Disclosure of basis of preparation of financial statements [Abstract]

Measurement Bases

Unless otherwise stated, the Group Financial Statements are presented in U.S. Dollars, which is the Group’s subsidiaries’

functional currency and the currency of the primary economic environment in which the Group operates, and all values are

rounded to the nearest thousand dollars except per share and per unit amounts and where otherwise indicated.

Transactions in foreign currencies are translated into U.S. Dollars at the rate of exchange on the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate at the date of the

Consolidated Statement of Financial Position. Where the Group’s subsidiaries have a different functional currency, their results

and financial position are translated into the presentation currency as follows:

—Assets and liabilities in the Consolidated Statement of Financial Position are translated at the closing rate

at the date of that Consolidated Statement of Financial Position;

—Income and expenses in the Consolidated Statement of Comprehensive Income are translated at average exchange rates

(unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in

which case income and expenses are translated at the dates of the transactions); and

—All resulting exchange differences are reflected within other comprehensive income in the Consolidated Statement of

Comprehensive Income.

The Group Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of

financial assets and liabilities (including derivative instruments) held at fair value through profit and loss or through other

comprehensive income.

Going Concern

The Group Financial Statements have been prepared on the going concern basis, which contemplates the continuity of normal

business activity and the realization of assets and the settlement of liabilities in the normal course of business. The Directors

have reviewed the Group’s overall position and outlook and are of the opinion that the Group is sufficiently well funded to be

able to operate as a going concern for at least the next twelve months from the date of approval of this Annual Report & Form

20-F.

The Directors closely monitor and carefully manage the Group’s liquidity risk. Our financial outlook is assessed primarily

through the annual business planning process, however it is also carefully monitored on a monthly basis. This process includes

regular Board discussions, led by senior leadership, at which the current performance of, and outlook for, the Group are

assessed. The outputs from the business planning process include a set of key performance objectives, an assessment of the

Group’s primary risks, the anticipated operational outlook and a set of financial forecasts that consider the sources of funding

available to the Group (the “Base Plan”).

The Base Plan incorporates key assumptions which underpin the business planning process. These assumptions are as follows:

—Projected operating cash flows are calculated using a production profile which is consistent with current operating results

and decline rates;

—Assumes commodity prices are in line with the current forward curve which also considers basis differentials;

—Operating cost levels stay consistent with historical trends;

—The financial impact of our current hedging contracts in place for the assessment period, which represents approximately

83%, and 76% of total production volumes hedged for the years ending December 31, 2024 and 2025, respectively; and

—The scenario also includes the scheduled principal and interest payments on our current debt arrangements.

The Directors and management also consider various scenarios around the Base Plan that primarily reflect a more severe, but

plausible, downside impact of the principal risks, both individually and in the aggregate, as well as the additional capital

requirements that downside scenarios could place on us. These scenarios are as follows:

Scenario 1: Cyclically low gas prices for a year (Henry Hub prices of $1.50 per MMbtu before returning to strip pricing), which

have been historically observed in the market.

Scenario 2: Considered the impact of climate change by assuming a two week period of lost production in our East Texas/

Louisiana region, which is susceptible to hurricanes, due to a natural disaster (assumed to occur once in each year of the

assessment period).

Scenario 3: Considered the impact of climate change by assuming a two week period of lost production in our Appalachian

region (assumption of lost production in 25% of the total region), which is susceptible to flooding, due to a natural disaster

(assumed to occur once in each year of the assessment period).

Under these downside sensitivity scenarios, the Group continues to meet its working capital requirements, which primarily

consist of derivative liabilities that, when settled, will be funded utilizing the higher commodity revenues from which the

derivative liability was derived. The Group will also continue to meet the covenant requirements under its Credit Facility as well

as its other existing borrowing instruments.

The Directors and management consider the impact that these principal risks could, in certain circumstances, have on the

Group’s prospects within the assessment period, and accordingly appraise the opportunities to actively mitigate the risk of

these severe, but plausible, downside scenarios. In addition to its modelled downside going concern scenarios, the Board has

stress tested the model to determine the extent of downturn which would result in a breach of covenants. Assuming similar

levels of cash conversion as seen in 2023, a decline in production volume and pricing well in excess of that historically

experienced by the Group would need to persist throughout the going concern period for a covenant breach to occur, which is

considered very unlikely.

In addition to the scenarios above, the Directors also considered the current geopolitical environment and the inflationary

pressures that are currently impacting the U.S., which are being closely monitored by the Group. Notwithstanding the

modelling of specific hypothetical scenarios, the Group believes that the impact associated with these events will largely

continue to be reflected in commodity markets and will extend the volatility experienced in recent months. The Group

considers commodity price risk a principal risk and will continue to actively monitor and mitigate this risk through our hedging

program.

Based on the above, the Directors have reviewed the Group’s overall position and outlook and are of the opinion that the

Group is sufficiently funded to be able to operate as a going concern for the next twelve months from the date of approval of

the Group Financial Statements.

