Diversified Energy Co (DEC)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of

Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the

Condensed Consolidated Financial Statements and the notes thereto included in this report. Unless the context otherwise indicates,

references to “Diversified,” the “Company,” “our,” “we” and “us” (i) for periods until the completion of the U.S. Domestication,

refer to Diversified Energy Company PLC and its consolidated subsidiaries, collectively, and (ii) for periods at or after the completion

of the U.S. Domestication, refer to Diversified Energy Company and its consolidated subsidiaries, collectively. For certain industry

specific terms used in this Quarterly Report on Form 10-Q, please refer to the Glossary of Terms.

In this discussion and analysis of financial condition and results of operations, we address topics such as acquisitions, tax matters,

derivatives, stockholders’ equity, asset retirement obligations, and borrowings. For more detailed information on these areas, refer to

Notes 2, 3, 6, 7, 9, and 10 within the Notes to the Condensed Consolidated Financial Statements. These notes provide comprehensive

disclosures and explanations that support the analysis presented in this section.

Recent Developments

•In July 2026, we completed the acquisition of the equity interests of certain affiliates of Camino Natural Resources, LLC

(“Camino”) that owned certain producing properties and undeveloped acreage for a gross purchase price of approximately $1.2

billion before customary purchase price adjustments. Refer to Note 14 for additional information regarding the Camino

acquisition.

•In June 2026, we divested certain non-core Barnett assets for net proceeds of $116 million after customary purchase price

adjustments. The proceeds received exceeded the carrying amount of the net assets divested resulting in a gain on natural gas and

oil properties and equipment of $19 million.

•In May 2026, we formed DP Red River LLC, a limited-purpose, bankruptcy-remote, wholly-owned subsidiary (“ABS XII”), to

issue asset-backed securities with a total principal amount of $850 million (the “ABS XII Notes”).

•In April 2026, we acquired certain oil and natural gas wells, leasehold interests and related assets from Sheridan Holding

Company III, LLC (“Sheridan”). We paid net consideration of $236 million, inclusive of customary purchase price adjustments.

•In April 2026, we completed the semi-annual borrowing base redetermination of the Credit Facility. The borrowing base under

the facility was increased from $825 million to $900 million as a result of the increase in collateral from certain assets acquired in

the Sheridan acquisition.

•For the six months ended June 30, 2026, we repurchased 5,978,251 shares, representing approximately 8% of the shares

outstanding as of June 30, 2026.

Market Conditions

Our business continued to be influenced by a range of external factors in 2026, including commodity price volatility, geopolitical

developments, and evolving supply and demand dynamics. We are a U.S. domestic energy producer focused primarily on the

production of natural gas. During the second quarter, Henry Hub natural gas prices remained volatile but averaged approximately

$2.90 per MMBtu, compared with an average of approximately $5.04 per MMBtu in the first quarter, reflecting lower prices as winter-

driven demand eased, partially offset by strong LNG export demand and the onset of summer cooling demand.

Geopolitical tensions, including the conflict involving Iran, the Russia-Ukraine war, and continued instability in the Middle East and

Venezuela, contributed to volatility in global energy markets and underscored the strategic importance of U.S. energy production. In

particular, uncertainty surrounding transit through the Strait of Hormuz contributed to market instability during the quarter.

Domestically, policy shifts continued to support U.S. energy development and LNG export growth, although tariffs on certain

imported steel, aluminum and derivative products introduced additional uncertainty around the cost of some equipment and materials.

Our vertically integrated model helps insulate us from certain direct impacts, and our hedging program continues to play an important

role in mitigating commodity price risk and supporting cash flow durability.

We also continued to monitor inflationary pressures, labor availability and supply chain conditions affecting the broader industry.

Despite ongoing market volatility and policy uncertainty, we remain focused on optimizing our asset base, managing costs and

enhancing operational efficiency. Our integrated model and strategic positioning continue to support our ability to navigate market

fluctuations and capitalize on long-term opportunities in the oil and natural gas sector.

