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Diversified Gas & Oil PLC acquisition of Core Appalachia Holding Co LLC

Commenting on the Acquisition, Diversified Gas & Oil’s CEO Rusty Hutson said:

“Our strategic acquisition of Core will allow us to unlock significant value from our enlarged base of assets in Kentucky and West Virginia that would otherwise not be achievable on a stand-alone basis. Core’s assets are highly contiguous to the assets we acquired from EQT earlier this year and materially expand our midstream footprint in Southern Appalachia. We expect to deliver both immediate and near-term synergies by combining these assets, resulting in higher revenues and lower operating expenses which will support our exceptional EBITDA margins across the portfolio and drive dividend payouts higher.

This acquisition increases our exposure to liquids pricing, and the expansion of our midstream assets enhances the underlying economics of our sizeable proved-developed-producing reserves by allowing us to realize the processing uplift from our natural gas liquids while simultaneously reducing our transportation costs. Additionally, the midstream assets allow us the optionality to move our production to different sales points, maximizing realized pricing. We have strategically diversified our business beyond upstream, and now own a significant network of gathering assets in Kentucky and West Virginia providing added control over the flow of our production and an additional revenue stream as we transport gas for other operators.”

Diversified Gas & Oil PLC (LON: DGOC), the US based gas and oil producer, today announced the acquisition of Core Appalachia Holding Co LLC  from TCFII Core LLC for total consideration of approximately $183 million comprised of a $130 million cash payment and the issuance of 35,000,000 new ordinary shares of 1 pence  at an effective issue price of £1.15 ($1.51) per share.

Acquisition Highlights:

· Purchase price is consistent with the Company’s stated multiple of PDP cash flows and with the ratio of purchase price-to-PV10 for assets purchased from EQT in July 2018

· Immediately accretive to cash flow and earnings

· Assets are highly complementary to the upstream and midstream assets acquired from EQT in July 2018, and allow the Company to unlock significant incremental value through consolidation to a single operator

· Upstream Assets:

o Daily production of ~11,200 boe/d (~90% gas) from ~5,000 wells located in Kentucky, West Virginia and Virginia

o High ~1,230 BTU gas is largely unprocessed allowing for significant NGL realization upside, supporting strong cash margins

o Production benefits from low differentials that enhance realized prices

· Midstream Assets:

o Significant midstream assets including ~4,100 miles of pipe and ~47,000 horsepower of compression which increases the Company’s total midstream assets to more than ~10,500 miles of pipe covering a significant portion of Kentucky and West Virginia

o Additional revenue stream (~$14m annualized from 1H18) from midstream assets that move ~26 MDthd of third-party volumes and support an incremental ~14 MDthd of third-party gas purchases that enhance pipeline and proved reserves economics

· Following the Acquisition, the Company anticipates that its:

o Total net working interest production increases by 19% to approximately 71,000 boed

o Net working interest PDP reserves will increase by 25% to 493mmboe

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.