Basis of Consolidation

The Group Financial Statements for the year ended December 31, 2023 reflect the following corporate structure of the Group,

and its wholly owned subsidiaries:

—Diversified Energy Company PLC

(“DEC”) as well as its wholly

owned subsidiaries

—Diversified Gas & Oil Corporation

—Diversified Production LLC

—Diversified ABS Holdings LLC

—Diversified ABS LLC

—Diversified ABS Phase II

Holdings LLC

—Diversified ABS Phase II LLC

—Diversified ABS Phase III

Holdings LLC

—Diversified ABS Phase

III LLC

—Diversified ABS III

Upstream LLC

—Diversified ABS Phase III

Midstream LLC

—Diversified ABS Phase IV

Holdings LLC

—Diversified ABS Phase

IV LLC

—Diversified ABS Phase V

Holdings LLC

—Diversified ABS Phase

V LLC

—Diversified ABS V

Upstream LLC

—DP Bluegrass Holdings LLC

—DP Bluegrass LLC

—Chesapeake Granite

Wash Trust(a)

—BlueStone Natural

Resources II LLC

—Sooner State Joint ABS

Holdings LLC(b)

—Diversified ABS Phase VI

Holdings LLC

—Diversified ABS Phase VI

LLC

—Diversified ABS VI

Upstream LLC

—Oaktree ABS VI

Upstream LLC

—DP Lion Equity Holdco LLC(c)

—DP Lion HoldCo LLC(c)

—DP Vandalia Equity Holdco

LLC

—DP Vandalia Holdco LLC

—DP RBL Co LLC

—DP Legacy Central LLC

—Diversified Energy

Marketing LLC

—DP Tapstone Energy

Holdings LLC

—DP Legacy Tapstone LLC

—TGG Cotton Valley Assets, LLC

—Giant Land, LLC(d)

—Link Land LLC(d)

—Old Faithful Land LLC(d)

—Riverside Land LLC(d)

—Splendid Land LLC(d)

—DP Production Holdings II LLC

—Diversified Midstream LLC

—Cranberry Pipeline Corporation

—Coalfield Pipeline Company

—DM Bluebonnet LLC

—Black Bear Midstream

Holdings LLC

—Black Bear Midstream LLC

—Black Bear Liquids LLC

—Black Bear Liquids

Marketing LLC

—DM Pennsylvania Holdco LLC

—DGOC Holdings Sub III LLC

—Diversified Energy Group

LLC

—Diversified Energy Company

LLC

—Next LVL Energy, LLC

(a)Diversified Production, LLC holds 50.8% of the issued and outstanding common shares of Chesapeake Granite Wash Trust.

(b)Owned 51.25% by Diversified Production LLC.

(c)Diversified Production, LLC holds 20% of the issued and outstanding equity of DP Lion Equity Holdco LLC. This entity is not consolidated

within the Group’s financial statements as of December 31, 2023. Refer to Note 5 for additional information.

(d)Owned 55% by Diversified Energy Company PLC.

Inventory

Natural gas inventory is stated at the lower of cost and net realizable value, cost being determined on a weighted average cost

basis. Inventory also consists of material and supplies used in connection with the Group’s maintenance, storage and handling.

Inventory is stated at the lower of cost or net realizable value.

Trade Receivables

Trade receivables are stated at the historical carrying amount, net of any provisions required. Trade receivables are due from

customers throughout the natural gas and oil industry. Although dispersed among several customers, collectability is

dependent on the financial condition of each individual customer as well as the general economic conditions of the industry.

The Directors review the financial condition of customers prior to extending credit and generally do not require collateral to

support the recoverability of the Group’s trade receivables. Any changes in the Group’s allowance for expected credit losses

during the year are recognized in the Consolidated Statement of Comprehensive Income. Trade receivables also include

certain receivables from third-party working interest owners as well as hedge settlement receivables. The Group consistently

assesses the collectability of these receivables.

Borrowings

Borrowings are recognized initially at fair value, net of any applicable transaction costs incurred. Borrowings are subsequently

carried at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is

recognized in the Consolidated Statement of Comprehensive Income over the period of the borrowings using the effective

interest method.

Interest on borrowings is accrued as applicable to each class of borrowing.

Restricted Cash

Cash held on deposit for bonding purposes is classified as restricted cash and recorded within current and non-current assets.

The cash (1) is restricted in use by state governmental agencies to be utilized and drawn upon if the operator should abandon

any wells, or (2) is being held as collateral by the Group’s surety bond providers.

Additionally, the Group is required to maintain certain reserves for interest payments related to its asset-backed

securitizations discussed in Note 21. These reserves approximate six to seven months of interest as well as any associated fees.

The Group classifies restricted cash as current or non-current based on the classification of the associated asset or liability to

which the restriction relates. This reserve cash is managed and held by an indenture trustee who monitors the reserve month

to month ensuring the proper quantum is maintained. This trustee is independent, and the conditions of the deposit prevent

the Group from accessing it on demand such that it no longer meets the definition of cash and cash equivalents.

