TIDMDGOC
RNS Number : 2974Q
Diversified Gas & Oil PLC
11 September 2017
11 September 2017
Diversified Gas & Oil PLC
("DGO", the "Company" or the "Group")
Interim Results for the six-month period ended 30 June 2017
Diversified Gas & Oil PLC (AIM: DGOC), the US based gas and
oil producer, is pleased to announce the publication of its interim
results for the six-month period ended 30 June 2017.
Highlights:
-- Successful float on AIM in February 2017 raising $50m
-- First post-IPO acquisition in April of a package of 1,300
producing wells which added approximately 743 barrels of oil
equivalent per day ("boepd") to the DGO portfolio.
-- $84.2m reverse takeover and readmission to AIM through the
acquisition of additional assets from Titan Energy LLC ("Titan
Energy") in June 2017, increasing production by 6,800 boepd, an
increase of 161% over legacy production. The acquisition was
financed through an oversubscribed $35m secondary share placing and
with a $64m draw on our $110m debt facility
-- Increased Proved Developed Producing reserves to approximately 59.4mmboe
-- Operating costs reduced 6.4% to $7.73 per barrel of oil
equivalent ("boe") in 1H17 vs $8.26 per boe in our readmission
document for the last three months of 2016
-- Adjusted EBITDA (a) increase of 209% to $4.1m (2016: $1.3m);
Pro forma for the Titan acquisition, Adjusted EBITDA increased
nearly 900% to $12.9m
-- Adjusted EBITDA (a) per share increase of 33% to $0.04 (2016: $0.03)
-- Proforma Adjusted EBITDA (c) increase of 878% to $12.9m (2016: $1.3m)
-- Reduced net debt by 17.3% with a leverage ratio of Net debt /
Pro forma adjusted EBITDA of just 1.4x, a significant improvement
over the 16.2x as at 30 June 2016
-- Paid a dividend to shareholders of $0.0199 per ordinary share or $2.9m on 31 July 2017
-- Declared a dividend of $0.0199 per ordinary share to be paid on 20 December 2017
-- Strong balance sheet with $4.6m cash, $24.9m in our AIM
offering equity placing receivable and $64m debt with $46m undrawn
on the $110m credit facility (d)
-- Enhanced liquidity position totaling $75.4m including $29.5m
cash and near cash equivalent ($4.6m cash plus the $24.9m in our
AIM offering equity placing receivable) and $46m undrawn on our
$110m credit facility
These objectives have been delivered with the assistance of a
strengthened management team as the Company continues to progress
its acquisitive growth strategy.
Financial Summary:
Change
Explanation H1 2017 H1 2016 $'000 %
------------- ---------- ---------- -------- ---------
$'000 $'000
Financial highlights continuing
operations results:
----------------------------------
Revenue 11,541 7,653 3,888 50.8%
Adjusted EBITDA a 4,065 1,314 2,751 209.4%
18.0
Adjusted EBITDA margin b 35.2% 17.2% points 104.7%
Adjusted EBITDA per share
- Diluted ($) 0.04 0.03 0.01 33.3%
Refer to the Outlook Section
of this document for pro
forma results
Statutory results for continuing
operations:
----------------------------------
Operating profit 9,738 23,936 (14,198) (59.3)%
Profit before tax 3,940 36,491 (32,551) (89.2)%
Diluted earnings per share
($) 0.04 0.91 (0.87) (95.6)%
a) Adjusted EBITDA is derived from the reported Operating
Profit adjusted for depreciation and depletion,
non-cash gains on bargain purchase and on disposal
of property and equipment, losses on derivative
financial instruments and non-recurring costs associated
with acquisitions and certain other administrative
expenses
b) Adjusted EBITDA margin is calculated as Adjusted
EBITDA divided by total revenue.
c) The calculation of proforma Adjusted EBITDA is based
on the Adjusted EBITDA for DGO together with the
actual operating results for the assets acquired
from Titan Energy for the period from 1 January
2017 to 30 June 2017 as reported to DGO by Titan
Energy and as were included in the transaction's
closing statement. These figures are for illustrative
purposes only and have not been reported upon by
the Company's auditors.
d) DGO drew $64m on the $110m credit facility to close
the Titan asset acquisition on 30 June 2017. Of
the $46m undrawn, $11m is reserved to close on the
Titan assets held in public partnership structures.
The remaining $35m availability can be used within
the first twelve months of the facility's life to
finance additional acquisitions, of which $25m,
would require an additional underwriting process
by the lender.
Commenting on the results, CEO Rusty Hutson said:
"The DGO team has been incredibly active and highly focused in
1H17, delivering on a number of important corporate and strategic
objectives for the benefit of our shareholders. Following our
successful listing on AIM at the beginning of the year, we continue
to concentrate on delivering the stated objectives included within
our IPO admission document. Importantly, we returned nearly $3m
through our inaugural dividend paid in July, which is strong
evidence of our successful business model and a major
differentiating factor of our investment proposition. DGO is now
one of only two AIM companies amongst the 90 constituent companies
in the Oil & Gas Production sector that pays a dividend to its
shareholders.
In April, we closed on the acquisition of nearly 1,300
additional oil and natural gas wells, and after quickly and
successfully integrating these assets into our continuing
operations, we maintained the momentum by closing on a much larger,
transformational acquisition of nearly 8,240 producing natural gas
and oil wells. Collectively, these 1H17 acquisitions more than
doubled our high-quality, long-life and low-decline asset base,
while significantly enhancing DGO's production base and operating
cash flows. DGO enters 2H17 owning a portfolio capable of producing
a net 11,000 boepd of highly predictable and profitable volumes of
gas and oil, which places DGO amongst the largest producers on AIM,
and underpins our stable business model. The integration of the
Titan assets is progressing well and 2H17 will see a material
step-change in revenue and Adjusted EBITDA as we reap the full
benefit of that acquisition, the cost of which has largely been
taken in the first half of the year."
Strategic Report
Delivering on our strategic objectives
These 1H17 results reflect DGO's solid performance, delivering
on our stated objectives and builds upon our already strong
platform for additional growth. When we came to market in February
2017, we communicated a clear strategic vision for DGO: leverage
our established position in the Appalachian Basin to capitalise on
unique market conditions and acquire complementary producing assets
on attractive valuation metrics to in turn grow production and cash
flow, which DOG will use to fund a bi-annual dividend to
shareholders. We are proud to say that we have already delivered on
these objectives and have rapidly transformed the business to
become what we believe to be a unique investment proposition on
AIM: a low-risk, cash flow positive, dividend paying Exploration
and Production Company ("E&P").
Results summary
DGO's first financial results since becoming a listed company
reflect solid growth in numerous key financial metrics. Revenues
are up more than 50% to $11.5m (2016: $7.7m) while adjusted EBITDA
was up more than 200% to $4.1m (2016: $1.3m). Similarly, Adjusted
EBITDA margin is significantly improved at 35.2% (2016: 17.2%), up
18 points over the corresponding period in 2016.
Whilst these half-year results demonstrate the Company's steady
progress through to 30 June, they do not reflect the significantly
enhanced financial and operational capabilities that we expect to
report in 2H17, following the completion of our transformational
acquisition of certain Titan Energy Appalachian Basin assets. The
acquisition closed on the final day of the period and as such no
contribution is reflected in our reported results although the
costs associated with that transaction are included. To illustrate
the significance of this acquisition, we have included below within
the Outlook discussion a pro-forma table which that illustrates
what DGO's financial results would have been had the Titan Energy
acquisition occurred at the start of the period.
