the Acquisition would provide Diversified with significantly increased scale, long-term free cash generation, superior unit cash margins, low decline production base, a compelling environmental profile, and a robust regional consolidation opportunity.
TIMING AND APPROVALS
The Acquisition, which is expected to close during the first half of 2025, has been unanimously approved by the Board.
Completion is subject to customary closing conditions, including, among others, regulatory clearance and approval by Diversified shareholders for the issue and allotment of the Ordinary Shares pursuant to the Agreement.
ADVISORS
Citi is serving as financial and transaction advisor to Diversified. Truist and Stifel are serving as additional advisors to Diversified. Gibson, Dunn & Crutcher LLP and Latham & Watkins (London) LLP are serving as legal advisor to Diversified on the Acquisition. KeyBanc is serving as Administrative Agent and KeyBanc Capital Markets is the Lead Arranger on Diversified’s debt financing in connection with the Acquisition. Jefferies Securities is serving as financial advisor and Kirkland & Ellis LLP is serving as legal advisor to Maverick and EIG.
UK LISTING RULES
The Acquisition, because of its size in relation to Diversified, constitutes a “significant transaction” for the purposes of the Listing Rules, and is therefore notifiable in accordance with UKLR 7.3.1R and 7.3.2R. Additional details as required under the Listing Rules are presented in Appendix 1.
PRESENTATION AND WEBCAST
Diversified will host a conference call and webcast today at 1:30 p.m. GMT (8:30 a.m. EST) to discuss the Acquisition.
A presentation detailing the acquisition will be posted to the Company’s website before the conference call. The presentation can be found at https://ir.div.energy/presentations.
Total revenue, inclusive of settled hedges, includes the impact of derivatives settled in cash; for more information, please refer to “Use of Non-IFRS Measures”
Adjusted EBITDA presented for the twelve-month period ended September 30, 2024; Adjusted EBITDA for Maverick excludes certain non-recurring items primarily relating to restructuring and other transactional costs and is not adjusted for the divestiture of East Texas assets subsequent to the measurement period; Adjusted EBITDA for Diversified includes the annualized effect of acquisitions performed during the measurement period; for more information, please refer to “Use of Non-IFRS Measures”
DEC Enterprise Value / Adjusted EBITDA (“EV/EBITDA”) calculated using Pro Forma Adjusted EBITDA for the twelve-month period ended September 30, 2024 and enterprise value (“EV”) as of January 17, 2025; Maverick EV/EBITDA multiple based on gross Acquisition value divided by the Acquisition’s Adjusted EBITDA for the twelve-month period ended September 30, 2024
Free Cash Flow represents net cash provided by operating activities less expenditures on natural gas and oil properties and equipment and cash paid for interest; for more information, please refer to “Use of Non-IFRS Measures”
Leverage is measured as Net Debt divided by Adjusted EBITDA; as used herein, Net Debt represents total debt as recognized on the balance sheet, less cash and restricted cash at September 30, 2024; for more information, please refer to “Use of Non-IFRS Measures”
PV-10 for Diversified as reported in the Company’s Annual Report for the year ended December 31, 2023 adjusted to reflect the impact of the acquisitions undertaken during calendar year 2024 ; PV-10 for Maverick calculated using historical production data, asset-specific type curves and an effective date of June 1, 2024 using the 10-year NYMEX strip at January 10, 2025 and excluding assets divested in October of 2024; for more information, please refer to “Use of Non-IFRS Measures”
For the twelve-month period ended September 30, 2024; does not include the impact of any potential or expected synergies
Diversified is a leading publicly traded energy company focused on natural gas and liquids production, transport, marketing, and well retirement. Through our unique differentiated strategy, we acquire existing, long-life assets and invest in them to improve environmental and operational performance until retiring those assets in a safe and environmentally secure manner. Recognized by ratings agencies and organizations for our sustainability leadership, this solutions-oriented, stewardship approach makes Diversified the Right Company at the Right Time to responsibly produce energy, deliver reliable free cash flow, and generate shareholder value. For additional information, please visit Diversified’s website at div.energy.
About Maverick
Maverick is a private oil and gas company headquartered in Houston, Texas. Maverick specializes in the management of mature upstream assets through application of automation and data-science technology while focusing on safety, emissions, and environmental responsibility. For additional information, please visit Maverick’s website at www.mavresources.com.
About EIG
EIG is a leading institutional investor in the global energy and infrastructure sectors with $24.5 billion assets under management as of September 30, 2024. EIG specializes in private investments in energy and energy-related infrastructure on a global basis. During its 42-year history, EIG has committed over $49.3 billion to the energy sector through 415 projects or companies in 44 countries on six continents. EIG’s clients include many of the leading pension plans, insurance companies, endowments, foundations and sovereign wealth funds in the U.S., Asia and Europe. EIG is headquartered in Washington, D.C. with offices in Houston, London, Sydney, Rio de Janeiro, Hong Kong and Seoul. For additional information, please visit EIG’s website at www.eigpartners.com.
Forward-Looking Statements
This announcement includes forward-looking statements. Forward-looking statements are sometimes identified by the use of forward-looking terminology such as “believe”, “expects”, “targets”, “may”, “will”, “could”, “should”, “shall”, “risk”, “intends”, “estimates”, “aims”, “plans”, “predicts”, “continues”, “assumes”, “projects”, “positioned” or “anticipates” or the negative thereof, other variations thereon or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of management or the Company concerning, among other things, statements regarding the Acquisition, including its timing, benefits and impact, descriptions of the combined company and its operations, integration and transition plans, synergies, opportunities and anticipated future operational and financial performance, and the results of operations, financial condition, prospects, growth, strategies and dividend policy of the Company and the industry in which it operates. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the Company’s control and all of which are based on management’s current beliefs and expectations about future events, including the expected timing and likelihood of completion of the Acquisition, including the timing, receipt and terms and conditions of any required government or regulatory approvals of the Acquisition that could reduce anticipated benefits or cause the parties to abandon the Acquisition, the ability to successfully integrate the businesses, the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, the possibility that stockholders of Diversified may not approve the issuance of new shares of common stock in the Acquisition, the risk that the parties may not be able to satisfy the conditions to the Acquisition in a timely manner or at all, the risk that any announcements relating to the Acquisition could have adverse effects on the market price of Diversified’s common stock, the risk that the Acquisition and its announcement could have an adverse effect on the ability of Diversified and Maverick to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers and on their operating results and businesses generally, the risk the pending Acquisition could distract management of both entities and they will incur substantial costs, the risk that problems may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected, the risk that the combined company may not achieve synergies as expected and other important factors that could cause actual results to differ materially from those projected.
Use of Non-IFRS Measures and Non- GAAP Measures
Certain key operating metrics that are not defined under IFRS and GAAP (alternative performance measures) are included in this announcement. These Non-IFRS and Non-GAAP measures are used by us to monitor the underlying business performance of the Company from period to period and to facilitate comparison with our peers. Since not all companies calculate these or other Non-IFRS and Non-GAAP metrics in the same way, the manner in which we have chosen to calculate the Non-IFRS and Non-GAAP metrics presented herein may not be compatible with similarly defined terms used by other companies. The Non-IFRS and Non-GAAP metrics should not be considered in isolation of, or viewed as substitutes for, the financial information prepared in accordance with IFRS and GAAP. Certain of the key operating metrics are based on information derived from our regularly maintained records and accounting and operating systems.
Adjusted EBITDA
As used herein, EBITDA represents earnings before interest, taxes, depletion, depreciation and amortization. Adjusted EBITDA includes adjusting for items that are not comparable period-over-period, namely, accretion of asset retirement obligation, other (income) expense, loss on joint and working interest owners receivable, (gain) loss on bargain purchases, (gain) loss on fair value adjustments of unsettled financial instruments, (gain) loss on natural gas and oil property and equipment, costs associated with acquisitions, other adjusting costs, non-cash equity compensation, (gain) loss on foreign currency hedge, net (gain) loss on interest rate swaps and items of a similar nature. Adjusted EBITDA should not be considered in isolation or as a substitute for operating profit or loss, net income or loss, or cash flows provided by operating, investing, and financing activities. However, we believe such a measure is useful to an investor in evaluating our financial performance because it (1) is widely used by investors in the natural gas and oil industry as an indicator of underlying business performance; (2) helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the often-volatile revenue impact of changes in the fair value of derivative instruments prior to settlement; (3) is used in the calculation of a key metric in one of our Credit Facility financial covenants; and (4) is used by us as a performance measure in determining executive compensation.
