It Doesn’t Take a Crystal Ball to See: Diversified Bets Big on Permian PDP

A full deal write-up has been published, with detailed inventory analysis, valuation, strategic considerations, and deal comps. This short note represents our initial reaction to the deal.

On the evening of September 2^nd, Diversified Energy (NYSE: DEC, LSE: DEC) announced a deal to acquire Birch Resources for $1.8 billion. The deal will be financed primarily through an Asset Backed Securitization (ABS) issuance of $1.5 billion, structured and originated by Carlyle. The remaining portion of the deal will be funded through other customary sources, such as available liquidity under DEC’s credit facility. It marks the second acquisition under the Diversified-Carlyle ABS partnership. The Birch acquisition would be the largest acquisition in company history for the serial acquirer, Diversified, and is targeted to close in Q4 2026.

Figure 1: Diversified pro forma Permian acreage map

Diversified Energy was founded over two decades ago, but only recently has taken on the hyper-acquisitive identity it now exhibits. The Diversified core strategy has always been to acquire aging upstream assets, extend the life cycle of the wells and eventually P&A the wells at a cheaper cost than the carried plugging liability. Diversified, based in Birmingham, Alabama, listed on the London Stock Exchange (LSE) in 2017, and later co-listed on the NYSE in 2023. In 2025 it formed a strategic partnership with Carlyle, whereby Caryle will provide financing to Diversified to acquire mature PDP assets across the L48.

This deal adds to the surging popularity of PDP aggregators using ABS as a financing mechanism. Stone Ridge and Jonah are other active market participants in tapping ABS financing to grow production. In an asset backed securitization, the operator puts specific producing wells, with hedged volumes, into a Special Purpose Vehicle (SPV) which securitizes borrowings to fund the acquisition of the assets. Typically, the ABS amortizes in the shape of the declining production, as opposed to a large bullet payment at maturity. Financial partners like Stone Ridge and Carlyle act as intermediaries, structuring the ABS and providing the financing, while fixed income investors on the other side ultimately take the exposure and receive the interest and principal payments. ABS issuers – in this case – receive cheaper funding than they would get from unsecured senior notes, and the debt only has recourse to the assets placed into the SPV, not the company reserves as would a traditional RBL.

This marks the second transaction under the Carlyle-Diversified ABS strategic partnership, with the first occurring in May 2026 where Diversified acquired Camino Natural Resources in the Anadarko Basin for $1.175 billion. Announced alongside the Birch acquisition, Carlyle and Diversified have agreed to expand the scale of their partnership from an initial $2 billion to up to $10 billion for similar acquisitions.

The DEC/Carlyle partnership operated differently on this deal than the Camino deal earlier this year. In that deal, the acquired PDP assets went into an SPV where cash flows after servicing the ABS were split 60/40 between Carlyle and Diversified, with Diversified earning full equity ownership over time as various hurdles were met for Carlyle. The undeveloped acreage in the deal stayed out of the SPV and with DEC.

In this deal, the acquisition consideration above the $1.5 billion of ABS financing will be funded by DEC, which will own the full equity portion of the deal.

Diversified has an established acquisition track record, and this deal would be its largest one to date. The acquisition of Maverick Natural Resources in early-2025 began a step-change in the materiality of DEC’s acquisitions, continuing with Canvas and Camino in the Anadarko (while adding Sheridan III to its East Texas portfolio), and now Birch Resources, the company’s largest acquisition to date.

Figure 2: Recent Diversified Acquisition History, Select Transactions, $ Millions

Birch Resources was created out of the chapter 11 restructuring of Breitburn Energy Partners. Elliott Investment Management stepped in and capitalized the higher quality Breitburn Permian assets and rebranded the emergent entity as Birch Resources. The remaining portion of the Breitburn assets emerged as Maverick Natural Resources, backed by prior creditor EIG. Diversified acquired Maverick last year, so the current Diversified-Birch deal would reunite the original Breitburn assets.

Birch Resources operates 480 net producing wells concentrated in the Northern Midland Basin, with estimated July production of 68 Mboe/d (38% oil, 32% NGL, 30% gas). Additional gathering, processing and water infrastructure is also included. The formations most targeted by Birch include the Lower Spraberry, Dean and Wolfcamp A. Diversified management cited the Birch asset carries little remaining inventory, and this transaction is a PDP deal. We do view the asset as having a small amount of inventory, which we will cover in the forthcoming full deal insight.

In the transaction announcement, Diversified valued the PDP PV10 at ~$2 billion at the August 17^th strip, implying a PDP discount rate of ~14% for the $1.8 billion headline price. Using Novi Insights forecasts and our assumptions for operating costs, we arrived at a PDP PV10 value of $1.994 billion[1], and an implied discount rate of 13.3% for the $1.8 billion price, remarkably in line with management estimates.

Figure 3: PDP Production Forecast

This valuation implies 3.5x NTM operating cash flow from the PDP, and almost $30,000 per flowing boe/d. Base decline is 26% for the first year. The tables below summarize the deal metrics and sensitize the PDP valuation at various flat price decks.

Figures 4 & 5: Deal Metrics and Sensitivity Table

Diversified now holds a sizeable Permian position and indicated on its investor call that it has a growing appetite for more Permian assets as the basin matures. The Birch asset will diversify its production mix, adding more liquids-based revenue into the total company portfolio. Its Permian production for 2027E, upon close of the Birch deal, will grow from ~9 Mboe/d to ~77 Mboe/d, with adjusted EBITDA increasing from $64 million to $612 million. Drawing on its revolver will increase its leverage in the near-term. However, on the investor call for the acquisition, Diversified cited it is targeting $2 billion of deleveraging over the next four years, primarily due to the amortization schedule of its ABS notes.

Diversified shares closed at $15.72 on the day, up 3.08%, compared to the XOP which was down -0.43%, for a one-day outperformance of 351 basis points over the benchmark.

[1] $75/bbl WTI and $3.50/mcf HH flat price deck

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