The Company's balance sheet and liquidity position have been
transformed following the recent acquisitions together with the new
$110m debt facility ($64m drawn at 30 June) and two share placings
which raised gross proceeds of $85m. As at 30 June DGO had cash,
and near cash equivalents, of $29.4m (2016: $0.02m) while total net
assets stood at $87.1m (2016: $9.2m).
Consistent with the Board's stated policy, DGO paid a maiden
dividend of 1.55 pence per ordinary share (1.99 cents) on 31 July,
and the Board is pleased to announce that the Company will pay an
interim dividend of 1.99 cents per ordinary share on 20 December
2017.
The Appalachian Basin opportunity
The prevailing market conditions in our regional focus on the
Appalachian Basin, both before and increasingly more so following
our IPO, have created a compelling buyer's market for
well-capitalised, credible, local operators wishing to expand their
portfolio of mature, producing assets. The Appalachian Basin, the
oldest producing basin in the US with an abundance of existing
infrastructure, has seen a rapid expansion of unconventional
activity as large players focus their operations on the prolific
Utica and Marcellus shale reservoirs located throughout the basin.
This industry shift towards unconventional assets, the rights to
which are held by production ("HBP"), means the mature, often
conventional producing assets which routinely retain the rights to
the unconventional assets, have become non-core to the larger
industry players. As such, these parties are keen to offload these
assets to buyers who can maintain the production while allowing
them to retaining the rights to the unconventional reservoirs. With
the maintenance of production and rights to the undeveloped,
unconventional reservoirs being the main priority for the seller,
this market dynamic creates particularly attractive valuation
metrics for the appropriate buyers as price consideration is not
always the seller's principal factor in completing
transactions.
Having operated in the Appalachian Basin since 2001, DGO has
developed a strong network and regional reputation as a proven and
credible operator, providing it with a first-mover advantage in a
small band of appropriate companies competing to capitalise on
these unique buying opportunities. Furthermore, our proven ability
to raise capital through the equity and debt markets puts us in an
even smaller peer group capable of executing the material
transactions of larger packages being offloaded.
Reducing operating costs
The conventional producing assets that represent the focus of
DGO's operations are characterised as low-cost and long-life,
capable of producing steady volumes of natural gas and oil for
decades with minimal pressure decline and requiring limited
operational management. The assets DGO seeks to acquire have often
been managed inefficiently by larger operators, and present a
unique opportunity for DGO to utilise its operational skillset and
complementary regional footprint to reduce operating costs and
improve the asset's profitability. DGO has a proven track record
for driving down its unit operating costs as the Company expands
its scale in the region, which enhances its resilience and
profitability in a low-cost commodity environment. Accordingly,
DGO's operating expenses in 1H17 were 6.4% lower at $7.73 per boe
compared with $8.26 per boe reported in our readmission document
for the last three months of 2016. We estimate that these costs
will fall further as we begin to realize the benefit from various
operational synergies and increased production from the Titan
assets acquired on the last day of the 1H17 reporting period.
Growing through acquisition
Our successful share placing to raise gross proceeds of $50m and
admission to AIM in February 2017 enabled us to significantly
strengthen our balance sheet and liquidity and positioned us to
transact on the opportunities stated above. We were pleased to
complete our first post-IPO transaction only weeks after coming to
market, as we acquired a package of 1,300 producing wells for
$1.75m. The acquisition added production of 3,800 mcfd and 110bopd.
We completed field operation integration for these wells in May,
and more fully completed the integration of accounting operations
in June.
In March 2017, DGO identified the opportunity to acquire certain
Appalachian Basin gas and oil assets from Titan Energy that were
consistent with our acquisition criteria and that had the potential
to significantly enhance the Company's scale and profile in the
region. DGO successfully raised an additional $35m through a
further share placing and negotiated a new $110m senior secured
credit facility to fund the $84.2mTitan Energy asset acquisition.
The Company closed on $72.8m of the related assets on 30 June 2017
and continues to anticipate closing on the remaining $11.4m of
assets by 30 September 2017 that are held within public partnership
structures and that require regulatory approval within the US to
close.
Inclusive of all Titan Energy assets, the Company's gross oil
and gas production increases to approximately 18,300 boepd (11,000
BEOPD net) with total gross gas production increasing more than
260% to approximately 104,200 mcfpd and gross oil production
increasing by 69% to approximately 931 bopd. These production
levels position DGO as one of the largest producers on AIM. At
these production levels, and even with the existing cost structure
that Management is actively working to lower, the acquired wells
are immediately accretive to Adjusted EBITDA. Importantly, the
acquisition also increased PDP reserves to approximately
59.4mmboe.
Management continues to screen a pipeline of complementary and
value accretive opportunities in the Appalachian Basin and DGO is
well funded to execute on additional transactions should they be
compelling and in the best interest of the Company and its
shareholders.
Integration process
On the day of closing the Titan acquisition, we added 104 field
operation employees from Titan Energy to our team. Led by newly
appointed Senior Vice President of Operations, Bob Cayton, we
restructured our field operations management team to reflect our
scale and geographical size. Our legacy employees combined with
these new additions to our team are unified in their focus to
ensure a smooth and effective integration of the new assets into
our operations processes. As part of this process, the now larger
team is working to enhance production and strive to generate cost
savings. The addition of many talented, experienced employees from
Titan Energy was an important rationale in our strategy to acquire
these assets, and we are very pleased to report that we are already
seeing tangible benefits from their expertise.
As a part of the acquisition, we entered into a six-month
transitional services agreement ("TSA") for accounting and other
administrative services from Titan Energy. The TSA is operating as
we anticipated and has proven to be an effective strategy to
integrate the operations. In addition to the TSA, we engaged an
energy consulting firm based in Houston, Texas to work with our
teams on further integration strategies including accounting and
technology needs. Our engagement with the consulting firm is
producing favourable results and is helping prepare us for a
post-TSA operating model.
Organic opportunity
Whilst DGO's growth strategy this year has focused on
successfully achieving scale through acquisition, the Company's
portfolio provides significant organic growth opportunities. As we
complete the full integration of the newly acquired assets, our
field management team will focus on maximising production by
enhancing operational techniques. Our extensive leasehold, which
now covers approximately 1.6m surface acres, has been sparsely
drilled to date and therefore provides material running room for
infill drilling to increase the production throughout the
portfolio. Development wells are both low-risk and low-cost,
ranging from $250k - $350k per well drill and placed on production.
Management intends to initiate a development programme when
drilling economics become more favourable and offer the Company
higher rates of return than are currently provided through the
compelling acquisition opportunities available at present
valuations from which we have recently benefitted.
Enhancing the DGO team
An important aspect of successfully executing our strategy is
ensuring we have leadership and management teams with the kills and
experience necessary to oversee our rapid expansion. As such, we
have placed a significant focus on adding depth to our team in the
past six months through the hire of several highly quality
professionals. With the acquisition of the Titan Energy assets, we
added Bob Cayton as our Senior Vice President of Operations and
John "Jack" Crook as our Senior Vice President of Environmental,
Health & Safety. Both Bob and Jack each have over 30 years of
experience operating in the Appalachian Basin and we have entrusted
them with the responsibility of managing our entire Appalachian
operations. We also extended our capital markets, accounting and
financial reporting capabilities with the addition of Eric Williams
as our new Chief Financial Officer. Eric's experience includes
working with numerous SEC companies in the US, and was most
recently the head of the investor relations function for a Permian
based SEC oil and gas company. Eric will lead our investor
relations, financial reporting and accounting operations. We were
also pleased to enhance our middle management teams in both field
operations and administrative functions.