Per-Unit Adjusted EBITDA Margin
As used herein per-unit adjusted EBITDA margin represents the amount of Adjusted EBITDA per unit of production.
Diversified Energy
The following table presents a reconciliation of the IFRS Financial measure of Net Income (Loss) to Adjusted EBITDA and per-unit adjusted EBITDA margin for each of the periods listed:
For the Twelve Months Ended
Amounts in 000’s
September 30, 2024
December 31, 2023
Income (loss) available to ordinary shareholders after taxation
$
194,559
$
759,701
Finance costs
134,173
134,166
Accretion of asset retirement obligation
28,639
26,926
Other (income) expense
(1,022
)
(385
)
Income tax (benefit) expense
43,806
240,643
Depreciation, depletion and amortization
237,704
224,546
Gain on bargain purchase
–
–
(Gain) loss on fair value adjustments of unsettled financial instruments
(264,130
)
(905,695
)
(Gain) loss on oil and gas programme and equipment (a)
1,779
20
(Gain) loss on sale of equity interest
(18,440
)
(18,440
)
Unrealized (gain) loss on investment
(7,043
)
(4,610
)
Impairment of proved properties
41,616
41,616
Costs associated with acquisitions
13,191
16,775
Other adjusting costs (b)
27,684
17,794
Loss on early retirement of debt
12,284
–
Non-cash equity compensation
8,234
6,494
(Gain) on foreign currency hedge
–
521
(Gain) loss on interest rate swap
(200
)
2,722
Total Adjustments
258,275
(216,907
)
Adjusted EBITDA
$
452,834
$
542,794
Pro forma TTM adjusted EBITDA (c)
$
555,456
$
549,258
Adjusted EBITDA
$
452,834
$
542,794
Total Production (MMcfe)
283,474
299,632
Per-unit adjusted EBITDA margin ($/Mcfe)
$
1.60
$
1.81
(a) Excludes proceeds received for leasehold sales. (b) Other adjusting costs for the year ended December 31, 2023 were primarily associated with legal and professional fees related to the U.S. listing, legal fees for certain litigation, and expenses associated with unused firm transportation agreements. (c) Pro forma TTM adjusted EBITDA includes adjustments for respective twelve month periods to pro forma results for the full twelve-month impact of intra-period acquisitions (September 30, 2024: Oaktree, Crescent Pass Energy; September 30, 2023: Tanos Energy Holdings II LLC; December 31, 2023: Tanos Energy Holdings II LLC)
Maverick Natural Resources
The following table presents a reconciliation of the GAAP Financial measure of Net Income (Loss) to Adjusted EBITDA per-unit adjusted EBITDA margin for each of the periods listed:
As used herein, net debt represents total debt as recognized on the balance sheet less cash and restricted cash. Total debt includes our borrowings under the Credit Facility and our borrowings under or issuances of, as applicable, our subsidiaries’ securitization facilities, excluding original issuance discounts and deferred finance costs. We believe net debt is a useful indicator of our leverage and capital structure.
As used herein, net debt-to-adjusted EBITDA, or “leverage” or “leverage ratio,” is measured as net debt divided by adjusted trailing twelve-month EBITDA. We believe that this metric is a key measure of our financial liquidity and flexibility and is used in the calculation of a key metric in one of our Credit Facility financial covenants.
The following tables presents a reconciliation of the IFRS and GAAP Financial measure of Total Non-Current Borrowings to the Non-IFRS and Non-GAAP measure of Net Debt and a calculation of Net Debt-to-Adjusted EBITDA and Net Debt-to-Pro Forma Adjusted EBITDA for each of the periods listed:
Diversified Energy
As at
Amounts in 000’s
September 30, 2024
December 31, 2023
Total non-current borrowings
$
1,486,997
$
1,075,805
Current portion of long-term debt
210,213
200,822
LESS: Cash
(9,013
)
(3,753
)
LESS: Restricted cash
(49,678
)
(36,252
)
Net Debt
1,638,519
1,236,622
TTM Adjusted EBITDA
452,834
542,794
Pro forma TTM adjusted EBITDA (a)
$
555,456
$
549,258
Net debt-to-pro forma TTM adjusted EBITDA
2.9
x
2.3
x
(a) Pro forma TTM adjusted EBITDA includes adjustments for respective twelve month periods to pro forma results for the full twelve-month impact of intra-period acquisitions (September 30, 2024: Oaktree, Crescent Pass Energy; September 30, 2023: Tanos Energy Holdings II LLC; December 31, 2023: Tanos Energy Holdings II LLC)
Maverick Natural Resources
As at
Amounts in 000’s
September 30, 2024
December 31, 2023
Total non-current borrowings
$
657,292
$
697,405
Current portion of long-term debt
113,544
110,254
LESS: Cash
(40,137
)
(53,263
)
LESS: Restricted cash
(36,736
)
(31,936
)
Net Debt
693,963
722,460
TTM Adjusted EBITDA
381,280
388,460
Net debt-to-adjusted EBITDA
1.8
x
1.9
x
Free Cash Flow
As used herein, free cash flow represents net cash provided by operating activities less expenditures on natural gas and oil properties and equipment and cash paid for interest. We believe that free cash flow is a useful indicator of our ability to generate cash that is available for activities other than capital expenditures. Diversified’s Board of Directors believe that free cash flow provides investors with an important perspective on the cash available to service debt obligations, make strategic acquisitions and investments, and pay dividends.
The following tables presents a reconciliation of the IFRS and GAAP Financial measure of Net Cash from Operating Activities to the Non-IFRS and Non-GAAP measure of Free Cash Flow for each of the periods listed:
Diversified Energy
For the Twelve Months Ended
Amounts in 000’s
September 30, 2024
December 31, 2023
Net cash provided by operating activities
$
385,084
$
410,132
LESS: Expenditures on natural gas and oil properties and equipment
(49,730
)
(74,252
)
LESS: Cash paid for interest
(115,769
)
(116,784
)
Free cash flow
$
219,585
$
219,096
Maverick Natural Resources
For the Twelve Months Ended
Amounts in 000’s
September 30, 2024
December 31, 2023
Net cash provided by operating activities
$
279,005
$
308,261
LESS: Expenditures on natural gas and oil properties and equipment
(156,102
)
(286,420
)
LESS: Cash paid for interest (a)
n/a
n/a
Free cash flow
$
122,903
$
21,841
(a) For the periods presented, Cash Paid for Interest is included within the calculation of Maverick Natural Resources’ Net Cash Provided by Operating activities
Total Revenue, Inclusive of Settled Hedges and Adjusted EBITDA Margin
As used herein, total revenue, inclusive of settled hedges, includes the impact of derivatives settled in cash. We believe that total revenue, inclusive of settled hedges, is a useful because it enables investors to discern our realized revenue after adjusting for the settlement of derivative contracts.
The following table presents a reconciliation of the IFRS Financial measure of Total Revenue to the Non-IFRS measure of Total Revenue, Inclusive of Settled Hedges and a calculation of Adjusted EBITDA Margin for each of the periods listed:
Diversified Energy
For the Twelve Months Ended
Amounts in 000’s
September 30, 2024
December 31, 2023
Total revenue (a)
$
754,878
$
868,263
Net gain (loss) on commodity derivative instruments (b)
183,876
178,064
Total revenue, inclusive of settled hedges
938,754
1,046,327
Adjusted EBITDA
$
452,834
$
542,794
Adjusted EBITDA margin
48
%
52
%
Adjusted EBITDA Margin, exclusive of Next LVL Energy
49
%
53
%
(a) Excludes proceeds received for leasehold sales.
(b) Net gain (loss) on commodity derivative settlements represents cash (paid) or received on commodity derivative contracts. This excludes settlements on foreign currency and interest rate derivatives as well as the gain (loss) on fair value adjustments for unsettled financial instruments for each of the periods presented.