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Results of Operations for the Three Months Ended June 30, 2026 Compared to the Three Months Ended

June 30, 2025

Production Volumes

(a)The basis for converting oil and NGL volumes (MBbls) to natural gas equivalent volumes (MMcfe) is determined by using the

ratio of one Bbl of oil or NGLs to six Mcf of natural gas.

The increase in production volumes for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 was

primarily related to the Canvas and Sheridan acquisitions in the fourth quarter of 2025 and second quarter of 2026, respectively, as

well as our continued non-operated development investment. These increases were partially offset by normal production declines.

Commodity Pricing

Commodity prices fluctuate due to a range of factors outside of our control or ability to predict. These include, but are not limited to,

increased natural gas, NGLs and oil production levels that exceed market demand, adverse or unseasonable weather conditions,

geopolitical developments, macroeconomic events, and intensifying competition from other energy sources. Collectively, these

dynamics impact supply and demand, which ultimately determine the realized sales prices for our production. In addition to these

market-driven factors, our realized prices are affected by our derivative activities, commodity trades executed by non-physical trading

entities, and geographic variances in market pricing, including basis differentials. In response to these ongoing and evolving

conditions, we continuously monitor the commodity price environment. This disciplined approach is designed to preserve adequate

liquidity, uphold our financial flexibility, and protect long-term shareholder value across a range of pricing scenarios.

The following table summarizes our average realized sales prices and benchmark prices for the periods presented:

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Commodity Revenue

The following table reconciles the change in commodity revenue (excluding the impact of hedges settled in cash) by reflecting the

effect of changes in volume and in the underlying prices:

Commodity revenue for the three months ended June 30, 2026 increased 28% compared to the three months ended June 30, 2025. The

increase was primarily related to the 17% increase in average realized sales prices, excluding the impact of derivatives settled in cash,

and the 9% increase in sold volumes primarily due to the acquisitions and non-operated development as discussed above.

Commodity Derivatives

To manage our cash flows in a volatile commodity price environment, we utilize commodity derivative contracts that enable us to

secure fixed per-unit sales prices for a portion of our production. As of June 30, 2026, approximately 86% of our production was fixed

through commodity derivative contracts over the next twelve months. The tables below set forth the impact of commodity derivatives

settlements on commodity revenue:

Gain (Loss) on Derivatives

The table below sets forth the impact of settlements and fair value adjustments on derivatives for the periods presented:

(a)Represents the cash settlement of derivatives that were settled during the period.

(b)Represents the change in fair value of derivatives, net of the carrying value of derivatives that were settle

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of

Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the

Consolidated Financial Statements and the notes thereto included in this report. Unless the context otherwise indicates, references to

“Diversified,” the “Company,” “our,” “we” and “us” (i) for periods until the completion of the U.S. Domestication, refer to

Diversified Energy Company PLC and its consolidated subsidiaries, collectively, and (ii) for periods at or after the completion of the

U.S. Domestication, refer to Diversified Energy Company and its consolidated subsidiaries, collectively. For certain industry specific

terms used in this Annual Report on Form 10-K, please refer to the Glossary of Terms.

In this discussion and analysis of financial condition and results of operations, we address topics such as acquisitions, tax matters,

derivatives, stockholders’ equity, asset retirement obligations, and debt. For more detailed information on these areas, refer to Notes

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3, 4, 8, 11, 13, and 15 within the Notes to the Consolidated Financial Statements. These notes provide comprehensive disclosures and

explanations that support the analysis presented in this section.

Market Conditions

Our business was influenced by a range of external factors in 2025, including commodity price volatility, geopolitical developments,

regulatory changes, and evolving supply and demand dynamics. As a U.S. domestic energy producer focused primarily on natural gas,

we benefited from strong LNG export demand and colder-than-average weather, which supported an average Henry Hub price of

approximately $3.43 per MMBtu for the year. Prices fluctuated from an average high of $4.42 per MMBtu in December to an average

low of $2.84 per MMBtu in October. Year-end inventories were above the five-year average, contributing to price stability despite

ongoing global tensions.