Outlook
The second half of 2017 promises to represent a step-change in
DGO's financial and operational profile as we reap the benefits
from the transactions that we closed out in the first half of the
year. Our growth trajectory has been rapid as we have grown the
Company's gross production by nearly 240% over the past year. Near
term, Management will remain highly focused on the successful
integration of the acquired Titan Energy assets with a particular
emphasis on the work required to ensure we maximise production
whilst lowering our operating expenses.
After assuming control on 30 June 2017 of the Titan Energy
assets, we have been working diligently to deliver improved
operating results through initiatives to enhance asset performance
while simultaneously reducing costs. The Company is pleased to
report that in just the first month following the integration of
Titan Energy's assets, operating margins have meaningfully improved
and we believe we will continue to drive additional
improvement.
For example, immediately upon closing, we lowered operating
costs with a more than 22% reduction in the number of Titan Energy
employees servicing the assets. To accomplish this reduction
without a detrimental effect on operations, we leveraged our
existing employees in the region resulting in more efficient
allocation of responsibilities in the region to lower
non-productive time. Additionally, we took steps to reduce chart
expenses by implementing a better process for taking readings, and
we reduced workover expense by utilizing a recently acquired
service rig. Recognizing that costs are only half of the equation
to improve margins, we also took steps to improve asset
performance. For example, with de minimis investments, we returned
wells to production that were previously left shut-in and
non-producing. Additionally, we've enhanced production by properly
sizing compressors to the wells they support.
The following table illustrates DGO's pro forma results assuming
that the Titan Energy acquisition occurred at the beginning of the
period on 1 January 2017. The pro forma results reflect Titan
Energy's actual operating results for the acquired assets, and
therefore reflect none of the synergies DGO expected upon the
integration of the assets. Further, the pro forma results include
substantially no contribution from our EnerVest Energy
Acquisition.
As Reported Unadjusted
Unaudited Unaudited Unaudited Pro forma Unaudited
vs H1 2016
DGO Titan Pro Forma Change Consolidated
Energy
H1 2017 H1 2017 H1 2017 H1 2016 $'000 % July 2017
----------- ------------ ----------- ---------- ---------- ----------- --------------
$'000 $'000 $'000 $'000 $'000
See Note 9
for
details
regarding
the Titan
Energy
acquisition
-------------
Revenue 11,541 24,548 36,089 7,653 28,436 371.6% 5,186
Gross Profit 3,090 7,681 10,771 919 9,852 1,072.0% 1,567
Adjusted
EBITDA 4,065 8,787 12,852 1,314 11,538 878.1% 2,087
Adjusted
EBITDA 18.4
margin 35.2% 35.8% 35.6% 17.2% points 107.0% 40.2%
Adjusted
EBITDA
per share -
Diluted 0.04 0.10 0.14 0.03 0.11 366.7% n/a
Interim
dividend
per share 0.0199 - 0.0199 100%
Adjusted net
debt 35,177 42,539 (7,362) (17.3)%
Net Debt
(Cash
+ Equity
Receivable
- Debt) /
Pro
forma
Annualized
Adjusted
EBITDA 1.4x 16.2x (14.8 )x (91.4)%
The sector backdrop continues to be challenging and we are in a
highly fortunate position to be operating in a safe jurisdiction,
benefit from a strong balance sheet and have an effective business
model that provides significant downside protection against the
variables of commodity prices. Our low-cost operations ensure we
are profitable in the current environment, and able to withstand a
further decrease in commodity prices. We also take a prudent
approach to the way the business is run in terms of cash management
and hedging out our production to ensure visibility on predictable
earnings. Ironically, we are uniquely positioned to benefit from
the challenging sector backdrop as it creates very compelling
acquisition opportunities as distressed companies seek to
rationalise their portfolio.
Over the longer-term, we continue to work on our existing
portfolio to seek in-fill opportunities and maximise the
efficiency, production and longevity of our assets, activities that
are a key aspect of company reputation and expertise. Further, we
continue to seek attractive acquisition opportunities arising out
of current market conditions that have already resulted in a number
of strategic purchases for DGO in the past 18 months. As our
acquisitive momentum has increased over the years, we seek to
continue to deliver valuable additions to our portfolio in the
Appalachian Basin and other suitable mature, hydrocarbon basins in
the US.
Conclusion
In summary, the first six months of 2017 has been truly
transformational for the Company. We have delivered on the
strategic, corporate and operational objectives that we defined at
the time of obtaining our admission to AIM in February 2017. We
enter the second half of the year in a strong position. I wish to
extend my gratitude to our shareholders who have demonstrated
confidence in our defined strategy, management team and our focus
on additional growth. I would also like to thank my colleagues for
their hard work and commitment, without which we would not have
been able to deliver such impressive growth. We are wholly focused
on delivering value for all our stakeholders as we leverage the
strong platform that we have created.
Rusty Hutson Jr
Chief Executive Officer
Financial Review
Revenue
Total revenues from natural gas and oil sales in 1H17 were
$10.2m, a 48.9% increase over $6.8m for 1H16.The increase in this
revenue was primarily attributable to a 45.6% increase in barrel of
oil equivalent sales. DGO ended the first six months of 2017 with
net boe sales of approximately 581,000 vs. the prior year sales of
approximately 399,000. The increase in boe sales was driven by the
successful acquisitions of the assets from Seneca Resources and
Eclipse Resources.
Operating profit
DGO's operating profit in 1H17 was $9.7m compared to $23.9m in
1H16. The decrease of $14.2m reflects the decrease in non-recurring
bargain purchase gains of $13.8m between the two periods. The
Company recorded gains on bargain purchases of $24.2m in 1H16 as a
result of the acquisitions of Seneca Resources and Eclipse
Resources while recording gains on bargain purchases of $10.4m in
1H17 resulting from the Titan Energy and EnerVest Energy
acquisitions.
The operating expenses incurred of $3.17m were significantly
higher than the $0.89m for same period last year, due to the
various costs of acquisition and corporate transactions in the
period, but also reflecting the investment made in staff and
systems to support the Company's growth.
Finance costs
DGO's finance costs include interest expense on borrowings,
non-cash amortization of deferred financing costs and gains/losses
on the early retirement of debt. In 1H17 and using the proceeds
from our successful AIM IPO, DGO repaid its publicly traded bonds
and the then other outstanding debt. Accordingly, DGO incurred a
non-recurring loss on the early extinguishment of debt, which
primarily included a $3.8m charge for the accelerated amortization
of the remaining deferred financing costs and $0.6m in premiums
paid to redeem convertible bonds prior to DGO's admission to
AIM.
Hedging
To manage its cash flows in a volatile commodity price
environment, DGO uses a combination of physical and financial
derivative instruments. As required by its Senior Secured Credit
Facility, DGO executed a combination of fixed price physical
contracts, price swap financial contracts and two-way collar
financial contracts equal to approximately 75% of the Company's
forecasted production volumes for a 36-month rolling period. Please
refer to note 13 to our interim financial statements for additional
information regarding DGO's hedge portfolio.
EPS and Adjusted EBITDA
DGO reported 1H17 statutory earnings per diluted ordinary share
of $0.04 compared to $0.91 per diluted ordinary share in 1H16.
However, when adjusted for certain non-cash items such as gains on
bargain purchases and similar items, DGO reported Adjusted EBITDA
per diluted ordinary share of $0.04 per diluted ordinary share, a
33% increase over the prior year's $0.03 Adjusted EBITDA per
diluted ordinary share.
Dividend
The Board has announced an interim dividend of 1.99 cents per
ordinary share to be paid on 20 December 2017 to those shareholders
in the register on 17 November 2017, and follows the dividend of
1.99 cents per ordinary share paid to shareholders on 31 July
2017.