Maverick Natural Resources
For the Twelve Months Ended
Amounts in 000’s
September 30, 2024
December 31, 2023
Total revenue
$
880,107
$
977,390
Net gain (loss) on commodity derivative instruments (a)
16,020
(46,722
)
Total revenue, inclusive of settled hedges
896,127
930,668
Adjusted EBITDA
$
381,280
$
388,460
Adjusted EBITDA margin
43
%
42
%
(a) Net gain (loss) on commodity derivative settlements represents cash (paid) or received on commodity derivative contracts. This excludes settlements on foreign currency and interest rate derivatives as well as the gain (loss) on fair value adjustments for unsettled financial instruments for each of the periods presented.
PV-10
PV-10 is a non-IFRS financial measure and generally differs from Standardized Measure, the most directly comparable IFRS measure, because it does not include the effects of income taxes on future net cash flows. While the Standardized Measure is free cash dependent on the unique tax situation of each company, PV-10 is based on a pricing methodology and discount factors that are consistent for all companies. In this announcement, PV-10 is calculated using NYMEX pricing. It is not practicable to reconcile PV-10 using NYMEX pricing to standardized measure in accordance with IFRS at this time. Investors should be cautioned that neither PV-10 nor the Standardized Measure represents an estimate of the fair market value of proved reserves.
Important Notices
The information contained in this announcement is inside information as stipulated under the UK Market Abuse Regulation. Upon publication of this announcement, this inside information is now considered to be in the public domain. The information contained in this announcement is for information purposes only and does not purport to be complete. The information in this announcement is subject to change.
This announcement is an announcement and not a circular or equivalent document and prospective investors should not make any investment decision on the basis of its contents. Nothing in this announcement constitutes an offer of securities for sale in any jurisdiction.
Stifel, Nicolaus Europe Limited (“ Stifel “) is authorized and regulated in the United Kingdom by the FCA. Stifel is acting exclusively as sponsor for the Company and no one else in connection with the Acquisition and will not regard any other person as a client in relation to the Acquisition or the contents of this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Stifel nor for providing advice in relation to or in connection with the contents of this announcement, the Acquisition or any matter referred to in this announcement.
No person has been authorized to give any information or to make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied on as having been authorized by the Company. Subject to the Listing Rules and the Disclosure Guidance and Transparency Rules of the FCA, the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this announcement or that the information in it is correct as at any subsequent date.
Completion is subject to the satisfaction of a number of conditions as more fully described in this announcement. Consequently, there can be no certainty that completion of the Acquisition will be forthcoming.
The contents of this announcement are not to be construed as legal, business or tax advice. Each shareholder should consult its own legal adviser, financial adviser or tax adviser for legal, financial or tax advice respectively.
Appendix 1
Key Terms of the Acquisition
Agreement
Upon the terms and subject to the conditions in the Agreement, Diversified will acquire Maverick through a merger of a newly formed subsidiary of DGOC with and into Maverick, with Maverick surviving the merger as a subsidiary of DGOC. At Completion, Maverick unitholders will receive $207.1 million in cash and 21.2 million in Ordinary Shares, subject to adjustment in accordance with the terms of the Agreement.
Completion of the Acquisition is subject to various customary closing conditions, including, among other things, (i) requisite approval by DEC shareholders, (ii) expiration of the waiting period under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iii) NYSE approval, (iv) publication of the UK prospectus and (v) the accuracy of each party’s representations and warranties (subject to certain materiality qualifiers) and compliance by each party with its covenants under the Agreement in all material respects.
The Agreement contains customary representations, warranties and covenants for a transaction of this nature. The Agreement also contains customary pre-closing covenants, including the obligation of each of Diversified and Maverick to conduct their respective businesses in the ordinary course consistent with past practice and to refrain from taking certain specified actions without the consent of the other party.
The Agreement provides that, during the period from the date of the Agreement until the closing, each of Diversified and Maverick will be subject to certain restrictions on their ability to solicit or respond to alternative business combination proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative business combination proposals. Diversified’s non-solicitation covenant is subject to customary exceptions for a public company.
The Agreement contains certain termination rights for Diversified and Maverick, including: (i) upon mutual written consent; (ii) for either Diversified or Maverick, if (A) the closing of the Acquisition is not consummated by June 30, 2025; (B) a final non-appealable order enjoining the Acquisition is entered into by any governmental entity; or (C) the required approval of Diversified’s shareholders is not obtained, (iii) for Diversified or Maverick, as applicable, if the other party breaches its covenants, representations or warranties such that any of the related closing conditions in the Agreement would not be satisfied, subject to a specified cure period, (iv) for Maverick, if (A) prior to receipt of the requisite Diversified shareholder approval, Diversified’s board makes a change of recommendation, does not include its recommendation in the prospectus or publicly proposes to do the foregoing, or Diversified materially breaches its non-solicitation obligations or (B) all closing conditions have been satisfied or waived but Diversified fails to close when required under the Agreement or (v) for Diversified, at any time prior to the receipt of its shareholder approval in order to enter into a definitive agreement with respect to a superior proposal. The termination rights are subject to important qualifications.
The Agreement further provides that, if the Agreement is terminated by (i) Maverick in the event that (A) the Diversified board changes its recommendation, (B) Diversified materially breaches its non-solicitation obligations or (C) Diversified fails to close the Acquisition when required under the Agreement and all closing conditions have been satisfied or waived, (ii) Diversified to accept a superior proposal or (iii) Diversified or Maverick at the occurrence of the outside date under the Agreement at a time when Diversified requisite shareholder approval has not been obtained and Maverick would have been permitted to terminate the Agreement due to a change in recommendation by Diversified’s board or Diversified’s material breach of its non-solicitation obligations, DGOC will be required to pay Maverick a termination fee equal to $50 million (the “Termination Fee”).
If prior to Diversified’s shareholders meeting, (i) an acquisition proposal related to Diversified is publicly proposed or otherwise communicated and not withdrawn at least five business days before such meeting and (ii) the Agreement is terminated by Maverick due to (A) the occurrence of the outside date under the Agreement, (B) a material breach of the non-solicitation obligations of Diversified or (C) the failure to obtain the required approval of Diversified’s shareholders, and within 12 months after such termination, a definitive agreement is entered into with respect to a qualifying acquisition proposal or Diversified consummates a qualifying acquisition proposal, then DGOC would be required to pay Maverick the Termination Fee.
If the Agreement is terminated because of a failure of Diversified’s shareholders to approve the share issuance contemplated by the Agreement, and a termination fee is not then payable, DGOC will be required to pay to Maverick up to $9,000,000 as reimbursement for fees and expenses incurred by Maverick in connection with the Acquisition. In no event will DGOC be required to pay the Termination Fee on more than one occasion, and if Maverick is entitled to receive the Termination Fee after it has already received an expense reimbursement, the Termination Fee will be paid net of the expense reimbursement received.
Registration Rights Agreement
At Completion, Diversified will enter into a registration rights agreement with Maverick unitholders receiving at least 1% of the Ordinary Shares outstanding as of the closing of the Acquisition pursuant to which Diversified will agree to, on the terms set forth therein, file with the U.S. Securities and Exchange Commission a registration statement registering for resale of Ordinary Shares comprising the share consideration issued in the Acquisition (the “New Shares”). The registration rights agreement provides for a lockup of six months for 33% of the New Shares held by parties to the registration rights agreement, nine months for an additional 33% of the New Shares, and one year for the remaining 34% of New Shares. Other holders of New Shares will generally not be able to sell the New Shares for six months, under US law.
Relationship Agreement
At Completion, Diversified will enter into a relationship agreement with EIG pursuant to which, for so long as EIG (together with its affiliates) holds, in the aggregate (a) no fewer than 20% of the ordinary shares in the Company, EIG shall be entitled to nominate for appointment two non-executive directors to the Board, and (b) fewer than 20% but no fewer than 10% of the ordinary shares in the Company, EIG shall be entitled to nominate for appointment one non-executive director to the Board.
Maverick Financial Information
The gross assets of Maverick as at 30 September 2024 amounted to $1.9 billion. For the twelve-month period ended 30 September 2024, revenue and other income items of Maverick was $1.1 billion and $(3) million, and net income (loss) was $126 million.
