TIDMDGOC
RNS Number : 2671X
Diversified Gas & Oil PLC
30 April 2021
The issuer advises that the following release replaces the
Acquisition Announcement and Trading Update released at 7.01am BST
on 30(th) April 2021.
The first bullet for 'Financed with borrowings on the Revolving
Credit Facility' under Acquisition Highlights has been corrected to
state Pro forma consolidated Net Debt/Adjusted EBITDA unchanged at
2.3x rather than 2.4x in the earlier version.
Nothing else has been amended. The full corrected version is
below.
30 April 2021
Diversified Gas & Oil PLC
("Diversified" or the "Company")
Conditional Acquisition in New Regional Focus Area and Trading
Update
Diversified Gas & Oil PLC (LSE: DGOC) 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 31 March 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
-- Purchase price of $135MM (gross; estimated $115MM net
purchase price after customary purchase price adjustments)
2.9x multiple on $40MM of Adjusted EBITDA (Hedged)(a) before
anticipated synergies
13% accretive to the Company's 2020 Adjusted EBITDA(b)
PV10 $175MM as of 1 March 2021 effective date and based on 16
April 2021 NYMEX strip price
Proved-Developed-Producing ("PDP") reserves of 50 MMBoe (305
Bcfe)
Current production of 16 MBoepd (95 MMcfepd) includes 780 net
operated wells
Benefits from Gulf Coast pricing driving higher realisations
Retaining key field employees to streamline integration and
Smarter Asset Management
-- Strategic entry into prolific, gas-producing Cotton Valley/Haynesville area
Provides a robust opportunity set for further acquisitions
Compatible with roll-up strategy leveraging scale and geographic
density to drive efficiencies
-- Financed with borrowings on the Revolving Credit Facility
Pro forma consolidated Net Debt / Adjusted EBITDA unchanged at
2.3x(c)
Transaction effective date of 1 March 2021 with an anticipated
closing in late May 2021
-- Central Regional Focus Area Highlights
-- Includes producing areas within Louisiana, Texas, Oklahoma and Arkansas
-- Offers significant opportunity to grow scale through
complementary bolt-on and/or larger opportunities
-- Enhances ability to optimise capital allocation across
multiple regions as dictated by the prevailing M&A environment
or other economic or operational factors
-- Similar size geographical footprint to Diversified's existing Appalachia region
-- Similar asset characteristics to Appalachia
-- Industry supportive regulatory environments
-- Substantial existing infrastructure complements a low-operating cost structure
Q1'21 Operations and Financial Highlights
-- Average net daily production of 102 MBoepd (612 MMcfepd)
73% Conventional (75 MBoepd; 448 MMcfepd)
27% Unconventional (27 MBoepd; 164 MMcfepd)
-- Adjusted average net daily production ("Adjusted Production")
of 105 MBoepd, 3% higher for identifiable, temporary and primarily
winter-weather related downtime
-- 72% Conventional (76 MBoepd; 454 MMcfepd)
-- 28% Unconventional (29 MBoepd; 174 MMcfepd)
-- Q1'21 Adjusted EBITDA of $78MM (hedged) contributing to Cash Margin of 52%(d)
-- Total unit cash expense(e) of $7.86/Boe ($7.66/Boe on Adjusted Production ("Adjusted"))
-- Base LOE of $2.63/Boe ($2.57/Boe, Adjusted)
-- Total operating expenses of $6.13/Boe ($5.98/Boe, Adjusted)
-- Total recurring administrative expense of $1.73/Boe ($1.68/Boe, Adjusted)
-- Net Debt / Adjusted EBITDA(f) of 2.3x and available liquidity of $204MM(g)
-- Q1'21 dividend of 4.00c/share, payable on 24 September 2021
(ex-dividend date of 2 September 2021)
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 optimising 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 capitalise
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 optimise 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 programme 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 16 April 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 1 March
2021.
Consistent with Diversified's acquisition strategy, the long
life and low-decline nature of the Assets' annualised $40MM of
Adjusted EBITDA(a) ("Cash Flow") enhances the Company's free cash
flow generation and strong Cash Margins with access to the
favourable 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 programme. Replicating its
success in Appalachia, DGO will continue to optimise 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 securitisations, 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: 30 April 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:
-- Transition from AIM to the Premium Segment of the Main Market
and transition of our independent financial and reserve audit work
to PricewaterhouseCoopers and Netherland, Sewell & Associates,
Inc., respectively;
-- Enhanced governance with an expanded, more diverse and more independent Board;
-- Investments in a variety of ESG-related activities including
asset integrity and line loss initiatives; and
-- Investments in our people, processes and systems with an
emphasis on scalability and security including:
Cloud data architecture capable of efficiently growing with the
Company and
Technology that will provide insights to optimise both financial
and human capital allocation.
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):
(a) Multiple based on estimated net purchase price of $115MM and Acquisition's
annualised 4Q'20 Adjusted EBITDA (hedged), where Adjusted EBITDA assumes
historical cost structure and not reflective of synergies that may be
realised following post-acquisition integration
(b) Based on the Company's 2020 reported Adjusted EBITDA of $301MM and the
Acquisition's annualised 4Q'20 Adjusted EBITDA (hedged) of $40MM
(c) Pro forma, calculated as current Net Debt/Adj EBITDA, see footnote (f),
adjusted for the impact of the Acquisition's Net Purchase Price and
Estimated Adjusted EBITDA (Hedged) as described herein
(d) Cash Margin calculated as Adjusted EBITDA (Hedged) as a percentage of
Adjusted Total Revenue (which includes natural gas, natural gas liquids
and crude oil commodity revenue, midstream revenue and other revenue)
plus settled net hedging gains (losses) as applicable
(e) Total Unit 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.
(f) Calculated as Net Debt at 31 March 2021 (inclusive of Acquisition down
payment) / LTM ended 31 March 2021 Adjusted EBITDA (Hedged), pro forma
for the annualised impact of previously announced Carbon, EQT and Utica
shale acquisitions
(g) As at 31 March 2021
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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END
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