Enquiries:
Diversified Gas & Oil
PLC
Rusty Hutson Jr., Chief
Executive Officer
Brad Gray, Finance
Director / Chief Operating
Officer
Eric Williams, Chief
Financial Officer /
Investor Relations +001 205 408
www.diversifiedgasandoil.com 0909
Smith & Williamson
Corporate Finance Limited
(Nominated Adviser
& Joint Broker)
Russell Cook, Katy +44 (0)20 7131
Birkin 4000
Mirabaud Securities
Limited (Lead Broker)
Peter Krens, Edward +44 (0)20 3167
Haig-Thomas 7221
Buchanan (Financial
Public Relations)
Ben Romney, Chris Judd,
Henry Wilson +44 (0)20 7466
dgo@buchanan.uk.com 5000
IMPORTANT NOTE REGARDING THE BASIS OF PRESENTATION --
The Company is pleased to present its interim consolidated
financial statements. As discussed below in note 3, "Basis of
Presentation," please be aware that unless otherwise stated, the
all information included within the financial statements, including
the notes to the financial statements, is presented in US Dollars,
which is the currency of the primary economic environment in which
the Company operates, and all values, including those in sentences,
are rounded to the nearest thousand dollars except per unit amounts
and where otherwise indicated.
Interim Consolidated Statements of Comprehensive Income
(Amounts in thousands, except per-share amounts)
Unaudited Unaudited Audited
Six months Six months Year ended
to to
Note 30 June 30 June 31 December
2017 2016 2016
----- ------------ ------------ ---------------
Revenue 4 $ 11,541 $ 7,653 $ 18,279
Cost of sales 5 (6,225) (6,227) (12,767)
Depreciation and depletion 5 (2,226) (507) (4,039)
----------- ----------- ------------
Gross profit $ 3,090 $ 919 $ 1,473
Administrative expenses 5 (3,167) (887) (2,540)
Gain on disposal of property
and equipment 4 - 34
Loss on derivative financial
instruments (540) (308) (810)
Gain on bargain purchase 9 10,351 24,212 24,293
----------- ----------- ------------
Operating profit $ 9,738 $ 23,936 $ 22,450
Finance costs (745) (1,371) (3,291)
Accretion of decommissioning
provision (585) (223) (797)
(Loss)/Gain on early retirement
of debt (4,468) 14,149 14,149
----------- ----------- ------------
Income before taxation $ 3,940 $ 36,491 $ 32,511
Taxation on income (262) - (14,829)
----------- ------------ ------------
Income after taxation available
to ordinary shareholders $ 3,678 $ 36,491 $ 17,682
Other comprehensive income
- gain on foreign currency
conversion 202 603 901
----------- ----------- ------------
Total comprehensive income
for the year $ 3,880 $ 37,094 $ 18,583
======= ======= ========
Earnings per ordinary share
- basic & diluted 7 $ 0.04 $ 0.91 $ 0.42
======= ======= ========
Weighted average ordinary shares
outstanding - Basic & Diluted 7 94,971 40,100 42,011
=========== =========== ============
Interim Consolidated Statements of Financial Position
(Amounts in thousands)
Unaudited Unaudited Audited
30 June 30 June 31 December
Note 2017 2016 2016
----- --------- ----------- ---------------
ASSETS
Non-current assets
Oil and gas properties,
net 11 $176,536 $ 79,864 $ 76,793
Property and equipment,
net 12 5,668 2,798 3,348
Other non-current assets 1,011 817 998
Restricted cash 117 117 117
-------- ---------- ------------
Total non-current assets $183,332 $ 83,596 $ 81,256
Current assets
Trade receivables 5,085 2,519 3,084
Other current assets 417 118 1,311
Equity placing receivable 24,864 - -
Cash and cash equivalents 4,574 20 224
-------- ---------- ------------
Total current assets $ 34,940 $ 2,657 $ 4,619
Total Assets $218,272 $ 86,253 $ 85,875
======= ====== ========
EQUITY AND LIABILITIES
Shareholders' equity
Share capital 14 $ 1,940 $ 630 $ 669
Share premium 76,015 - 313
Merger reserve (478) (478) (478)
Dividends declared (2,887) - -
Retained earnings 12,538 27,587 8,658
Total Equity $ 87,128 $ 27,739 $ 9,162
------- ------ --------
Non-current liabilities
Decommissioning liability 15 $ 31,630 $ 14,798 $ 12,265
Capital lease 440 115 274
Borrowings 16 61,316 9,592 10,113
Deferred tax liability 15,408 - 15,148
Other non-current liabilities 10 5,038 457 414
-------- ---------- ------------
Total non-current liabilities $113,832 $ 24,962 $ 38,214
------- ------ --------
Current liabilities
Trade and other payables $ 3,032 $ 3,537 $ 4,627
Borrowings 16 305 29,194 27,181
Capital lease 250 113 169
Dividends payable 2,887 - -
Other current liabilities 10 10,838 708 6,522
-------- ---------- ------------
Total current-liabilities $ 17,312 $ 33,552 $ 38,499
------- ------ --------
Total Liabilities $131,144 $ 58,514 $ 76,713
------- ------ --------
Total Liabilities and
Equity $218,272 $ 86,253 $ 85,875
======= ====== ========
Interim Consolidated Statements of Changes in Equity
(Amounts in thousands)
Share Share Merger Retained Total
Note Capital Premium Reserve Dividends Earnings Equity
----- --------- ------- --------- ----------- -------- ----------
Balance as of 1
January
2017 $ 669 $ 313 $ (478) $ - $ 8,658 $ 9,162
Income after
taxation - - - - 3,678 3,678
Gain on foreign
currency
conversion - - - - 202 202
------- -------
Total
comprehensive
income - - - - 3,880 3,880
--------- ------- -------- ---------- ------- -------
Issuance of share
capital,
initial offering 14 768 43,550 - - - 44,318
Issuance of share
capital,
secondary
offering 9 503 32,152 - - - 32,655
Dividends
authorized
and declared 8 - - - (2,887) - (2,887)
Transactions
with
shareholders 1,271 75,702 - (2,887) - 74,086
--------- ------- -------- ---------- ------- -------
Balance as of 30
June
2017 $ 1,940 $76,015 $ (478) $ (2,887) $12,538 $87,128
===== ====== ==== ====== ====== ======
Share Share Merger Retained Total
Capital Premium Reserve Dividends Earnings Equity
--------- ------- --------- ----------- -------- ----------
Balance as of 1
January
2016 $ 630 $ - $ (478) $ - $(8,969) $(8,817)
Income after
taxation - - - - 36,491 36,491
Gain on foreign
currency
conversion - - - - 603 603
Total
comprehensive
income - - - - 37,094 37,094
--------- ------- -------- ---------- ------- -------
Stockholder
distributions
pre-group
reconstruction - - - - (538) (538)
Transactions
with
shareholders - - - - (538) (538)
--------- ------- -------- ---------- ------- -------
Balance as of 30
June
2016 $ 630 $ - $ (478) $ - $27,587 $27,739
===== ====== ==== ====== ====== ======
Share Share Merger Retained Total
Capital Premium Reserve Dividends Earnings Equity
--------- ------- --------- ----------- -------- ----------
Balance as of 1
January
2016 $ 630 $ - $ (478) $ - $(8,969) $(8,817)
Income after
taxation - - - - 17,682 17,682
Gain on foreign
currency
conversion - - - - 901 901
Total
comprehensive
income - - - - 18,583 18,583
--------- ------- -------- ---------- ------- -------
Stockholder
distributions
pre-group
reconstruction - - - - (956) (956)
Issuance of share
capital 39 313 - - - 352
Transactions
with
shareholders 39 313 - - (956) (604)
--------- ------- -------- ---------- ------- -------
Balance as of 31
December
2016 $ 669 $ 313 $ (478) $ - $ 8,658 $ 9,162
===== ====== ==== ====== ====== ======
Interim Consolidated Statements of Cash Flow
(Amounts in thousands)
Unaudited Unaudited Audited
Six months Six months
to to Year ended
31 December
Note 30 June 2017 30 June 2016 2016
----- -------------- -------------- ---------------
Cash flows from operating
activities
Income after taxation $ 3,678 $ 36,491 $ 17,682
Cash flow from operations
reconciliation:
Depreciation and depletion 2,226 507 4,039
Finance costs 4,045 1,371 3,291
Accretion of decommissioning
provision 15 585 223 797
Loss on derivative
financial instruments 13 687 699 957
