TIDMDGOC
RNS Number : 0301N
Diversified Gas & Oil PLC
27 January 2021
27 January 2021
Diversified Gas & Oil PLC
("DGO" or the "Company")
Trading Statement and Cancellation of Warrants
Diversified Gas & Oil PLC (LSE: DGOC) is pleased to announce
the following operations and trading update confirming 2020 results
are in line with market expectations. DGO also announces that it
will release its 2020 full-year results and host an investor call
on 8 March 2021, as more fully detailed below.
Highlights
-- Record full-year average daily production of 100 Mboepd, up 18% vs. 2019
-- Full-year average daily production from Legacy Assets of 69
Mboepd, consistent with 2019 as Smarter Asset Management continues
to offset natural declines within the portfolio
-- Full-year cash operating expense of $5.58/Boe ($0.93/Mcfe), 15% lower vs 2019
-- Full-year total cash expenses, including G&A, of $6.93/Boe ($1.15/Mcfe), 10% lower vs. 2019
-- 4Q20 accretive bolt-on acquisition of five gross
unconventional wells in Ohio for $8.4 million or 2.6x cash flow
-- Robust hedge portfolio provides cash flow and dividend
stability with 90% of 2021 natural gas hedged at a weighted average
floor price of $2.66/MMBtu
-- Improved pricing outlook provides a constructive backdrop as
the Company consistently layers in additional hedge protection in
future years
Commenting on these accomplishments, CEO Rusty Hutson, Jr.
said:
"2020 proved to be another dynamic year for Diversified as we
completed our transition from AIM to the premium segment of the
Main Market, invested in enhanced Governance and efficiency-driving
technology, and completed a series of accretive acquisitions funded
using a balanced mix of equity and low-cost, fully amortising and
hedge-protected financings. Additionally, the unprecedented events
of 2020 have underscored the inherent resilience of our business
model. We've built our business to operate in any natural gas price
environment, and the strength of that model was evident throughout
the significant volatility of 2020. Not only did our business model
perform well, but the resolve of our employees was outstanding.
"With our successes last year, we are positioned to enter 2021
with momentum including our most recent fourth-quarter
complementary bolt-on acquisition of unconventional assets. With a
strong balance sheet, efficient cost structure, improved commodity
price outlook, strong hedge protection and a robust outlook of
potential accretive growth, we are poised for another exceptional
year. Our opportunities to acquire high-quality assets that enhance
or meaningfully enlarge our portfolio continue to increase with
prolonged lower commodity prices and a sector increasingly
motivated to consolidate. As we've demonstrated with each previous
transaction, additional scale can further improve efficiencies and
support the high cash operating margins that add stability to our
dividend."
Operations Update
Production
DGO's total net production in Mboepd (or thousand barrels of oil
equivalent per day) for the annual periods presented is as
follows:
Change
---------
Net Production (Mboepd) FY20 FY19 # %
---- ---- --- ----
Consolidated 100 85 15 18%
Legacy Assets(a) 69 70 (1) (1)%
DGO achieved record consolidated net production of 100 Mboepd
(599 MMcfepd, or million cubic feet equivalent per day) for the
twelve months ended 31 December 2020, representing an 18%
year-over-year increase. In a year defined by uncertainty and
volatility largely tied to the global pandemic, DGO demonstrated
the durability of its business model designed to thrive in any
commodity price environment. The Company's success was underpinned
by its consistent and diligent Smarter Asset Management programme
and the successful acquisition and integration of accretive
upstream and midstream acquisitions.
DGO exited 2020 with December average production of 103 Mboepd
(617 MMcfepd), including 68 Mboepd (406 MMcfepd) from its stable
foundation of Legacy assets. Adjusting for identifiable and
temporary production downtime, the Company's adjusted exit rate
approximated 105 Mboepd (628 MMcfepd), including 69 Mboepd from its
Legacy assets, which represents an 8% increase to the December 2019
consolidated exit rate of 95 Mboepd (569 MMcfepd). Downtime during
the fourth quarter related to non-controllable events including
maintenance at third-party midstream and processing facilities.