Risk Factors
The Acquisition is subject to a number of risks. The risks and uncertainties set out below are those which the Directors believe are the material risks relating to the Acquisition, material new risks to the Group as a result of the Acquisition or existing material risks to the Group which will be impacted by the Acquisition. If any, or a combination of, these risks actually materialize, the business, results of operations, financial condition, cash flows or prospects of the Enlarged Group could be materially and adversely affected. The risks and uncertainties described below are not intended to be exhaustive and are not the only ones that face the Group.
The information given is as at the date of this announcement and, except as required by the FCA, the London Stock Exchange, the Listing Rules, UK Market Abuse Regulations and/or any regulatory requirements or applicable law, will not be updated. Additional risks and uncertainties not currently known to the Directors or that they currently deem immaterial, may also have an adverse effect on the business, financial condition, results of operations and prospects of the Group. If this occurs, the price of the Ordinary Shares may decline and Shareholders could lose all or part of their investment.
The completion of the Acquisition is subject to the satisfaction (or waiver, if applicable) of certain conditions; and if the Acquisition does not complete because any of the conditions are not satisfied (or waived, if applicable), the Company will not realize the perceived benefits of the Acquisition.
The completion of the Acquisition is subject to the satisfaction of various customary closing conditions, including, among other things, (i) approval by DEC shareholders, (ii) expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iii) NYSE approval, (iv) publication of the UK prospectus and (v) the accuracy of each party’s representations and warranties (subject to certain materiality qualifiers) and compliance by each party with its covenants under the Agreement in all material respects. Failure to satisfy or, where appropriate, obtain waiver of any of these conditions may result in the proposed Acquisition not being completed. In addition, satisfying the outstanding conditions may take longer, and could cost more, than the Company and Maverick expect. Any delay in completing the proposed Acquisition may adversely affect the Company and the benefits that the Company expects to achieve if the Acquisition is completed within the expected timeframe, which could materially and adversely affect the business, results of operations, financial condition, cash flows or prospects of the Group.
There can be no assurance that the conditions to the closing of the Acquisition will be satisfied, waived or fulfilled in a timely fashion or that the Acquisition will be completed.
The Company’s business relationships may be subject to disruption due to uncertainty associated with the Acquisition.
Parties with which Diversified does business may experience uncertainty associated with the Acquisition, including with respect to current or future business relationships with Maverick, Diversified or the combined business. Diversified’s business relationships may be subject to disruption as parties with which Maverick or Diversified does business may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than Maverick, Diversified or the combined business. These disruptions could have an adverse effect on the businesses, financial condition, results of operations or prospects of the combined business, including an adverse effect on Diversified’s ability to realize the anticipated benefits of the Acquisition. The risk, and adverse effect, of such disruptions could be exacerbated by a delay in completion of the Acquisition or termination of the Agreement, which could materially and adversely affect the business, results of operations, financial condition, cash flows or prospects of the Group.
The Agreement restricts Diversified’s ability to pursue alternatives to the Acquisition.
The Agreement contains provisions that restrict the ability of Diversified to enter into a business combination with a party other than Maverick. In addition, DGOC will be required to pay the Termination Fee under certain circumstances, including to accept a superior proposal.
Failure to complete Acquisition could negatively impact the price of the Ordinary Shares and the future business and financial results of Diversified.
If the Acquisition is not completed for any reason, the ongoing businesses of Diversified may be adversely affected, and without realizing any of the benefits of having completed the Acquisition, Diversified would be subject to a number of risks, including the following:
Diversified may experience negative reactions from the financial markets, including negative impacts on its share price;
Diversified may experience negative reactions from its customers, vendors, business partners, regulators and employees;
Diversified will be required to pay certain costs relating to the Acquisition, whether or not the Acquisition is completed;
the Agreement places certain restrictions on the conduct of Diversified’s business prior to completion of the Acquisition, and such restrictions, the waiver of which is subject to the written consent of Maverick (such consent not to be unreasonably withheld, conditioned or delayed), and subject to certain exceptions and qualifications, may delay or prevent Diversified from taking certain other specified actions, responding effectively to competitive pressures or industry developments or otherwise pursuing business opportunities during the pendency of the Acquisition that Diversified would have made, taken or pursued if these restrictions were not in place;
Diversified could be subject to litigation related to any failure to complete the Acquisition or related to any enforcement proceeding commenced against Diversified to perform its obligations under the Agreement;
matters relating to the Acquisition (including integration planning) will require substantial commitments of time and resources by Diversified’s management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to Diversified as an independent company; and
in the event of a termination of the Agreement under certain circumstances specified in the Agreement, DGOC may be required to pay a termination fee of $50 million to Maverick.
There can be no assurance that the risks described above will not materialize. If any of those risks materialize, they may materially and adversely affect the business, results of operations, financial condition, cash flows or prospects of the Group..
The levels of Maverick’s natural gas and oil reserves and resources, their quality and production volumes may be lower than estimated or expected.
The reserves data for Maverick contained in this announcement has not been audited by a third party. The standards utilized to prepare the reserves information that has been extracted in this announcement may be different from the standards of reporting adopted in other jurisdictions. The data found in the reserves information set forth in this announcement may not be directly comparable to similar information prepared in accordance with the reserve reporting standards of other jurisdictions.
In general, estimates of economically recoverable natural gas, natural gas liquids and oil reserves are based on a number of factors and assumptions made as of the date on which the reserves estimates were determined, such as geological, geophysical and engineering estimates (which have inherent uncertainties), historical production from the properties or analogous reserves, the assumed effects of regulation by governmental agencies and estimates of future commodity prices, operating costs, gathering and transportation costs and production related taxes, all of which may vary considerably from actual results.
Underground accumulations of hydrocarbons cannot be measured in an exact manner and estimates thereof are a subjective process aimed at understanding the statistical probabilities of recovery. Estimates of the quantity of economically recoverable natural gas and oil reserves, rates of production and, where applicable, the timing of development expenditures depend upon several variables and assumptions, including the following:
production history compared with production from other comparable producing areas;
quality and quantity of available data;
interpretation of the available geological and geophysical data;
effects of regulations adopted by governmental agencies;
future percentages of sales;
future natural gas, natural gas liquids and oil prices;
capital investments;
effectiveness of the applied technologies and equipment;
effectiveness of our field operations employees to extract the reserves;
natural events or the negative impacts of natural disasters;
future operating costs, tax on the extraction of commercial minerals, development costs and workover and remedial costs; and
the judgment of the persons preparing the estimate.
As all reserve estimates are subjective, each of the following items may differ materially from those assumed in estimating reserves:
the quantities and qualities that are ultimately recovered;
the timing of the recovery of natural gas and oil reserves;
the production and operating costs incurred;
the amount and timing of development expenditures, to the extent applicable;
future hydrocarbon sales prices; and
decommissioning costs and changes to regulatory requirements for decommissioning.
Many of the factors in respect of which assumptions are made when estimating reserves are beyond Maverick’s and the Company’s control and therefore these estimates may prove to be incorrect over time. Evaluations of reserves necessarily involve multiple uncertainties. The accuracy of any reserves evaluation depends on the quality of available information and natural gas, natural gas liquids and oil engineering and geological interpretation. Furthermore, less historical well production data is available for unconventional wells because they have only become technologically viable in the past twenty years and the long-term production data is not always sufficient to determine terminal decline rates. In comparison, some conventional wells in Maverick’s portfolio have been productive for a much longer time. As a result, there is a risk that estimates of the shale reserves are not as reliable as estimates of the conventional well reserves that have a longer historical profile to draw on. Interpretation, testing and production after the date of the estimates may require substantial upward or downward revisions in the reserves and resources data. Moreover, different reserve engineers may make different estimates of reserves and cash flows based on the same available data. Actual production, revenues and expenditures with respect to reserves will vary from estimates and the variances may be material.