Gain on oil and gas
program (396) (84) (84)
Deferred income taxes 260 - 14,829
Gain on bargain purchase 9 (10,351) (24,212) (24,293)
Gain on disposal of
property and equipment (4) - (34)
Gain on debt cancellation - (14,149) (14,149)
Non-cash equity grant - - 340
Working capital adjustments:
Change in trade receivables (2,002) (1,145) (907)
Change in other current
assets 138 (71) (269)
Change in other assets (13) - (652)
Change in trade and
other payables (1,595) 543 2,662
Change in other liabilities 9,733 129 920
Net cash provided by
operating activities $ 6,991 $ 302 $ 5,129
--------- --------- --------
Cash flows from investing
activities
Expenditures on oil
and gas properties $ (73,585) $ (8,642) $ (7,838)
Expenditures on property
and equipment (2,652) (155) (1,462)
Increase in restricted
cash - (2) (2)
Proceeds on disposal
of oil and gas properties - 93 93
Net cash used in investing
activities $ (76,237) $ (8,706) $ (9,209)
--------- --------- --------
Cash flows from financing
activities
Proceeds from borrowings 16 $ 64,000 $ 13,200 $ 14,915
Repayment of borrowings (40,521) (3,138) (6,794)
Financing expense (2,994) (1,244) (3,222)
Proceeds from equity
issuance, net 52,864 - -
Proceeds from capital
lease 319 133 435
Repayment of capital
lease (72) (79) (164)
Dividends to shareholders
pre-group reconstruction - (538) (956)
Net cash provided by
financing activities $ 73,596 $ 8,334 $ 4,214
--------- --------- --------
Net increase(decrease)
in cash and cash equivalents 4,350 (70) 134
Cash and cash equivalents
- beginning of the period 224 90 90
------------- ------------- ------------
Cash and cash equivalents
- end of the period $ 4,574 $ 20 $ 224
========= ========= ========
Note 1 - General Information
Diversified Gas & Oil PLC ("DGO" or the "Company") is a
natural gas and crude oil producer that is focused on acquiring and
operating mature producing wells with long lives and slow decline
profiles. Presently, our assets are exclusively located within the
Appalachian Basin. The Company is headquartered in Birmingham,
Alabama, USA with field offices located in Pennsylvania, Ohio, West
Virginia and Tennessee. DGO was incorporated on 31 July 2014 in
England and Wales as a private limited company under company number
09156132. DGO's registered office is located at 27/28 Eastcastle
Street, London W1W 8DH, United Kingdom.
Note 2 - Business Consolidation
The interim consolidated financial statements reflect the
following corporate structure of DGO:
-- Diversified Gas & Oil PLC ("PLC"), and its wholly owned subsidiary,
Diversified Gas & Oil Corporation ("DGOC'), as well as its
wholly owned subsidiaries,
-- Diversified Resources, Inc.
-- M & R Investments, LLC;
-- M & R Investments Ohio, LLC;
-- Marshall Gas and Oil Corporation;
-- R&K Oil and Gas, Inc.;
-- Fund 1 DR, LLC
-- Diversified Oil & Gas, LLC;
-- Diversified Appalachian Group, LLC
-- Diversified Energy, LLC (see note 9)
Note 3 - Basis of Preparation
The interim consolidated financial statements do not represent
statutory accounts within the meaning of section 435 of the
Companies Act 2016. The financial information for the period ended
30 June 2017 is based on the statutory accounts for the year ended
31 December 2016. Those accounts, upon which the auditors issued an
unqualified opinion, have been delivered to the Registrar of
Companies and did not contain statements under section 498(2) or
(3) of the Companies Act 2006.
The interim consolidated financial information is unaudited and
has been prepared on the basis of the accounting policies set out
in the Group's 2016 statutory accounts in accordance with IAS 34
Interim Financial Reporting.
Unless otherwise stated, the financial statements are presented
in US Dollars, which is the currency of the primary economic
environment in which DGO operates, and all values are rounded to
the nearest thousand dollars except per unit amounts and where
otherwise indicated. Certain prior period amounts have been
reclassified to conform with current presentation. Transactions in
foreign currencies are translated into US 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 ruling at the balance sheet date. The resulting gain or
loss is reflected in the income statement within Other
comprehensive income - gain on foreign currency conversion.
The financial statements have been prepared under the historical
cost convention, except for acquisitions and derivative financial
instruments that have been measured at fair value through profit
and loss.
The 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 DGO's overall position and outlook and are of the opinion
that DGO 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 these financial statements. The Directors believe that
the use of the going concern basis is appropriate. Accordingly, the
Directors have prepared the financial statements on a going concern
basis.
Note 4 - Revenue
DGO extracts and sells natural gas and crude oil to various
customers. DGO also operates oil and natural gas wells for
customers and other working interest owners. The following table
reconciles the Company's revenues for the periods presented:
Unaudited Unaudited Audited
Six months Six months
to to Year ended
30 June 30 June 31 December
2017 2016 2016
------------ ------------ ----------------
Natural gas revenue $ 7,795 $ 4,996 $ 10,671
Oil revenue 2,399 1,849 4,207
------------ ------------ --------------
Total natural gas and oil
revenues 10,194 6,845 14,878
Operator revenue 662 468 1,209
Oil and gas program revenue 403 84 1,573
Water disposal revenue 282 256 619
Total revenue $ 11,541 $ 7,653 $ 18,279
======== ======== ==========
Note 5 - Expenses by Nature
The following table provides a detail of the Company's
expenses:
Unaudited Unaudited Audited
Six months Six months
to to Year ended
30 June 30 June 31 December
Explanation 2017 2016 2016
------------- ------------ ------------ ----------------
Automobile $ 526 $ 306 $ 797
Employees and benefits 2,354 2,135 4,117
Insurance 117 53 162
Well operating expenses
& taxes 3,228 3,733 7,691
------------ ----------- --------------
Total cost of sales $ 6,225 $ 6,227 $ 12,767
Depreciation 516 (567) 756
Depletion 1,710 1,074 3,283
------------ ----------- --------------
Total depreciation and
depletion $ 2,226 $ 507 $ 4,039
Employees and benefits a 965 95 373
Other administrative 136 150 301
Professional fees 165 63 272
Auditors' remuneration
Audit of parent 11 15 34
Audit of group 75 112 247
------------ ----------- --------------
Total Auditors' remuneration $ 86 $ 127 $ 281
Other fees payable to
auditors 4 24 42
Rent 42 44 93
------------ ----------- --------------
Recurring administrative
expenses $ 1,398 $ 503 $ 1,362
Non-recurring costs associated
with acquisitions & contribution
of assets 1,769 384 838
Non-cash equity issuance b - - 340
------------
Non-recurring administrative
expenses $ 1,769 $ 384 $ 1,178
Total administrative expenses $ 3,167 $ 887 $ 2,540
Total expenses $ 11,618 $ 7,621 $ 19,346
======== ======= ==========
a) Prior to admission to AIM, compensation expense for
the owners was recorded as an owner distribution. Thus,
the expense reported in the prior year is lower by
the amount of such distributions. Further, the Company
hired additional personnel, including a Finance Director
and Chief Operating Officer in October 2016, which
increased this expense to support a larger, more dynamic
organization.
b) Non-cash equity issuance is a non-recurring expense
related to the initial issuance of stock to a Company
senior manager in 2016.