Geopolitical conflicts, such as the Russia-Ukraine war and instability in the Middle East and Venezuela, continued to disrupt global

energy flows and underscored the strategic importance of U.S. energy production and exports. Domestically, policy shifts created a

more favorable operating environment, although new tariffs on imported energy equipment and materials introduced some uncertainty

for the industry. Our vertically integrated model helped insulate us from direct impacts, and our hedging program played a key role in

mitigating commodity price risk and supporting cash flow stability.

We also monitored inflationary pressures and supply chain challenges, which affected operating costs across the industry. Despite

ongoing market volatility and policy uncertainty, we remain focused on optimizing our asset base, managing costs, and enhancing

operational efficiency. Our integrated model and strategic positioning continue to enable us to navigate market fluctuations and

capitalize on long-term opportunities in the natural gas and oil sector.

Results of Operations for the Year Ended December 31, 2025 Compared to the Year Ended December 31,

2024

Production Volumes

The increase in production volumes for the year ended December 31, 2025 compared to the year ended December 31, 2024 was

primarily related to the Maverick and Canvas acquisitions in 2025, as well as full year production for Oaktree, Crescent Pass, and East

Texas II acquisitions completed in 2024, partially offset by normal production declines.

Commodity Pricing

Commodity prices fluctuate due to a variety of factors we can neither control nor predict, including increased production in excess of

demand of natural gas, NGLs or oil, weather conditions, political and economic events, and competition from other energy sources.

These factors impact supply and demand, which in turn determine the sales prices for our production. In addition to these factors, the

prices we realize for our production are affected by our derivative activities and commodity trades by non-physical trading entities, as

well as locational differences in market prices, including basis differentials. We will continue to evaluate the commodity price

environment and adjust the pace of our activity in order to maintain appropriate liquidity and financial flexibility.

The following table summarizes our average realized sales prices and benchmark prices for the periods presented:

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Commodity Revenue

The following table reconciles the change in commodity revenue (excluding the impact of hedges settled in cash) by reflecting the

effect of changes in volume and in the underlying prices:

Commodity revenue of $1,539 million for the year ended December 31, 2025 increased $807 million, or 110%, compared to $732

million for the year ended December 31, 2024. The increase in commodity revenue was primarily related to the 53% increase in

average realized sales prices, excluding the impact of derivatives settled in cash, and the 37% increase in sold volumes primarily due

to acquisitions as discussed above.

Commodity Derivatives

To manage our cash flows in a volatile commodity price environment, we utilize derivative hedging contracts that allow us to fix the

per unit sales prices for our production. As of December 31, 2025, approximately 80% of our production was fixed through derivative

hedging contracts over the next twelve months. The tables below set forth the commodity hedge impact on commodity revenue,

excluding and including cash received for commodity hedge settlements:

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Gain (Loss) on Derivatives

The table below sets forth the impact of settlements and fair value adjustments on derivatives for the periods presented:

(a)Represents the cash settlement of derivatives that settled during the period.

(b)Represents the change in fair value of derivatives net of removing the carrying value of derivatives that settled during the period.

The change in this metric was primarily related to an increase in the value of unsettled derivatives, which had a gain of $194 million in

2025 compared to a loss of $189 million in 2024, a change of $383 million, as a result of decreases along the forward commodity

curve. This change was partially offset by a $128 million decrease in gains on settled derivatives as a result of increased commodity

pricing.

Operating Expenses

Lease Operating Expense (“LOE”): LOE includes costs incurred to maintain producing properties. Such costs include direct and

contract labor, repairs and maintenance, water hauling, compression, automobile, insurance, and materials and supplies expenses.

The increase in LOE was driven by the acquisitions of Maverick and Canvas. Specifically, the increase in LOE per Mcfe was

primarily related to a greater exposure to liquids production. A

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