If the assumptions upon which the estimates of Maverick’s natural gas and oil reserves prove to be incorrect or if the actual reserves available to Maverick are otherwise less than the current estimates or of lesser quality than expected, the Enlarged Group may be unable to recover and produce the estimated levels or quality of natural gas, natural gas liquids or oil set out in this announcement and this may materially and adversely affect the business, results of operations, financial condition, cash flows or prospects of the Enlarged Group.
The PV-10 of the Maverick will not necessarily be the same as the current market value of Maverick’s estimated natural gas, natural gas liquids and oil reserves.
The present value of future net cash flows from the reserves of Maverick is the current market value of the estimated natural gas, natural gas liquids and oil reserves of Maverick. The PV-10 of Maverick is the present value of future cash flows from the reserves of Maverick given a discount rate of 10 per cent. Actual future net cash flows from Maverick’s natural gas and oil properties will be affected by factors such as:
actual prices received for natural gas, natural gas liquids and oil;
actual cost of development and production expenditures;
the amount and timing of actual production;
transportation and processing;
access to transportation and processing systems and related tariffs and costs;
actual costs for decommissioning obligations; and
changes in governmental regulations or taxation.
The timing of both the production and the incurrence of expenses in connection with the development and production of the natural gas and oil properties of Maverick will affect the timing and amount of actual future net cash flows from reserves, and thus their actual present value. In addition, the 10% discount factor used when calculating discounted future net cash flows may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with Maverick or the natural gas and oil industry in general. Actual future prices and costs may differ materially from those used in the present value estimate.
The Enlarged Group’s success will be dependent upon its ability to fully integrate Maverick and deliver the value of the combined underlying businesses; the full financial benefits expected from the Enlarged Group may not be fully achieved.
The Group and Maverick have operated and, until Completion, will continue to operate, independently and there can be no assurance that their businesses can be fully integrated effectively. The success of the Enlarged Group will depend, in part, on the effectiveness of the integration process and the ability of the Enlarged Group to realize the anticipated financial benefits from combining the respective businesses.
While the Directors believe that the financial benefits of the Acquisition and the costs associated with the Acquisition have been reasonably estimated, unanticipated events or liabilities may arise or become apparent which may, in turn, result in a delay or reduction in the benefits anticipated to be derived from the Acquisition, or in costs significantly in excess of those estimated. No assurance can be given that the integration process will deliver all or substantially all of the expected benefits or realize any such benefits within the assumed timeframe, or that the costs to integrate and achieve the financial benefits will not be higher than anticipated.
The Acquisition may have a disruptive effect on the Enlarged Group.
The Acquisition has required, and will continue to require, substantial amounts of investment, time and focus from the management teams and employees of the Group. Further, the demands that the integration process may have on management time could result in diversion of the attention of the Group’s management and employees from ongoing operations, pursuing other potential business opportunities and may cause a delay in other projects currently contemplated by the Group. To the extent that the Enlarged Group is unable to efficiently integrate the operations of the Group and Maverick, realize anticipated financial benefits, retain key personnel and avoid unforeseen costs or delay, there may be a material adverse effect on the business, results of operations, financial condition, cash flows or prospects of the Enlarged Group.
Service contracts of proposed directors
Under the terms of the Relationship Agreement, for so long as EIG (together with its affiliates) holds, in the aggregate (a) no fewer than 20% of the ordinary shares in the Company, EIG shall be entitled to nominate for appointment two non-executive directors to the Board, and (b) fewer than 20% but no fewer than 10% of the ordinary shares in the Company, EIG shall be entitled to nominate for appointment one non-executive director to the Board.
It is proposed that such nominated directors shall be appointed by EIG at Completion, and the nominated directors shall enter into appointment letters with the Company on terms substantially similar to those entered into by the existing non-executive directors of the Company
Definitions
The following definitions apply throughout this announcement unless the context requires otherwise:
“Acquisition”
the acquisition of Maverick by the Company pursuant to the Agreement.
“Agreement”
the merger agreement dated January 24, 2025 between, among others, the Company, DGOC and Maverick in connection with the Acquisition
“ABS”
asset backed securities
“Board”
the board of directors of the Company from time to time.
“Completion”
the completion of the Acquisition in accordance with the Agreement.
“Company”
Diversified Energy Company PLC
“DGOC”
Diversified Gas & Oil Corporation
“Directors”
the directors of the Company from time to time.
“EIG”
EIG Management Company, LLC.
“Enlarged Group”
the Company and its subsidiaries following Completion.
“FCA”
the Financial Conduct Authority.
“Group” or “Diversified”
the Company and its subsidiaries as at the date of this announcement.
“Listing Rules”
the UK Listing rules made by the FCA for the purposes of Part VI of the Financial Services and Markets Act 2000 (as amended), which came into effect on 29 July 2024.
“Maverick”
Maverick Natural Resources, LLC, a Delaware limited liability company.
“New Shares”
the Ordinary Shares constituting the share consideration
“Ordinary Shares”
the ordinary shares of 0.20 each in the capital of the Company.
“PDP”
Proved developed producing.
“RBL”
Reserves based lending
“Relationship Agreement”
the agreement proposed to be entered into between the Company and EIG at Completion, as more fully described in Appendix 1
“UK Market Abuse Regulation”
the UK version of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse, as it forms part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended from time to time.
The White House is threatening a close ally with a trade war or worse—but Copenhagen has leverage that could inflict instant pain on the U.S. economy.
During his first term as the U.S. president, Donald Trump occasionally floated the idea of buying Greenland, but few took it seriously. Now Trump is repeating the calls, backed with threats against Denmark, and nobody is chuckling anymore.
The Nordic nation is facing the prospect of a close ally taking Danish territory by force. But despite only having a small army and navy, Denmark has no shortage of economic leverage with which it can try to reason with—or, if necessary, pressure—the U.S. president.
Indeed, there are several Danish multinational companies without whose products and services Americans would feel immediate pain.
Over the weekend, the Financial Times disclosed details about a Jan. 15 call between Trump and Denmark’s prime minister, Mette Frederiksen.
According to the Financial Times, it was a fiery 45-minute conversation in which Trump—who hadn’t yet been inaugurated—was “aggressive and confrontational.” The crux was Fredriksen’s refusal to sell the Arctic island of Greenland to the United States.
Denmark is a committed and well-liked member of NATO, but it can’t change the fact that it’s a small country with a population just shy of 6 million and armed forces of some 20,000 active personnel.
If Trump is serious about acquiring Greenland, Denmark would not be able to mount much of a fight against its NATO ally even if it wanted to—though Washington’s meager aging fleet of icebreakers would make any naval operations in the polar north a challenge. (The will of the Greenlanders appears to be a secondary consideration in Washington.)
But Denmark is not powerless in the matter. On the contrary, it has several trump cards—so to speak—up its sleeve. For starters, the Scandinavian country is home to Maersk, the world’s second-largest container-shipping company by cargo capacity. Most of the world’s nonliquid cargo is transported in containers, and in 2023, the Danish shipping line transported some 24 million worth of them on its 672 ships. Maersk is so large that the firm’s ships account for an estimated 14.3 percent of the global container ship fleet.
In the United States, Maersk delivers goods to and from Baltimore, Charleston, Houston, Jacksonville, Long Beach, Los Angeles, Miami, Mobile, New Orleans, New York, Newark, Norfolk, North Charleston, Oakland, Philadelphia, Port Everglades, Port Hueneme, Savannah, Seattle, Tacoma, Tampa, and Wilmington.
On Jan. 1, for example, the MSC Tomoko arrived in Houston, then traveled to New Orleans and from there to Freeport in the Bahamas. The following day, the MSC Ensenada arrived in Houston, traveling on from there with cargo bound for Colombia and Brazil, according to Maersk’s website, where anyone can track its ships’ calls.
And right now, shipping lines are at—or near—full capacity. If any shipping line were to suddenly stop shipping to or from the United States, other carriers would only be able to fill a tiny share of that gap. If the Danish government banned Maersk from sailing to U.S. ports, then American businesses and consumers would instantaneously feel the pain.
And speaking of pain, millions of Americans would feel it in their waistlines if Frederiksen banned health care company Novo Nordisk from exporting to the United States.