Note 6 - Adjusted EBITDA
Adjusted EBITDA is a non-IFRS financial measure, which is of
particular interest to the industry and Directors, as it is
essentially the cash generated from operations that DGO has free
for interest payments and capital investment. Adjusted EBITDA
should not be considered as an alternative to operating profit
(loss), comprehensive income, cash flow from operating activities
or any other financial performance or liquidity measure presented
in accordance with IFRS. Adjusted EBITDA is a non-IFRS financial
measure that is defined as operating profit plus or minus items
detailed below in the table below.
The Company believes Adjusted EBITDA is a useful measure because
it enables a more effective way to evaluate operating performance
and compare the results of operations from period-to-period and
against our peers without regard to our financing methods or
capital structure. The Company excludes the items listed in the
table below from operating profit in arriving at Adjusted EBITDA
because these amounts can vary substantially from company to
company within our industry depending upon accounting methods and
book values of assets, capital structures and the method by which
the assets were acquired.
The following table reconciles the Company's operating profit to
Adjusted EBITDA:
Unaudited Unaudited Audited
Six months Six months
to to Year ended
30 June 30 June 31 December
2017 2016 2016
------------ ------------ ---------------
Operating profit $ 9,738 $ 23,936 $ 22,450
Depreciation and depletion 2,226 507 4,039
Gain on bargain purchase (10,351) (24,212) (24,293)
Gain on disposal of property
and equipment (4) - (34)
Loss on derivative financial
instruments 687 699 957
Non-recurring costs associated
with acquisitions & contribution
of assets 1,769 384 838
Non-cash equity issuance included
in Administrative expense - - 340
-----------
Total Adjustments (5,673) (22,622) (18,153)
Adjusted EBITDA $ 4,065 $ 1,314 $ 4,297
=== ====== ======= ========
Weighted average ordinary shares
outstanding - Basic and Diluted 94,971 40,100 42,011
Adjusted EBITDA per share -
Basic and Diluted $ 0.04 $ 0.03 $ 0.10
=== ====== ======= ========
Note 7 - Earnings per Share
The calculation of basic income/(loss) per ordinary share is
based on the income/(loss) after taxation available to ordinary
shareholders and on the weighted average number of ordinary shares
outstanding during the period. The calculation of diluted
income/(loss) per ordinary share is based on the income/(loss)
after taxation available to ordinary shareholders and the weighted
average number of ordinary shares outstanding plus the weighted
average number of shares that would be issued if dilutive options
and warrants were converted into shares on the last day of the
reporting period. Basic and diluted income/(loss) per ordinary
share is calculated as follows:
Unaudited Unaudited Audited
Six months Six months Year ended
to to
Calculation 30 June 30 June 31 December
2017 2016 2016
------------- ------------ ------------ ---------------
Income after taxation available
to ordinary shareholders A $ 3,678 $ 36,491 $ 17,682
Weighted average ordinary
shares outstanding - Basic
& Diluted B 94,971 40,100 42,011
Earnings per ordinary share = A
- basic & diluted / B $ 0.04 $ 0.91 $ 0.42
======== ======== =========
See
Adjusted EBITDA per ordinary Note
share - basic & diluted 6 $ 0.04 $ 0.03 $ 0.10
======== ======== =========
Note 8 - Dividends
On 15 June 2017, the Company declared its first dividend
subsequent to completing its initial public offering on the AIM in
February 2017. Subsequent to 30 June 2017, the Company declared an
additional dividend to be paid on 20 December 2017.
The following table summarizes the Company's dividends paid and
declared:
Dividend per
Ordinary Share
Record Shares Gross Dividends
Date Declared USD GBP Date Pay Date Outstanding Paid
-------------- ------- ----------- ----------- ----------- ------------ -------------------
15 June 07 July 31 July
2017 $0.0199 GBP 0.0155 2017 2017 145,076 $ 2,887
11 September 17 November 20 December
2017 0.0199 Pending 2017 2017 Pending Pending
Note 9 - Acquisitions
The assets acquired in all acquisitions include the necessary
permits, rights to production, royalties, contracts and agreements
that support the production from the wells. The acquisitions have
been accounted for as a business acquisition under IFRS 3. The
acquisitions gave rise to bargain purchases due to the prevailing
market conditions in the Appalachian Basin, the context of global
oil and gas prices, the financial condition of the sellers, and a
change in the operational focus of the sellers compelling these
sellers to divest of their conventional oil and gas assets.
EnerVest Acquisition
In April 2017, DGO acquired approximately 1,300 conventional
natural gas and oil wells in Ohio and equipment from EnerVest. The
purchase consideration totalling $1,750 was paid in cash.
Management considered the fair value of the reserves held in the
assets acquired to be $5,629, which was the 30% cumulative cash
flow discount reserve valuation derived from a third-party engineer
at the time of purchase. The provisional estimated fair values of
the assets and liabilities assumed were as follows:
Oil and gas properties $5,629
Oil and gas properties (Decommissioning provision,
asset portion) 2,406
Decommissioning liability (2,406)
Gain on bargain purchase (3,879)
Purchase price $1,750
=====
Titan Energy Acquisition
On 30 June 2017, DGO acquired approximately 8,380 producing
conventional natural gas and oil wells in the states of
Pennsylvania, Ohio, and Tennessee (including approximately 1,140
non-operated wells) and equipment from Titan Energy. The total
purchase consideration including assets expected to close by 30
September 2017 was $84,200. The cash consideration for the purchase
was funded by a new $110,000 Senior Secured Loan Facility, of which
$64,000 was drawn upon closing on 30 June 2017, and an equity
placing of DGO's stock. DGO placed 39,300 new ordinary shares at
$0.89 per share with certain existing and new institutional
investors to raise $35,020. The equity placing occurred in two
tranches of 11,400 shares which raised $10,158 and 27,900 shares
were placed with the second tranche, which raised $24,862.
Of the total $84,200 purchase consideration, DGO funded $72,800
in cash on 30 June 2017 for approximately 8,240 of the total wells.
The remaining $11,400 of the purchase price is allocated to Titan
Energy assets that are held within public partnership structures
and include a number of horizontal wells. The Company continues to
anticipate closing on the remaining assets by 30 September 2017
pending regulatory approval within the United States.