Looking forward to 2021 and mindful of the Presidential
Executive Order to ban drilling on federal lands, the Company
highlights that less than 1% of its total acreage consists of
federal property. The Company further noted that its model of
acquiring and operating existing production would be unaffected by
the current order which has no bearing on existing gas and oil
properties. More broadly, a changing regulatory environment with no
development on federal lands may curtail the pace of additional
development thereby contributing to higher commodity prices as
demand remains unchanged.
Recent Bolt-on Acquisition
The Company has closed the bolt-on acquisition of five gross
unconventional Utica Shale horizontal wells (the "Assets") for
total cash consideration of $8.4 million, prior to normal and
customary purchase price adjustments (the "Acquisition"). The
Assets are in Monroe County, Ohio and are in close proximity to the
Company's existing assets. This complementary Acquisition, fully
funded with existing liquidity on the credit facility, reflects the
Company's continued commitment to pricing discipline, representing
a purchase price multiple of approximately 2.6x next twelve months'
projected cash flow.
The synergistic Acquisition demonstrates the availability of
quality asset as operators continue to focus their operations
around assets they define as core. The Acquisition also represents
the continuation of DGO's long-standing strategy of making
accretive acquisitions of varying sizes that expand the Company's
regional scale and complement operating efficiencies including
lower unit operating costs that bolster strong cash (Adjusted
EBITDA) margins. The Assets have an average well age of two years
and daily net production at closing of approximately 6 MMcfe per
day (1.0 Mboepd). The Acquisition adds approximately 14 Bcfe of PDP
reserves with a PV10 of $9.7 million on recent NYMEX strip(b) ,
with the purchase price representing an approximate PV15 value.
Financial Update
Continued Cost Discipline
Total Unit Cash Expense(c) FY20 FY19
---------------------- -----------------
$/Boe $/Mcfe $/Boe $/Mcfe %
---------- ---------- --------- ------ ---------
Total Lease Operating Expense $ 5.58 $ 0.93 $ 6.54 $ 1.09 (15)%
General & Administrative Expense
(Adjusted) 1.34 0.22 1.17 0.19 15%
---------- ---------- --------- ------ -----
Total Unit Cash Expense $ 6.93 $ 1.15 $ 7.71 $ 1.28 (10)%
====== ====== ===== ===== =====
Amounts may not sum due to rounding
DGO's operating efficiencies and consistent production
contributed to lower per unit expenses. DGO reduced its Total Unit
Cash Expenses largely through lower base lease operating expenses
as it operates a larger portfolio of assets across the basin, and
through lower production taxes amid lower commodity prices. These
savings were partially offset by increases to adjusted general and
administrative expense supporting its move to the premium segment
of the Main Market and positioning itself with the team needed to
support the larger company and effectively capitalise on a growing
inventory of producing wells and complementary midstream
opportunities that are highly aligned with the Company's
strategy.
Liquidity Update and Leverage Profile
DGO's liquidity approximates $210 million including cash on hand
and undrawn amounts on the Company's revolving credit facility.
Reflective of the Company's fully amortising debt instruments and
adjusting for acquisitions, DGO reduced its outstanding debt with
$82 million in debt principal payments(d) during 2020, resulting in
a Net Debt of approximately $725 million and Net Debt/Adjusted
EBITDA(e) of 2.2x at 31 December 2020.
Hedging Update
The Company enters 2021 with significant downside protection,
including approximately 90% of its natural gas production hedged at
a weighted average floor price of $2.66/MMBtu. These hedges
establish a significant portion of DGO's revenues, protecting the
Company's cash flows, future dividend distributions and debt
repayments. As the natural gas price outlook continues to improve,
DGO will proactively continue to increase its 2022 hedge book and
beyond, building on an already solid foundation of approximately
65% of 1H2022 production hedged, with an average floor price of
$2.61/MMBtu.