The Danish pharma giant is, after all, the maker of semaglutide—the active ingredient in Ozempic and Wegovy, the weight-loss drugs that have revolutionized anti-obesity and diabetes treatment in the United States. The company produces semaglutide in Denmark and, despite many attempts by copycats and others, genuine Ozempic can’t yet be created from scratch in the United States.
Between 2021 and 2023, the number of Ozempic prescriptions in the United States jumped by nearly 400 percent, an academic study shows. The total number of prescriptions for drugs containing semaglutide reached 2.6 million by December 2023. In May 2023, a survey by Barclays Research estimated that more than half a million Americans were taking Wegovy.
So stratospheric has Ozempic’s rise been in the United States that in 2023, Germany warned that German supplies of the drug intended for patients with diabetes—the disease that the drug was initially developed to treat—were being shipped to weight-loss customers in the United States.
Like Maersk, Novo Nordisk makes large sums of money in America. The company’s shares surged by more than 7 percent last week on news of positive trials for its new obesity drug amycretin. The demand for Ozempic is so strong that Novo Nordisk has invested $4.1 billion in a facility in North Carolina that will make the drug’s key ingredient.
But if the Danish government were to conclude that the country’s security is imperiled by Trump’s threats, it could order Novo Nordisk to cease doing business in the United States. Many Americans would immediately notice the company’s absence.
If Denmark decided to hit back, U.S. consumers might suddenly also notice the absence of luxury Danish furniture and their kids might mourn the loss of the latest Legos. Today, Lego sets are made in Mexico (and Denmark, Hungary, the Czech Republic, and China), though the Danish toy company is building a plant in Virginia that will manufacture for the U.S. market. It is expected to employ more than 1,700 people.
Lego’s U.S. facility is, in fact, a form of friendshoring of the very kind Trump has been calling for. (“Come make your product in America, and we will give you among the lowest taxes of any nation on Earth,” he told global leaders at the World Economic Forum in Davos last week.) But he won’t be able to count on Danish investment if friends are treated like enemies.
A Danish blockade would be a dramatic step, and it’s one that Frederiksen would be reluctant to take. But she should remember that Trump’s trademark is issuing threats and speak back to him in a language that he understands.
Denmark’s prime minister should remind her American counterpart that her country has options that could damage the U.S. economy—and doing so might just level the playing field and lower the temperature, setting the stage for a more serious negotiation around U.S. interests in Greenland.
That’s what Chrystia Freeland—until recently Canada’s deputy prime minister, now running to succeed outgoing Prime Minister Justin Trudeau—did after several Trump overtures suggesting a U.S. takeover of her own country.
“The threats won’t work. We will not escalate, but we will not back down. If you hit us, we will hit back—and our blows will be precisely targeted,” she wrote in a Washington Post op-ed the day before Trump’s inauguration. “We are smaller than you, to be sure, but the stakes for us are immeasurably higher. Do not doubt our resolve.”
Ordinary Americans may not care much about Denmark, but the Scandinavian nation has given them much to enjoy in life. They would certainly hate to lose it.
Kirill Budanov reportedly warned the country could cease to exist if it does not agree to peace talks with Russia
Ukraine’s Main Directorate of Intelligence of the Ministry of Defense (HUR) has sought to dismiss reports claiming its chief, Kirill Budanov, warned that the country’s survival could be at risk if Kiev doesn’t agree to peace talks with Moscow.
The alleged comments were reported on Monday by the local outlet Strana, which cited sources claiming that Budanov had made the remarks during a closed-door parliamentary session. One of the people reportedly present at the meeting told the outlet that top military officials, including officers from the General Staff, delivered sensitive briefings.
Budanov was quoted as allegedly warning lawmakers in Kiev that “if there are no serious negotiations by summer, very dangerous processes could begin for the very existence of Ukraine.”
In response, the HUR issued a statement on Telegram on Monday rejecting the quote as false and urging media outlets to refrain from spreading “rumors, unverified, and officially unconfirmed information,” especially regarding critical national security matters.
The intelligence agency emphasized that the dissemination of any reports allegedly discussed at classified official meetings involving the military and political leadership “undermines state security and is exploited by the enemy for its interests.”
Separately, Andrey Kovalenko, head of the National Security and Defense Council’s Center for Countering Disinformation, condemned the “leak” and accused a member of parliament of distorting Budanov’s words for media coverage.
“This is some kind of total irresponsibility,” he stated on Telegram, calling on lawmakers to “finally use your brain.”
The alleged warning by Budanov comes as Kiev’s forces have been pushed back across the front line by Russian troops. Ukrainian officials and commanders have also voiced concerns about manpower shortages amid a fraught mobilization campaign, with recruitment officers often facing open resistance from reluctant draftees.
Earlier this week, Strana reported that top Ukrainian officials were reviewing a plan by US President Donald Trump’s team to end the conflict within 100 days. While the roadmap remains unconfirmed, its key points reportedly include direct talks between Trump and Russian President Vladimir Putin to pave the way for a ceasefire along the front lines by April 20 and a peace agreement by early May.
Vladimir Zelensky’s Chief of Staff Andrey Yermak has dismissed the supposedly leaked plan as “fake,” posting on X on Sunday that “no ‘100-day peace plan’ as reported by the media exists in reality.”
Moscow has repeatedly stated it is willing to engage in talks with both the US and Ukraine but has accused the Kiev of refusing to resume negotiations.
Putin said last week that negotiations with Ukraine are currently impossible because of Zelensky’s prohibition on talks with Russia. He suggested that Kiev’s Western backers should push for the ban to be lifted.
Officers have been discouraged from using certain phrases to avoid racial insensitivity
British police officers have been told to avoid using phrases such as “black sheep” and “blacklisted” due to concerns about potential racial insensitivity. The recommendations are part of a nine-page diversity, equity, and inclusion (DEI) guide that was previously distributed to several police forces and reported by the British media over the weekend.
Critics have called the initiative an example of excessive woke culture infiltrating public institutions.
The document, which was sent to the Bedfordshire Police, Hertfordshire Constabulary, and Cambridgeshire Constabulary, suggests that terms such as “black sheep,” and “blacklist” may be offensive for using the word “black” in a negative way. Other recommendations include replacing “pregnant woman” with “pregnant person” to be more inclusive of transgender and non-binary individuals.
The guide advises against the term “faith,” which it describes as “Christian-centric,” and suggests using more neutral terms to acknowledge diverse belief systems. Additionally, it outlines a broader understanding of gender, describing it as a “social construct” that encompasses a wider range of identities beyond the male-female binary.
The instruction also discourages assumptions about older individuals being “grumpy” or associating menopausal symptoms with women in their 50s. The term “mature adult” is also flagged for potentially suggesting that younger people are immature.
A spokesperson for the three police forces stated that “our forces serve diverse communities, and we are pleased to have an inclusive, culturally intelligent workforce, and invest in training to develop this ethos across our workforce.” The representative emphasized that the guidance is intended to help officers identify differences within communities and treat individuals with respect.
Some opponents argue that focusing on language trivializes more pressing issues. “Policing should be about tackling crime and keeping people safe, not enforcing language codes that make no tangible difference to community relations,” a former officer told The Telegraph.
Festus Akinbusoye, the UK’s first black police and crime commissioner and a former PCC for Bedfordshire Constabulary, described the guidance as “utterly mad.” He raised questions about its consistency, asking why terms like “whitewashing” were not included if phrases such as “blacklisted” were deemed problematic. “Was this to have been brought to my attention while serving as Police and Crime Commissioner, I would have asked questions as to the necessity and limited inclusivity of this inclusion document,” Akinbusoye added.
“I think it is utter madness that in all the years we have seen the harms that this woke ideology has done, that this is being sent to police officers,” James Esses, a campaigner and psychotherapist, said condemning the recommendations. He argued that terms like “black sheep” and “blacklisted” have no racist origins but are historically associated with darkness or death.
In 2024, US intelligence agencies, including the CIA, reportedly recommended avoiding the term “blacklisted” for similar reasons.
In 2022, the UK police were ordered to use “gender-neutral” forms of address rather than calling people ‘sir’ or ‘ma’am’, according to training materials distributed to officers seen by the Daily Mail on Sunday. The upper chamber of Parliament was also warned about using supposedly offensive terms such as ‘man-made’, ‘the common man’, and ‘manpower’, according to an ‘Inclusive Language Guide’ obtained by the Daily Mail on Sunday.