Management considered the fair value of the reserves held in the
assets acquired on 30 June 2017 to be $79,272, which was the 25%
cumulative cash flow discount reserve valuation derived from a
third-party engineer at the time of purchase. The provisional
estimated fair values of the assets and liabilities assumed were as
follows:
Total purchase consideration $84,200
Less: Net purchase price adjustments (4,928)
-------
Oil and gas properties purchased at 30 June
2017 $79,272
Oil and gas properties (Decommissioning provision,
asset portion) 14,896
Decommissioning liability (14,896)
Gain on bargain purchase for properties purchased
at 30 June 2017 (6,472)
Purchase price as at 30 June 2017 $72,800
======
Note 10 - Other Liabilities
The following table reconciles the Company's other liabilities
for the periods presented:
Unaudited Unaudited Audited
30 June 30 June 31 December
2017 2016 2016
----------- ----------- ---------------
Other non-current liabilities
Customer deposits $ 55 $ 52 $ 52
Revenue to be distributed 3,128 306 362
Derivative financial instruments
- net non-current liability 1,855 99 -
Total Other non-current liabilities $ 5,038 $ 457 $ 414
======= === ====== =========
Other current liabilities
Accrued expenses $ 896 $ - $ 1,112
Net revenue clearing 2,461 - 498
IPO related expenses 2,768 - -
Acquisition related short term
financing 3,500 - 3,500
Derivative financial instruments
- net current liability - 583 939
Other 1,213 125 473
Total Other current liabilities $ 10,838 $ 708 $ 6,522
======= === ====== =========
Note 11 - Oil and Gas Properties
As discussed in Note 9, the Company completed two acquisitions
during the first half of 2017. The following table summarizes the
Company's oil and gas properties for each of the periods
presented:
Costs Depletion and Impairment
Net
Beginning Ending Beginning Period Ending Book
Period Balance Additions Disposals Balance Balance Charges Disposals Balance Value
------------- ----------- --------- ----------- -------- --------- ------- --------- --------- ----------
As at and
for the
6-months
ended 30
June 2017
(Unaudited) $ 94,608 101,645 (12) $196,241 $(17,815) (1,890) - $(19,705) $176,536
As at and
for the
6-months
ended 30
June 2016
(Unaudited) 56,659 37,809 (28) 94,440 (14,306) (283) 13 (14,576) 79,864
As at and
for the year
ended 31
December
2016
(Audited) 56,659 41,077 (3,128) 94,608 (14,306) (3,553) 44 (17,815) 76,793
Note 12 - Property and Equipment
The following table summarizes the Company's property and
equipment for each of the periods presented:
Plant, Property & Accumulated Depreciation
Equipment and Disposals
Net
Beginning Ending Beginning Period Ending Book
Period Balance Additions Disposals Balance Balance Charges Disposals Balance Value
------------- ------------ ---------- ------------ ---------- ------------ ---------- ---------- -------- --------
As at and
for the
6-months
ended 30
June 2017
(Unaudited) $ 5,223 2,657 (5) $ 7,875 $ (1,875) (336) 4 $(2,207) $5,668
As at and
for the
6-months
ended 30
June 2016
(Unaudited) 3,506 911 (6) 4,411 (1,395) (224) 6 (1,613) 2,798
As at and
for the year
ended 31
December
2016
(Audited) 3,506 1,791 (74) 5,223 (1,395) (486) 6 (1,875) 3,348
Note 13 - Derivative Financial Instruments & Hedging
Activities
The following table summarizes DGO Group's calculated fair value
of derivative financial instruments:
Unaudited Unaudited Audited
30 June 30 June 31 December
(Liabilities)/Assets 2017 2016 2016
----------- ----------- ---------------
Natural gas
Swaps $ (747) $ (474) $ (99)
Collars (57) - (685)
Basis swaps (568) 53 -
Put options - (140) -
---------- ---------- ------------
Total natural gas derivative
financial instruments $ (1,372) $ (561) $ (784)
------ ------ --------
Oil
Swaps $ - $ - $ -
Collars (254) - (155)
Basis swaps - - -
Put options - (121) -
---------- ---------- ------------
Total oil derivative financial
instruments $ (254) $ (121) $ (155)
------ ------ --------
Total derivative financial
instruments $ (1,626) $ (682) $ (939)
====== ====== ========
The Company reports the derivative financial instrument assets
and liabilities net in its balance sheet. The following table
reconciles the Company's derivative financial instrument gross
assets and gross liabilities for the periods presented:
Derivative Financial Unaudited Unaudited Audited
Balance Sheet 30 June 30 June 31 December
Instruments line item 2017 2016 2016
------------------------------ ----------------------- ----------- ----------- ---------------
Non-current assets $ 1,585 $ 380 $ -
Current assets 2,012 466 640
---------- ---------- ------------
Total assets $ 3,597 $ 846 $ 640
Non-current liability $ (3,440) $ (479) $ -
Current liabilities (1,783) (1,049) (1,579)
---------- ---------- ------------
Total liabilities $ (5,223) $ (1,528) $ (1,579)
Net (liabilities)/assets Other Non-current
- Non-current (liabilities)/assets $ (1,855) $ (99) $ -
Net assets/(liabilities) Other Current
- Current assets/(liabilities) 229 (583) (939)
Net (liabilities)/assets $ (1,626) $ (682) $ (939)
====== ====== ========
For the periods indicated, the Company recorded the following
related to its derivative financial instruments in the consolidated
statements of comprehensive income as gain (loss) on derivative
financial instruments:
Unaudited Unaudited Audited
30 June 30 June 31 December
2017 2016 2016
----------- ----------- ---------------
Net gain on settlements $ 147 $ 391 $ 147
Net loss on fair value adjustments
on unsettled financial instruments (687) (699) (957)
Total loss on derivative financial
instruments $ (540) $ (308) $ (810)
====== ====== ========
Listed in the table below are the outstanding natural gas and
oil derivative financial instruments as of 30 June 2017:
Derivative Short
Financial Remaining Ending Swap Floor Put Ceiling Mark-to-Market
Instrument As of 30
Type Volumes Month Price Price Price Price June 2017
------------ ----------- ------- ------ ------ ------- --------- ------------------
Natural Gas
------- ------ ------ ------- ---------
307,500
Swap MMBTUs Oct-17 $3.38 $ - $ - $ - $ 102
1,500,000
Swap MMBTUs Oct-17 2.92 - - - (181)
6,000,000
Swap MMBTUs Mar-19 2.89 - - - (266)
6,000,000
Swap MMBTUs Mar-20 2.81 - - - (191)
6,000,000
Swap MMBTUs Mar-21 2.82 - - - (211)
Two-Way 152,500
Collar MMBTUs Dec-17 - 3.25 - 3.75 31
Two-Way 1,000,000
Collar MMBTUs Dec-17 - 2.87 - 3.32 (97)
Two-Way 1,500,000
Collar MMBTUs Mar-18 - 3.00 - 3.55 (145)
Three-Way 688,500
Collar MMBTUs Dec-17 - 3.00 2.50 3.48 24
Three-Way 688,500
Collar MMBTUs Dec-17 - 3.30 2.80 3.77 130
Basis Swap: 1,230,000
Dominion SP MMBTUs Oct-17 (0.67) - - - 493
Basis Swap: 3,600,000
Dominion SP MMBTUs Dec-18 (0.60) - - - (420)
Basis Swap: 305,000
Dominion SP MMBTUs Dec-18 (0.53) - - - (13)
Basis Swap: 7,668,000
Dominion SP MMBTUs Sep-20 (0.59) - - - (567)
Basis Swap: 2,100,000
TCO MMBTUs Sep-20 (0.39) - - - (61)
Oil
------- ------ ------ ------- ---------
Two-Way
Collar 30,728 BBLs Dec-17 - $50.00 $ - $ 59.00 $ 133
Two-Way
Collar 30,600 BBLs Dec-17 - 40.00 - 49.00 (35)
Two-Way 146,000
Collar BBLs Dec-18 - 42.00 - 51.00 (204)
Two-Way 146,000
Collar BBLs Dec-19 - 44.00 - 52.00 (197)
Three-Way
Collar 22,800 BBLs Dec-17 - 47.00 37.00 59.00 49
---------------
Total Derivative
Financial
Instruments $ (1,626)
=== ==========
Listed in the table below are the natural gas and oil derivative
financial instruments executed subsequent to 30 June 2017:
Derivative Short
Financial Remaining Ending Swap Floor Put Ceiling
