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Diversified Gas & Oil PLC

DGOC reveals another big acquisition, launches US$225mln equity funding

"This is yet another transformative transaction consistent with our ambitious and proven growth strategy,” said chief executive Rusty Hutson

oil and gas operations
The new package of wells are located near existing operations in Pennsylvania and West Virginia

Diversified Gas & Oil PLC (LON:DGOC) said after Wednesday’s close that it had launched a US$225mln equity raise to help fund a new US$400mln acquisition for its Appalachian basin portfolio.

The acquisitive AIM-quoted firm, which had a £634mln market value prior to the announcement, has agreed to pick up 107 additional gas production wells from HG Energy II Appalachia.

It is expected to increase production volumes by more than 20,000 barrels of oil per day - to take output to over 90,000 boepd.

DGOC noted that the latest asset additions were located in the vicinity of its existing operations, in Pennsylvania and West Virginia.

WATCH: DGOC reports US$289.8mln of revenue as acquisitive growth continues

"This is yet another transformative transaction consistent with our ambitious and proven growth strategy,” said chief executive Rusty Hutson.

“These are high-quality assets that are synergistically compatible with our existing portfolio in terms of profile and geography. 

“This package comprises significantly higher volumes per well than our previous acquisitions and achieve higher realised gas prices, resulting in a positive impact for the overall economics of the enlarged portfolio as we continue to reduce operating costs and drive higher margins.”

Hutson added: “With an estimated net average production of over 90,000 boepd post completion, the company will be established in the top-tier of London listed producers, supported by an extremely strong cash flow profile and a healthy balance sheet. 

“We look forward to completing this transaction so we can turn our focus towards integration, an area of expertise that DGO continues to enhance with each acquisition that we complete.”

Placing and secondary share sale

The deal is being paid for via a draw-down of existing financing facilities and the new share placing.

Some 151.5mln new shares are being sold at a price of 117p each, DGOC confirmed on Thursday morning, with the equity funding set to raise £177.3mln gross, which is expected to give the company £170.5mln (US$225mln) net.

Additionally, DGOC highlighted that the share placing was oversubscribed and as such there will also be a sale of some 12.5mln existing shares to investors – with funds associated with Trive Capital seeking to dispose of their shareholdings.

In a note to clients, analysts at Mirabaud said: “With the wider US shale industry increasingly focused on spending within cash flow and looking at ways to monetise non-core assets to keep the hamster wheel turning, this represents a huge opportunity set for a proven acquirer such as DGOC – especially as it has no interest in retaining the undeveloped shale rights that sit amongst the producing wells (allowing the vendor to keep the undeveloped acreage and return to drill it later). Indeed, following this latest acquisition, we can see DGOC quickly establishing itself as ‘buyer of choice’ amongst companies seeking to shed mature shale assets to raise drilling funds.”

In early afternoon trading, shares in DGOC were nearly 6% higher at 124p.

 -- Adds analyst comment, share price --

Quick facts: Diversified Gas & Oil PLC

Price: £1.14

Market: AIM
Market Cap: £748.85 m
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