Intangible Assets

SOFTWARE DEVELOPMENT

Development costs that are directly attributable to the design and testing of identifiable and unique software products

controlled by the Group are recognized as intangible assets where the following criteria are met:

—It is technically feasible to complete the software so that it will be available for use;

—The Directors intend to complete the software and use or sell it;

—There is an ability to use the software;

—It can be demonstrated how the software will generate probable future economic benefits;

—Adequate technical, financial and other resources to complete the development and to use the software are available; and

—The expenditure attributable to the software during its development can be reliably measured.

Directly attributable costs that are capitalized as part of the software include cost incurred by third parties, employee costs

and an appropriate portion of relevant overheads. Capitalized development costs are recorded as intangible assets and

amortized from the point at which the asset is ready for use. Costs associated with maintaining software programs are

recognized as an expense as incurred.

IMPAIRMENT OF INTANGIBLE ASSETS

Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not

be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable

amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of

assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are

largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Intangible assets that suffer an

impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

AMORTIZATION

The Group amortizes intangible assets with a limited useful life, using the straight-line method over the following periods:


	Range in Years
Software	3 - 5
Other acquired intangibles(a)	3

(a)Represents intangible assets acquired in business combinations and asset acquisitions.

Impairment of Non-Financial Assets

At each reporting date, the Directors assess whether indications exist that an asset may be impaired. If indications exist, or

when annual impairment testing for an asset is required, the Directors estimate the asset’s recoverable amount. An asset’s

recoverable amount is the higher of an asset’s, or cash generating unit’s, fair value less costs to sell and its value-in-use, and is

determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from

other assets or groups of assets. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable

amount, the Directors consider the asset impaired and write the asset down to its recoverable amount. In assessing value-in-

use, the Directors discount the estimated future cash flows to their present value using a discount rate that reflects current

market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell,

the Directors consider recent market transactions, if available. If no such transactions can be identified, the Directors will utilize

an appropriate valuation model.

Leases

The Group recognizes a right-of-use asset and a lease liability at the commencement date of contracts (or separate

components of a contract) which convey to the Group the right to control the use of an identified asset for a period of time in

exchange for consideration, when such contracts meet the definition of a lease as determined by IFRS 16, Leases (“IFRS 16”).

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at

inception date.

The Group initially measures the lease liability at the present value of the future lease payments. The lease payments are

discounted using the interest rate implicit in the lease. When this rate can not be readily determined, the Group uses its

incremental borrowing rate. After the commencement date, the lease liability is reduced for payments made by the lessee and

increased for interest on the lease liability.

Right-of-use assets are initially measured at cost, which comprises:

—The amount of the initial measurement of the lease liability;

—Any lease payments made at or before the commencement date, less any lease incentives received, any initial direct costs

incurred by the lessee; and

—An estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on

which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease

unless those costs are incurred to produce inventories.

Subsequent to the measurement date, the right-of-use asset is depreciated on a straight line basis for a period of time that

reflects the life of the underlying asset, and also adjusted for the remeasurement of any lease liability.

Taxation

DEFERRED TAXATION

Deferred tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their

carrying amounts in the Group Financial Statements. Deferred tax is determined using tax rates (and laws) that have been

enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is

realized or the deferred liability is settled.

Deferred tax assets are recognized to the extent that it is probable that the future taxable profit will be available against which

the temporary differences can be utilized.

CURRENT TAXATION

Current income tax assets and liabilities for the years ended December 31, 2023 and 2022 were measured at the amount to be

recovered from, or paid to, the taxation authorities. The tax rates and tax laws used to compute the amount are those that are

enacted or substantively enacted at the reporting date in the jurisdictions where the Group operates and generates

taxable income.

UNCERTAIN TAX POSITIONS

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation

is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax

treatment. The Group measures its tax balances based on either the most likely amount, or the expected value, depending on

which method provides a better prediction of the resolution of the uncertainty.

Share-Based Payments

The Group accounts for share-based payments under IFRS 2, Share-Based Payment (“IFRS 2”). All of the Group’s share-based

awards are equity settled. The fair value of the awards are determined at the date of grant. As of December 31, 2023, 2022 and

2021, the Group had three types of share-based payment awards: RSUs, PSUs and Options. The fair value of the Group’s RSUs

is measured using the stock price at the grant date. The fair value of the Group’s PSUs is measured using a Monte Carlo

simulation model. The inputs to the Monte Carlo simulation model included:

—The share price at the date of grant;

—Expected volatility;

—Expected dividends;

—Risk free rate of interest; and

—Patterns of exercise of the plan participants.

The fair value of the Group’s Options was calculated using the Black-Scholes model as of the grant date. The inputs to the

Black-Scholes model included:

—The share price at the date of grant;

—Exercise price;

—Expected volatility; and

—Risk-free rate of interest.

The grant date fair value of share-based awards, adjusted for market-based performance conditions, are expensed uniformly

over the vesting period.