Instrument
Type Volumes Month Price Price Price Price
---------------- ----------- ------- ------ ------ ------- -----------
Natural Gas
------- ------ ------ ------- -----------
900,000
Swap MMBTUs Nov-18 $2.84 $ - $ - $ -
Basis Swap: 20,000
TCO MMBTUs Nov-17 (0.24) - - -
Basis Swap: 20,000
TCO MMBTUs Apr-18 (0.21) - - -
Basis Swap: 320,000
TCO MMBTUs Oct-18 (0.34) - - -
Basis Swap: 65,000
TCO MMBTUs Feb-19 (0.32) - - -
Basis Swap: 320,000
Leidy MMBTUs Oct-18 (0.71) - - -
Oil
------- ------ ------ ------- -----------
23,000
Two-Way Collar BBLs Oct-17 $ - $38.00 $ - $ 50.90
Two-Way Collar 2,800 BBLs Feb-18 - 39.00 - 53.35
Two-Way Collar 5,600 BBLs Feb-19 - 40.00 - 56.05
Note 14 - Share Capital
In February 2017, DGO placed 61,000 new ordinary shares at 65
pence per share to raise gross proceeds of $49,563 (approximately
GBP39,650). DGO used the funds raised for the repurchase of bonds,
repayment of existing debt facilities, costs of admission to AIM
and working capital requirements of the Company. Following this
initial placing, and as discussed in Note 9, in June 2017, DGO
issued an additional 39,300 ordinary shares at 70 pence per share
to raise additional gross proceeds of $34,938 (approximately
GBP27,510) to fund part of the purchase price of an additional
acquisition. The following table summarizes the Company's share
capital for the periods presented:
Number of Total Share
Shares Capital
--------- ---------------
Balance as of 1 January 2017 44,210 $ 669
Issuance of share capital, primarily
initial offering 61,381 768
Issuance of share capital, primarily
secondary offering 39,485 503
--------- -------------
Balance as of 30 June 2017 145,076 $ 1,940
========= =========
Number of Total Share
Shares Capital
--------- ---------------
Balance as of 1 January 2016 41,200 $ 630
No activity during the period - -
--------- -------------
Balance as of 30 June 2016 41,200 $ 630
========= =========
Number of Total Share
Shares Capital
--------- ---------------
Balance as of 1 January 2016 41,200 $ 630
Issuance of share capital, Board Member 800 12
Issuance of share capital, Chief Operating
Officer & Finance Director 2,210 27
--------- -------------
Balance as of 31 December 2016 44,210 $ 669
========= =========
Note 15 - Decommissioning Liability
The Company records a liability for future cost of
decommissioning production facilities and pipelines on a discounted
basis. The decommissioning liability represents the present value
of decommissioning costs relating to oil and gas properties, which
are expected to be incurred up to 2047, which is when the producing
oil and gas properties are expected to cease operations. These
liabilities are recorded based on the Directors' internal
estimates. Assumptions based on the current economic environment
have been made, which the Directors believe are a reasonable basis
upon which to estimate the future liability. These estimates are
reviewed regularly to take into account any material changes to the
assumptions. However, actual decommissioning costs will ultimately
depend upon future market prices for the necessary decommissioning
works required that will reflect market conditions at the relevant
time. Furthermore, the timing of decommissioning is likely to
depend on when the fields cease to produce at economically viable
rates. This, in turn, will depend upon future oil and gas prices,
which are inherently uncertain. The discount rate and the cost
inflation rate used in the calculation of the decommissioning
liability were 8.0% and 3%, respectively as at each of the periods
presented. See Note 9 for a discussion of acquisition activity that
drove the increase in the liability since 31 December 2016:
Beginning Change Ending
Period Liability Additions Accretion Disposals of Estimate Liability
------------- ----------- ----------- ----------- ------------- -------------- -------------
As at and for
the
6 months
ended 30
June 2017
(Unaudited) $ 12,265 $ 18,780 $ 585 $ - $ - $ 31,630
As at and for
the
6 months
ended 30
June 2016
(Unaudited) 8,869 5,706 223 - - 14,798
As at and for
the
year ended
31 December
2016
(Audited) 8,869 5,457 797 (4) (2,854) 12,265
Note 16 - Borrowings
As discussed in Note 14, the Company used part of the equity
proceeds raised through its IPO on AIM to repay much of the debt
outstanding at 31 December 2016. DGO's borrowings consist of the
following amounts for the periods presented:
Unaudited Unaudited Audited
30 June 30 June 31 December
2017 2016 2016
----------- ----------- ---------------
Financial institution, with interest
rate of 3.25%, matured December
2016, secured by oil and gas properties $ - $ 16,118 $ 15,768
Financial institution, interest
rate of 4.00%, matured August
2016, secured by oil and gas properties - 3,225 3,165
Financial institution, interest
rate of WSJ Prime Rate plus 0.50%,
maturing July 2017, secured by
oil and gas properties - 2,000 2,000
Financing companies, interest
rates of 10%-12%, maturing September
2016 - November 2016, secured
by oil and gas properties - 6,650 4,750
Individuals and institutional
investor bonds, interest rate
of 8.50%, maturing June 2020,
unsecured 118 13,009 13,928
Financial institution, interest
rate of 8.25% plus LIBOR, maturing
July 2020, secured by oil and
gas properties (a) 64,000 - -
Miscellaneous notes, primarily
for equipment, real estate and
operational cash flow 497 1,537 1,728
Total borrowings $ 64,615 $ 42,539 $ 41,339
------ ------ --------
Less current portion of long-term
debt (305) (29,194) (27,181)
Less deferred financing costs
(b) (2,994) (3,753) (4,045)
Total non-current borrowings,
net $ 61,316 $ 9,592 $ 10,113
====== ====== ========
a. In June 2017 the Company closed a new $110,000 Senior Secured
Credit Facility, of which $64,000 was drawn upon closing on 30 June
2017. Of the $46,000 undrawn, $11,000 is reserved to close on the
remaining oil and gas assets discussed in Note 9. The remaining
$35,000 availability can be used within the first twelve months of
the facility's life to finance additional acquisitions, of which
$25,000 would require an additional underwriting process by the
lender.
b. Subsequent to 31 December 2016, all deferred financing costs
were expensed when applicable borrowings were paid in full using
IPO proceeds. The deferred financing costs outstanding at 30 June
2017 were incurred with the financing of the Senior Secured Term
Loan.
The following table provides a reconciliation of DGO's future
maturities of its total borrowings for each of the periods
presented:
Unaudited Unaudited Audited
30 June 30 June 31 December
2017 2016 2016
----------- ----------- ---------------
Not later than one year $ 305 $ 29,194 $ 27,181
Later than one year and not
later than five years 64,310 13,345 14,158
Later than five years - - -
Total borrowings $ 64,615 $ 42,539 $ 41,339
======= ======= =========
Note 17 - Subsequent Events
Subsequent to 30 June 2017, the Directors determined the need to
disclose within the interim financial statements the following
material items:
a. Dividend Paid & Declared: See Note 8 for a discussion of
dividends paid and declared subsequent to 30 June 2017.
b. Hedging Activities: See Note 13 for a detail of derivative
financial instruments executed subsequent to 30 June 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BUGDCCSGBGRC
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September 11, 2017 02:00 ET (06:00 GMT)
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