TIDMDGOC
RNS Number : 0471O
Diversified Gas & Oil PLC
27 May 2020
27 May 2020
DIVERSIFIED GAS & OIL PLC
("DGO" or the "Company")
Completion of Carbon Energy Acquisition and 10-Year Amortising
Term-Loan Financing
Diversified Gas & Oil PLC (LSE: DGOC), the U.S. based owner
and operator of natural gas, natural gas liquids, and oil wells as
well as midstream assets, confirms that further to the
announcements made by the Company on 8 April 2020 and 12 May 2020,
it has completed the purchase of certain upstream and midstream
assets from Carbon Energy Corporation ("Carbon") (the
"Acquisition"). Concurrent with the Acquisition, DGO also closed on
a 10-year amortising $160 million gross senior secured term loan
($155 million net of fees and a $3 million interest and principal
reserve account) underwritten and funded by Munich Re Reserve Risk
Financing, Inc. ("MRRF") that includes a 6.5% fixed coupon and a
10-year hedge portfolio to stabilise cash flows (the
"Financing").
Acquisition Highlights:
-- PDP reserves of 74 MMBoe (444 Bcfe) with pretax PV10 of $189 million on recent NYMEX strip
-- Estimated next twelve months Adjusted EBITDA of $29-$31 million
-- Net consideration represents a 3.2x-3.4x cash multiple
-- 9,100 Boepd (54,600 Mcfe) of adjusted 2019 net production (97% gas)
-- Average 92% working interest / 82% net revenue interest
-- 6,100 net conventional wells with an average decline rate of 4%/year
-- 4,700 miles of midstream providing flow optionality and margin-enhancing opportunities:
o Significant future cost and operational optimisation
opportunities with >200 common intersects with existing DGO
gathering systems
o Direct connections to favourably priced interstate
pipelines
o Revenue-generating opportunities with direct connections to
large commercial/industrial and utility customers as well as two
active gas storage fields with 3.5 Bcf of working capacity
-- Immediate realisable synergies in field operating expenses
and G&A achieved by retaining 80% of existing Carbon
workforce
-- Inclusive of the assets acquired from both Carbon and EQT
Corporation ("EQT"), DGO's average daily net production is 112
Mboepd
For the Acquisition and at closing, DGO paid net consideration
of approximately $98 million ($110 million, gross) after customary
purchase price adjustments with a 1 January 2020 effective date.
Depending on future natural gas prices and measured on an annual
basis over the next three years, Carbon may earn additional
contingent consideration of up to $15 million in aggregate if
actual NYMEX natural gas prices exceed certain established
thresholds. Based on forward NYMEX natural gas prices at the time
of closing, total estimated contingent consideration is less than
$5 million.
The Financing:
Using the Financing proceeds, DGO funded the Acquisition and
repaid the short-term draw on its revolving credit facility used to
fund a portion of the EQT asset acquisition announced on 26 May
2020. DGO collateralised the Financing primarily with working
interest in certain of its newly acquired upstream assets and
related landholdings from EQT and Carbon (together, the "Collateral
Assets"). As with the Company's previous securitised financing
transactions, DGO created a wholly owned and fully consolidating
special purpose vehicle ("SPV") to hold the Collateral Assets,
which DGO will operate.
The Financing represents the Company's second transaction with
MRRF, the sole investor in the Company's inaugural $200 million
asset-backed securitised financing arrangement completed in
November 2019. Combined, MRRF has underwritten and funded $360
million (gross) since November 2019, validating the quality of the
Company's assets, cash flows and operating capabilities.
Financing Highlights:
-- 6.5% coupon
-- 10-year amortising repayment
-- No corporate covenants or recourse outside the SPV
-- 10-year hedge protection on specified volumes
o Hedged volumes are shaped to fit the natural expected
production decline from the assets over time
o Swap prices of $2.20/MMBtu for the remainder of 2020 and
$2.70/MMBtu and $2.65/MMBtu in 2021 and 2022, respectively
o DGO will post an updated hedge supplement to its website in
due course that reflects the entire hedge portfolio
Following the Financing, 70% of DGO's debt now sits in
long-term, fixed rate, amortising structures through 2030
underpinned with long-term hedges and no redetermination risk and
lessens DGO's reliance on its revolving credit facility during this
period of heightened market volatility. The long-term Financing
aligns with DGO's long-life assets, and its amortising structure
demonstrates commitment to continuous debt reduction while
eliminating future "bullet payments" along with the associated
refinancing risk.
Immediately following the Acquisition and Financing, the
Company's consolidated net debt-to-Adjusted EBITDA approximates
2.3x. Additionally, DGO's total liquidity now approximates $213
million, inclusive of cash and availability on its revolving credit
facility. The Company's liquidity reflects the impact of less cash
needed at closing due to a larger than originally estimated
downward purchase price adjustment for both acquisitions' effective
date of 1 January 2020. DGO's borrowing base on its revolving
credit facility remains $425 million as the Company begins working
with its bank group to complete its semi-annual redetermination
process during June 2020.
Commenting on the acquisition, Rusty Hutson, Jr., CEO of the
Company said:
"Today's transactions continue our commitment to create
long-term shareholder value through selective expansion of our
upstream and strategically important midstream assets. Like our
largely conventional legacy assets, Carbon's wells display the same
long-life, low-decline profile and expand our base of stable
production and Smarter Well Management opportunities. To that end,
we welcome the members of Carbon's team who today join the
Diversified family and partner with us to realise the full,
combined potential of these wells and the complementary midstream
assets. I would also like to thank Munich Re Reserve Risk
Financing, Inc. for their commitment to fund our acquisition of
assets from EQT and Carbon, increasing their total investment in
Diversified to $360 million during a time when many lenders are
reducing their exposure to the sector. We share a common belief in
the low-risk profile and high-quality nature of the underlying
assets and their associated cash flows, and believe this amortising
financing, in concert with proceeds from our successful equity
fundraising, further demonstrates our commitment to maintain a
healthy balance sheet and appropriate leverage profile relative to
the strength, reliability and visibility of our cash flow."
Diversified Gas & Oil PLC
Rusty Hutson Jr., Chief Executive Officer
Brad Gray, Chief Operating Officer
Eric Williams, Chief Financial Officer
Teresa Odom, Vice President, Investor Relations
www.dgoc.com + 1 (205) 408 0909
Buchanan
(Financial Public Relations)
Ben Romney
Chris Judd
Kelsey Traynor
James Husband
dgo@buchanan.uk.com +44 (0)20 7466 5000
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END
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