Only sustained U.S. pressure on Israel and Hamas will end the war.
Implementation of week two of the Israel-Hamas cease-fire deal has gone according to plan, more or less. But anyone who seriously believes that there’s smooth sailing ahead for the three-phased accord should lay down and wait quietly until the feeling passes.
This isn’t an agreement between the United States and Switzerland. It’s the grudging result of 15 months of bitter, bloody conflict between two combatants seemingly pledged to the other’s destruction. One of those parties—Hamas—engaged in the willful and indiscriminate killing of civilians; serial sexual violence; the taking of hostages; and is designated by the agreement’s principal mediator as a foreign terror organization. The other—Israel, led by Prime Minister Benjamin Netanyahu, whose overriding goal is to stay in power—would prefer the war in Gaza continue, and thus is in no hurry to reach the agreement’s second stage, which imagines the end of the war and the withdrawal of Israeli forces.
The implementation process is literally week by week, and much might disrupt it. That said, perhaps the most likely outcome will be the successful completion of the first phase, with its exchange of hostages for Palestinian prisoners. The agreement compels both parties to respect the cease-fire so long as negotiations on the second phase continue. And few will be surprised if both sides drag these on well beyond the initial six weeks designated for the first phase. Indeed, the negotiators’ logic is that after six weeks of quiet, both sides, perhaps under public pressure, will find it much harder to return to battle. Hovering over this unwieldy enterprise is newly minted U.S. President Donald Trump who, having claimed credit for the accord’s success, now owns it. It remains to be seen just how much currency he’s prepared to spend to keep it alive and how concerned he is about the real possibility that his first preinaugural foreign-policy success might crater on his watch.
Phased deals are always inherently risky, especially between two parties who view their conflict in near existential terms. It would have seemed much simpler to implement an all-for-all negotiation, speeding up the timeline with Israel getting all the hostages back in exchange for the release of thousands of Palestinian prisoners and the end of the war in Gaza. But, then again, this is the Israeli-Palestinian conflict, where anything remotely resembling comprehensive trade-offs goes beyond what either party is prepared to concede. This is especially true on the Israeli side, where domestic politics dominates decision-making and produces risk-aversion, not risk-readiness, particularly when it concerns territory.
The prime example of a phased, conditions-based performance agreement was the Oslo Accords. And those failed, largely because there was no clear-cut end state, and, instead of generating trust and confidence, the gradualist approach created resentment and lack of trust.And if Oslo—which was a genuine breakthrough, complete with signing ceremonies, talk of actual peace, and real respect (even affection) between the negotiators—still failed, one can imagine the challenges to an Israeli-Hamas accord.
The thornier questions are saved for the second phase, which, at its core, will require a vision for the end of the war and Gaza’s future. At present, the two sides have irreconcilable visions for Gaza’s future, with Hamas determined to stay in power and Israel determined to prevent that outcome. Phase two envisions Israeli withdrawal from Gaza, which is difficult to imagine without a robust security architecture and guarantees—which Hamas will work hard to reject. Negotiations in the second phase will also require addressing questions of a political day after in Gaza, which will almost certainly involve some role for the Palestinian Authority (PA), something Netanyahu has adamantly opposed. Phase two depends on agreement from both sides over Gaza’s future: who is in charge politically, what the security architecture looks like, and monitoring of the enclave. At present, these questions seem insurmountable.
Perhaps a different Israeli prime minister—one who is free from the all-consuming need to stay in power and without the threat of being on trial for bribery, fraud, and breach of trust—might have been able to take on an all-for-all approach. But the political laws of gravity that have governed Israel’s negotiating style—need for performance-based implementation, fundamental mistrust of Hamas, and concerns over withdrawal from Gaza that could bring Hamas’s resurgence—would have been more likely pushed in the direction of a phased agreement.
The challenge of phasing is made worse by the Hamas factor, which has shaped Israel’s view of the conflict and now looms over the agreement’s implementation. The Israel-Hamas agreement clearly reflects the hollowness of Netanyahu’s claim of total victory over the group. Hamas has clearly been dealt a mighty blow. Its senior leadership has been killed; its capacity as an organized military force capable of another attack on the level of Oct. 7, 2023, destroyed; its allies (save the Houthis), Hezbollah and Iran, severely weakened. It seems unlikely, even if it wanted to (and it may not), that Hamas can return to governing Gaza as it did between 2007 and 2023. Its popularity has declined among Palestinians in Gaza who wonder what Oct. 7 achieved, other than death and destruction, as well as what Hamas will be able to do to alleviate their suffering and rebuild their homes and lives. And yet, Hamas survives. The cease-fire has enabled it to emerge above ground, bold and brazen, sending its police to maintain order, staffing its ministries, paying salaries, restoring services, and distributing humanitarian assistance. Indeed, recent reporting suggests that, however weakened, Hamas remains “deeply entrenched,” and its hold on power will create challenges for any permanent cease-fire.
At a minimum, should the cease-fire collapse, Hamas will remain an insurgency capable of inflicting casualties on returning Israeli forces. Indeed, former U.S. Secretary of State Antony Blinken said during a recent speech that Hamas has already recruited nearly as many fighters as Israel has taken off the battlefield. And if the cease-fire holds, Hamas plans to wield significant influence in Gaza’s proverbial day after. Given the dysfunction of the Palestinian national movement; the weakness of the corrupt, nepotistic, and authoritarian Mahmoud Abbas-led PA; and the Israeli government’s seeming refusal to engage in post-war planning that might actually empower a new legitimate Palestinian governing structure, Hamas will likely rule by default.
With both Israel and the PA blocking serious post-war planning for Gaza, the Israel-Hamas agreement might actually empower Hamas, facilitating the release of almost 2,000 Palestinian prisoners and ensuring a surge of humanitarian assistance for the first time in 15 months at pre-war levels. Hamas’s visibility on the streets of Gaza will also continue to harden Israeli government positions on getting to a second phase. As Israeli Foreign Minister Gideon Saar asserted last week, the current deal is only for a temporary cease-fire; any permanent end to the war would depend on eliminating any Hamas role and influence in Gaza.
Henry Kissinger once quipped that Israel had no foreign policy, just domestic politics. An exaggeration to be sure, but when applied to the way Netanyahu has handled the post Oct. 7 Israel-Hamas conflict, there is no better analysis. All leaders of democratic societies keep an eye on the rear-view mirror, looking to see where their domestic supporters and opponents are trending. But Netanyahu’s circumstances are unique. On trial for bribery, fraud, and breach of trust for four years running, his political career and potentially his physical freedom compel him to retain power and find some way to beat or undermine his indictment and trial. That means remaining in power, which in turn depends on the support of his right-wing coalition, including two extremist parties—one of which has already withdrawn from the government in protest over the cease-fire deal, and the other threatening to withdraw at the end of the first phase if Netanyahu doesn’t resume the war.
Netanyahu has bribed and pacified these ministers and other coalition members with various benefits: for the religious parties, subsidies for their religious seminaries and legislation to allow them to avoid military duty; and for former National Security Minister Itamar Ben-Gvir and Finance Minister Bezalel Smotrich settlements, land confiscation and policies that can lay the basis for annexation of the West Bank in everything but name. But, to be clear, like the radical Ben-Gvir and Smotrich, Netanyahu also doesn’t want the war to end completely either. The prime minister fears that if the shooting stops, the focus will turn to his role in the Oct. 7 catastrophe. Indeed, he has done everything in his power to block the formation of a state commission of inquiry and to undermine, if not dislodge, those intelligence and security officials who oppose his wartime policies. There is no obstacle on the Israeli side greater than Netanyahu’s obsession with staying in power and the necessity of catering to his extremist ministers. That dynamic almost certainly prevented a hostage and cease-fire deal from being signed months ago, has constrained the delivery of humanitarian assistance to Gaza, and prevented any serious discussion of post-conflict day-after arrangements in Gaza, especially with regard to a role for the PA. And it has led to a toughening of Israeli policy toward Palestinians on the West Bank and the enabling of settler violence and intimidation there.
