Oaktree, a premier global firm with a history of successful partnerships, has agreed to commit up to US$1bn in aggregate over three years for mutually agreed upon “proved developed producing” (PDP) acquisitions with transaction valuations greater than US$250mln.
Diversified Gas & Oil (DGO) will match Oaktree’s investment on a dollar for dollar basis and will act as the sole operator of all assets acquired.
The deal will also feature a deal whereby DGO will initially receive a 52.5% working interest in an asset for a 50.0% asset, leaving Oaktree with a 47.5% working interest.
Upon achieving a 10.0% ungeared internal rate of return on its investment by acquisition tranche, DGO’s ownership of the relevant acquisition will increase to 59.625%, leaving Oaktree with 40.375%.
DGO will have first dibs on acquiring Oaktree’s interest when the latter decides to sell up so long as it matches the terms of the best offer for the interest.
“We continuously evaluate various PDP asset packages and anticipate more coming to market over the near term as the prolonged lower commodity price environment and capital market conditions create an environment poised for consolidation,” Rusty Hutson, the chief executive officer of FTSE 250-listed DGO said in a statement.
“This agreement uniquely positions DGO and Oaktree to capture long-term value for our respective shareholders, including opportunities of a greater size than we otherwise might have approached on a stand-alone basis. Additionally, having paid and declared over US$165 million in dividends since our 2017 IPO, including last week's quarterly dividend totalling nearly US$25 million, this agreement enhances visibility into DGO's future opportunities to sustain production and cash flow through the acquisition of producing assets, underpinning our commitment to create tangible returns for shareholders through the dividend," he added,
Brook Hinchman, the co-head of North America for the Oaktree Opportunities Funds, said Oaktree was excited by the partnership announced today.
“Amidst an ever-changing oil & gas industry, Diversified has been resolute in pursuing its strategy of acquiring producing, cash-flowing assets and delivering shareholder returns through excellent execution. Oaktree's investment will allow Diversified to apply its proven framework to larger acquisition opportunities, accelerating the growth of the business and amplifying the returns to shareholders over the long-term," Hinchman added.