ACCESS Newswire
30 Apr 2021, 16:35 GMT+10
BIRMINGHAM, AL / ACCESSWIRE / April 30, 2021 / London LSE-quoted Diversified Gas & Oil PLC (LSE:DGOC)(OTCQX:DGOCF) ('DGO' or 'the Company'), announces the $135 million (gross) conditional acquisition of certain Cotton Valley upstream assets and related facilities primarily in the state of Louisiana ('the Assets') from Indigo Minerals LLC ('Indigo'), (the 'Acquisition') and the following operations and trading update for the quarter ended March 31, 2021.
The Acquisition represents the first for the Company in its newly identified 'Central' Regional Focus Area ('RFA') where it expects to replicate its proven business model on an expanded opportunity set:
Acquisition Highlights
Central Regional Focus Area Highlights
Q1'21 Operations and Financial Highlights
Commenting on these accomplishments, CEO Rusty Hutson, Jr. said:
'Over the past four years as a listed company, I shared my vision for expanding the Diversified mission with its emphasis on cash flow and tangible shareholder returns into other producing regions across the country. Our commitment to acquiring cash-generative assets and retaining the talented men and women who operate those assets establishes a highly transferable business model. Our strategic expansion into a new producing region turns vision to reality and marks a key milestone in our development. The expansion also provides significant runway for us to replicate our success in Appalachia: reducing unit expenses, improving margins and optimizing production.
'Our new regional focus area covers a multi-state area in a similar size footprint to Appalachia, and meets our expansion criteria in terms of asset quality, infrastructure, market dynamics, opportunity set and supportive regulatory environment. This first strategic acquisition outside of Appalachia also reflects our continued commitment to a consistent asset profile and valuation while affording us expanded value-accretive roll-up opportunities in this new region that will enable us to quickly build scale and drive efficiencies. Our financial and operational strengths continue to uniquely position Diversified to capitalize on current market conditions as the PDP buyer of choice.
'I'd also like to commend our field team on their continued commitment and diligence through the first quarter and its harsh winter climate. Despite the challenging environment, our team continued to deliver strong financial performance through the quarter with continued strong Cash Margins. As detailed in our recently released second Sustainability Report, we also made significant progress enhancing our sustainability practices as we seek to optimize the stewardship of our assets in line with the global energy transition. I'm proud of what we've already accomplished, and look forward to working with our team of dedicated professionals to further build on this success as we responsibly enlarge the Diversified footprint.'
New Regional Focus Area and Acquisition of Assets from Indigo
The Company's strategy of acquiring producing assets supported by their existing operational personnel is naturally and highly transferable to other producing regions across the United States. Retaining the assembled workforce with its collective understanding of the acquired assets while eliminating the expense, complexity and risk associated with drilling. as well as corporate and related management costs, aligns with the Company's Smarter Asset Management program and commitment to low operating costs.
Diversified has actively been evaluating a variety of regions as its first step outside of Appalachia to identify the optimal area to replicate its success in Appalachia through systematically adding scale and driving operational efficiencies with additional accretive acquisitions. Today's announced Acquisition represents the Company's strategic entry into a new RFA that includes producing areas within Louisiana, Texas, Oklahoma and Arkansas. In addition to a large opportunity set, the RFA benefits from an industry-friendly regulatory environment and mature infrastructure, which complement Diversified's low-cost operating profile.
The Company has signed a purchase and sale agreement with Indigo to acquire ~780 net operated wells producing ~16 MBoepd (~95 MMcfepd) located within the Cotton Valley/Haynesville producing area of northwest Louisiana and east Texas. The Acquisition will add ~50 MMBoe (~305 Bcfe) in PDP reserves, with a PV10 of ~$175MM using a full NYMEX strip as of April 16, 2021. DGO expects to close the transaction in the latter half of May 2021 following its customary diligence, reviews and approvals, with an effective date of March 1, 2021.
Consistent with Diversified's acquisition strategy, the long life and low-decline nature of the Assets' annualized ~$40MM of Adjusted EBITDA(a) ('Cash Flow') enhances the Company's free cash flow generation and strong Cash Margins with access to the favorable Gulf Coast pricing market and historical Cash Margins of ~50%. The estimated net purchase price of $115MM represents just a ~2.9x multiple of Adjusted EBITDA(a) and a ~PV20 value of the acquired PDP reserves before any anticipated synergies. Accordingly, the Acquisition both supports Diversified's current dividend distribution and complements its existing operations.
The Company will retain ~25 field personnel currently servicing the wells to ensure operational continuity and smooth integration into its Smarter Asset Management program. Replicating its success in Appalachia, DGO will continue to optimize the operations and cost structure as it acquires additional assets in the RFA.
The Company expects to initially fully fund the Acquisition from existing liquidity on its Revolving Credit Facility as it evaluates its options for long-term financing including additional asset-backed securitizations, term loans or similar financing options. Pro forma Net Debt/Adjusted EBITDA(c) after the Acquisition will approximate 2.3x, in line with the Company's current leverage position.
The Company continues to evaluate other acquisition opportunities, both in and out of the Appalachian Basin, with a keen focus on opportunities that align with the parameters of its participation agreement with Oaktree, including a purchase price threshold of greater than $250MM.
The Company will host a conference call later today to discuss the Acquisition, with call details as follows:
Date: April 30, 2021
Time: 2:00 pm BST / 08:00 am CDT
US (toll-free) +1 877-407-5976
UK (toll-free) +44 (0)800 756 3429
Web Audio www.dgoc.com/news-events/events
Operations and Financial Update
Production Update
Diversified's average net production for the quarter was 102 MBoepd (612 MMcfepd), consistent with average net production during 4Q'20. Adjusted for identifiable and temporary downtime, primarily related to the harsh winter weather, net production would have been 3% higher at 105 MBoepd (628 MMcfepd). Importantly, the Company's conventional production also remained consistent with 4Q'20 at 75 MBoepd or 76 MBoepd, Adjusted.
Low Costs Drive Consistent Margins While Proactively Positioning for Growth
Diversified's commitment to one of its daily objectives that 'Every Dollar Counts' remains strong. We proactively prepared our business for this milestone through many of the initiatives we have highlighted over the past several quarters including our:
We made these enhancements and investments to our vertically-integrated structure to establish Diversified with a solid foundation grounded in the right leadership and expertise to responsibly and efficiently position the Company for entry into a new RFA. Importantly, inclusive of these investments, we once again delivered a Cash Margin greater than 50%(d) with a total unit cash expense of $7.86/Boe in the quarter. While our general and administrative costs in the first quarter are higher than our previous trend, by building scale in this RFA and Appalachia, we expect to enjoy unit cost reductions, mirroring our past success. While total unit cash expenses were higher in the first quarter, we continued to reduce our Base Lease Operating Expense by 6% to just $2.57/Boe on adjusted production.
Footnotes (for Company-specific items, refer also to the Glossary of Terms and/or Alternative Performance Measures found in the Company's 2020 Annual Report):
For further information, please contact:
About Diversified Gas & Oil PLC
Diversified Gas & Oil PLC is an independent energy company engaged in the production, marketing and transportation of primarily natural gas related to its synergistic US onshore upstream and midstream assets.
SOURCE: Diversified Gas & Oil PLC
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