Diversified CEO: Gas Fervor Grows on LNG, Midstream Momentum

While operators pared drilling plans in response to falling oil prices last month, Diversified Energy Co. had little to adjust.

Diversified manages tens of thousands of wells in plays across the Lower 48 but drills none itself. The company operated 64,180 net productive wells as of year-end 2024, investor filings show.

It doesn’t rely on many external service providers and manages its own natural gas-heavy production without contractors.

“We can manage and control our costs pretty effectively,” Diversified Co-Founder and CEO Rusty Hutson Jr. told Hart Energy in a wide-ranging interview with Senior Editor Chris Mathews in early May.

This spring, Diversified closed a $1.3 billion acquisition of Maverick Natural Resources, adding assets in the western Anadarko Basin and the Permian Basin. It was an oily, liquids-heavy deal for Diversified, which produces around 70% natural gas.

Diversified’s production averaged 864 MMcfe/d in the first quarter. The company exited March at nearly 1.15 Bcf/d after closing the Maverick deal.

For a company that doesn’t drill new wells, Diversified has interesting new wells being drilled all around its acreage. It inked a non-operated joint venture (JV) to drill the Cherokee play in western Oklahoma and sold western Haynesville acreage in Texas to Comstock Resources.

This interview has been edited for length and clarity.

Chris Mathews: While other E&Ps adjust their drilling plans, Diversified isn’t drilling new wells of its own. Does the PDP focus help insulate during times of volatility?

Rusty Hutson: Because of our vertical integration, the fact that we don’t use a lot of external service providers, we manage all of our own production with our own employees, not contractors—we can manage and control our costs pretty effectively.

We know what we need in terms of price to get the margins we need for the free cash flow that we need for the operations, G&A and debt. So, we have an easier time when it comes to these situations because we’re not really dependent on the oil price going forward for new production. We actually hedge the production we have, so we already have locked in a lot of that for the foreseeable future.

Natural gas is doing great. We’ve seen natural gas hang in there. This is the first year in a long time where we’ve seen this kind of price in April and May. We think that’s going to hold up with the demands that are coming as it relates to data centers and LNG exports.

And this administration has done a good job of discussing how we can build additional infrastructure. We were talking about the extension of Mountain Valley Pipeline (MVP). That will be a huge benefit.

Trump has also talked about using an energy emergency to finish the Constitution Pipeline, which will go from northeast Pennsylvania up to Albany, New York, and then supply gas all the way up to the Northeast. That could have a significant impact on Appalachian gas production and the basis differentials we see up there.

I think for all the woes on the oil side, we’ve seen a lot of good things on the natural gas side. I do believe that natural gas is going to have a pretty bright future, moving forward. Over the last two years, lows were in the $2/Mcf range. I think we’ve set a new floor for natural gas around $3 as we move forward.

That’s all good because, honestly, at $3.50 gas, we do very, very well in this PDP-focused model.

CM: Diversified recently acquired Maverick Natural Resources in the Permian and Midcontinent. Why add more oil and liquids exposure? And did Maverick include undeveloped locations?

RH: We’re the largest operator now in western Oklahoma with the combination of our existing assets along with Maverick’s. We love Oklahoma. We think they’re a great regulatory environment. They want the production, and they want to work with operators to get more production.

The Maverick deal had a lot of [proved undeveloped] value, but we didn’t pay for it, so that was the good thing. We ended up paying about a PV-19 on just the PDP of the whole deal.

The Maverick deal did have an undeveloped aspect to it. We stepped into a JV in the Cherokee Basin in Oklahoma with a large, very reputable private operator. We will be participating alongside them in that arrangement—anywhere between 10% and 35% on a well-by-well basis, depending on the acreage position.

The reason I like that is because we don’t have to put together a G&A structure to drill the wells ourselves, run rigs, run completion crews, geophysicists and all the other things you need to really do your own drilling program. Going forward, we’ll spend some capital with them in the Cherokee. Those wells have turned out to be really, really good.

We’ve said, forever, we’re really agnostic when it comes to the commodity. We just found natural gas to be the easier of the two to buy over the last several years. We like natural gas, and we feel like it’s going to have a much stronger future as we move forward.

CM: In East Texas you also have Cotton Valley wells directly offsetting the emerging western Haynesville play. Do you own the deep Haynesville rights, too?

RH: Comstock is drilling on our acreage position. We actually sold that to them last year. I think we may have kept some overrides or something like that. Those are really, really expensive wells but with prolific gas production.

But those are prime ways to get value out of our acreage. Look, we’re not going to go in there and drill $30 million wells, but Comstock and Jerry Jones will. They like it. So, let them do it on our acreage.

We’ve cut a couple different deals with them, they’re great partners. We’re their biggest cheerleader. Go drill it, and I hope it comes in as high as it can because we’re going to keep a little bit of upside in it and we want you guys to be successful.

But yes, we’ve had a lot of that [acreage] that we’ve sold to Comstock and another operator. We also have some with the Maverick deal that we’re looking to do, mainly in the Austin Chalk. So, that’s another big opportunity.

CM: Between trade, political and commodity price volatility, what’s impacting the industry the most at this point?

RH: I understand what the administration is trying to do: keep energy prices low to offset the impacts of tariffs and inflation. But the problem is that we’ve spent a decade as a country getting oil market share. We are now the swing producer in the international scene as it relates to oil.

We’ve lowered oil prices now to a very marginal price, where I think you’re going to see a significant drop-off in rigs, completions—and then, ultimately, production.

Now, we have the Saudis talking about not really caring about maintaining an oil price at any level; that they’re willing to go lower for longer. They’re going to pick that market share up as we drop production here, and we don’t want to be in that position again.

We’ve been there, we’ve done that in the past years. It’s bad for the U.S., it’s bad for our international relations. It’s bad for our national security purposes.

We’re still 70% natural gas, even after this big liquids (Maverick) deal. But I’m more concerned about us as a country. We’re going to be giving up market share back to the people that we took it from a decade ago, and it’s just not a good position to be in.

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