The table below presents the Company's full-year hedge positions
for the periods reflected:
GAS NGL OIL
---------------------------------
Wtd. Avg. % of Wtd. Avg. % of Wtd. Avg. % of
Hedge Price(f) Production Hedge Price(f) Production Hedge Price(f) Production
Hedged(g) Hedged(g) Hedged(g)
--------------- --------------- --------------- --------------- --------------- ----------------
FY21 $2.66 90% $21.44 90% $48.44 75%
FY22 $2.55 60% $24.75 45% $43.06 30%
Settlement of Existing Warrants and Broker Appointment
DGO entered into an agreement to cancel 2,377,143 warrants (the
"Warrants") held by Mirabaud Securities Limited ("Mirabaud") and
certain former Mirabaud employees for an aggregate principal amount
of approximately GBP1.0 million (equivalent USD of approximately
$1.4 million(h) ). Mirabaud and its former employees will surrender
the Warrants to DGO for cancellation. Following this purchase,
1,122,634 warrants remain outstanding. This notification complies
with LR 12.5.2R in relation to the cancellation of the
Warrants.
DGO is also pleased to announce it has appointed Tennyson
Securities as its Joint Broker. Tennyson Securities is the new home
of the Primary Team joining from Mirabaud, providing continuity of
the Company's broking relationships.
Final Results Release Information
Conference Call
The Company will issue its full-year 2020 results on 8 March
2021. Following the release of the full-year results, DGO will host
a conference call on 8 March 2021 at 2:00pm GMT (9:00am EST) to
discuss the results.
The conference call details are as follows:
Date: 8 March 2021
Time: 2:00 p.m. GMT / 09:00 a.m. EST
US (toll-free) +1 877 407 5976
UK (toll-free) +44 (0)800 756 3429
Web Audio www.dgoc.com/news-events/events
Replay Information https://ir.dgoc.com/financial-info
Investor Webinar
Additionally, on 10 March 2021 at 6:00pm GMT (1:00pm EST), DGO
is pleased to host an investor webinar featuring CEO Rusty Hutson,
COO Brad Gray and CFO Eric Williams during which management will
discuss the full year results. To register for the webinar, please
contact Yellowstone Advisory at info@yellowstoneadvisory.com, or
refer to the following link:
https://us02web.zoom.us/webinar/register/5816106105281/WN_u6UZAWCXTXaT_8uqF9rPEg
.
Footnotes:
(a) Legacy assets defined as assets owned at 31 December 2018
and prior to acquisitions made in 2019 and 2020.
(b) 10-year NYMEX strip as at 20 October 2020.
(c) Total cash expenses represent total lease operating costs
plus recurring administrative costs. Total lease operating
costs include base lease operating expense, owned gathering
and compression (midstream) expense, third-party gathering
and transportation expense, and production taxes. Recurring
administrative expenses is a non-IFRS financial measure defined
as total administrative expenses excluding non-recurring acquisition
& integration costs and non-cash equity compensation.
(d) Includes total debt principal reductions adjusted for draws
to fund acquisitions made on the revolving credit facility
during the period.
(e) Net debt of $725 million assumes total debt less cash and
restricted cash. Adjusted EBITDA of $326 million assumes annualised
pro-forma hedged EBITDA on previously announced Carbon and
EQT acquisitions to account for timing differences.
(f) Weighted average price reflects the weighted average of the
swap price and floor price for collar contracts.
(g) Illustrative percent hedged, calculated using December 2020
Exit Rate and assuming an annual decline rate of 6%.
(h) Currency conversion performed using an exchange rate of GBP:USD
1:1.36832.
For further information, please contact:
Diversified Gas & Oil PLC +1 205 408 0909
Teresa Odom, Vice President,
Investor Relations
www.dgoc.com
ir@dgoc.com
Buchanan +44 20 7466 5000
Financial Public Relations
Ben Romney
Chris Judd
Kelsey Traynor
James Husband
dgo@buchanan.uk.com
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.
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