Indeed, the recent large-scale operation in Jenin, which might expand to a larger area of the northern West Bank, is partly related to the need to placate members of Netanyahu’s right-wing coalition, who opposed the hostage deal but have declared Trump’s electoral victory as an opportunity to “apply Israeli sovereignty” in the West Bank. A serious explosion in the West Bank has the potential to derail the deal from both sides, creating yet another obstacle to phase two of the deal. As the deal’s implementation moves forward, Israeli politics— particularly pressure from the right to resume the war—will increase. And it is difficult to see how Israel will move from phase one to two with this government. The opposition has offered Netanyahu a safety net to implement the full deal should his coalition break. But this would be a risky move for a prime minister who would then be dependent on adversaries whom he knows would love to see his back.
By all accounts, there’s little doubt that Trump and his Middle East envoy Steve Witkoff played important roles in pressuring both Hamas and Netanyahu, particularly the latter, to accept the agreement. Inauguration Day in the United States and the looming transition from a presidential administration that had no leverage to an incoming one that held important cards, clearly had an impact on Netanyahu, who seemed willing to give Trump a preinaugural win. Whether and how Trump may have sweetened the plot for Netanyahu is unclear. There’s reportedly a letter that contains U.S. assurances that if Hamas fails to hold up its end of the deal, Israel is free to resume the war. In any case, Trump’s unpredictability and clear messaging that he wanted the deal done before he assumed office signaled to Netanyahu that Trump didn’t want Israel to become a problem this early in his second term. And Netanyahu, who’s not quite sure where he stands with Trump and whether he can say no to him the way he rebuffed former U.S. President Joe Biden for months without serious cost, got the message.
Going forward, Trump’s relationship to the agreement has much to do with his broader goals in the region. Much has been made of his interest in broadening the Abraham Accords to include Israeli-Saudi normalization, and even more of the fact that he wants a Nobel Peace Prize. If he’s serious about an Israeli-Saudi deal, all roads will almost certainly lead back to Gaza and well beyond, as the Saudis press Trump and Netanyahu for a commitment to a political horizon involving some sort of two-state solution. This, of course, would set up the possibility of a clash with Netanyahu if the Saudis and Trump demand more of him on the Palestinian issue than his politics will allow.
But that’s a matter for another day. The question now is how much does Trump care about the cease-fire deal and what is he prepared to do to help implement it. Witkoff has been quite expansive in asserting an active U.S. role going forward and is planning a trip to Gaza and the region. Trump, on the other hand, has been decidedly more risk-averse. When asked about implementation recently, Trump responded, “It’s not our war. It’s their war. I am not confident.” Trump can always walk away and blame the collapse on Hamas, and, if necessary, on Israel. And let’s be crystal clear: Trump has a huge agenda, and it’s doubtful that this issue is at the top of his list. Nonetheless, like it or not, the Israel-Hamas deal may well be Trump’s first foreign-policy test. And as a self-proclaimed peacemaker and the world’s greatest negotiator, he doesn’t like to fail.
Can he save the deal if it’s on the cusp of cratering? Can he pressure Netanyahu and Hamas to bend to his will? It’s doubtful that Trump, who fashions himself as the most pro-Israeli president in history, would draw on the levers Biden refused to use in pressuring Netanyahu: restricting U.S. military assistance, criticizing Israel in international fora, or unilaterally recognizing Palestinian statehood. And it may well be that Trump’s bluster is stronger than his bite. But Netanyahu is clearly on edge because of Trump’s unpredictability and clearly doesn’t want to put himself on Trump’s bad side. Unlike with Biden, Netanyahu knows there’s no Republican Party to which he can appeal. Trump is the party now. So a decision point may well be coming. Can Trump succeed in pushing Netanyahu to a second phase, or will he be dragged like Biden into the never-ending labyrinth of Israel-Hamas negotiations? In a matter of weeks, or perhaps sooner, we’re going to find out.
This post is part of FP’s ongoing coverage of the Trump transition. Follow along here.
On this 80th anniversary of the liberation of Auschwitz by Red Army troops, it’s worth a brief reality check on how the greatest atrocity in human history is seen in Europe today.
It’s a depressing exercise. Though there is no shortage of official remembrances across the continent, the degree to which everyday Europeans are prepared to reflect on the Shoah and confront the persistent scourge of antisemitism in our societies is clearly on the wane – even in Germany.
Nearly 40% of Germans between the ages of 18 and 29 are unable to provide accurate information about what transpired during the Nazi period, according to a study published last week by the Jewish Claims Conference. An astounding 10% of German adults had not heard or were unsure if they’d ever heard of the Holocaust.
In much of the rest of Europe, the picture is no better.
“Across countries surveyed, large swathes of the population do not know that 6 million Jews were killed during the Holocaust, and notable subsets of the populations believe 2 million or fewer Jews were killed,” the study found.
There’s no question that much of this ignorance resides in Muslim migrant communities, where hatred of Jews is as much a staple of daily life as baklava.
But we all know that’s not the whole picture.
Walk past Berlin’s gigantic Holocaust memorial on any given day and you’ll find tourists from all over Europe (and the rest of the world) taking selfies in one of the rows of black slabs, as if they were visiting Euro Disney.
Against this backdrop, it’s unsurprising that rising numbers of Europeans have no qualms about voting for (or collaborating with) openly racist parties. Or that the president of Ireland – a country deemed to be so hostile to Jews that Israel shuttered its embassy there – thinks its perfectly fine to raise Gaza during a ceremony to observe the Holocaust.
The sad reality is that at a time when the last living survivors of the Shoah are gradually dying out, much of Europe isn’t just ignorant about what happened – they don’t even really care.
Middle East – EU foreign ministers put their political stamp on the reactivation of EU-supervised checks at the Rafah border crossing between Gaza and Egypt on Monday, clearing the way for an early February start.
Energy– Norwegian politicians are resisting attempts to implement critical EU energy laws, which would integrate the country more tightly into European power markets.
Agrifood – The European People’s Party (EPP) is calling on the European Parliament to give political impetus to new EU rules that could speed up approval of sustainable alternatives to traditional chemical pesticides.
Syria – EU foreign ministers on Monday agreed in principle to begin gradually easing sanctions on Syria to support economic recovery after the ouster of Bashar al-Assad.
Across Europe
Hungary – Hungary removed its veto on the EU’s six-month extension of Russia sanctions on Monday, but it may not be its last standoff.
France – The President of France’s Rassemblement National, Jordan Bardella, will send a letter to the President of the European People’s Party, Manfred Weber, asking to join forces to end the Green Deal.
Ireland – Ireland’s antisemitism controversy flared up again on Sunday after President Michael D. Higgins raised Gaza during a speech to mark Holocaust Memorial Day, sparking protests.
EU foreign ministers on Monday agreed in principle to begin gradually easing sanctions on Syria to support economic recovery after the ouster of Bashar al-Assad.
EU member states had begun reassessing their sanctions regime as Syria’s new leadership, the Islamist group Hayat Tahrir al-Sham (HTS), lobbied to have them lifted to improve the war-torn country’s economic situation.
Monday’s ‘roadmap’, which will need to be further developed in the coming weeks, includes the lifting of sanctions on the energy and transport sectors and key financial institutions.
“While we aim to move fast, the lifting of sanctions can be reversed if wrong steps are taken,” the EU’s top diplomat, Kaja Kallas, said after the decision.
It was not immediately clear following Kallas’s comments, however, in which order the measures would be lifted.
Some member states had been hesitant to move forward with lifting sanctions on financial institutions as the initial step, EU diplomats said.
At the same time, many EU countries have been in favour of adopting a gradual and reversible approach to keep leverage on Damascus’ new leaders, making any easing conditional on how the new Syrian government will rule.
Syria has been subject to sweeping EU sanctions following the outbreak of civil war in 2011, which targeted both individuals and economic sectors. Measures included a ban on Syrian oil exports and restrictions on access to global financial channels.
The country’s new de facto leader, Ahmed al-Sharaa, and his HTS group will remain under EU sanctions, and there are so far no plans to lift them, EU diplomats said.
“What we are not relieving, of course, is anything related to arms, and everything that we are still concerned about,” Kallas said.
