TIDMDEC
RNS Number : 3274O
Diversified Energy Company PLC
07 October 2021
7 October 2021
Diversified Energy Company PLC
("Diversified" or the "Company")
Conditional Acquisition of Central Region Assets with Oaktree
Participation
Building Scale with Entry to Mid-Continent Producing Area
Diversified Energy Company PLC (LSE: DEC) announces that it has
entered into conditional agreements to acquire certain upstream
assets, field infrastructure, equipment and facilities (the
"Assets") within the Company's Central Region from Tapstone Energy
Holdings, LLC and its related party - KL CHK SPV, LLC (the
"Sellers") (collectively with the Assets, the "Acquisition"). Under
the previously announced Strategic Participation Agreement, funds
managed by Oaktree Capital Management, L.P. ("Oaktree") will make a
non-operated working interest investment in the Acquisition. Total
gross consideration, inclusive of Oaktree's investment is $419
million (approximately $366 million net of customary purchase
adjustments to the 1 August 2021 effective date).
This Acquisition, which represents the third co-investment with
Oaktree since May of this year, is strategically aligned with the
Company's prior Central Region acquisitions which included Tanos
Energy Holdings III LLC, Blackbeard Operating LLC and Indigo
Minerals LLC (the "Central Region Acquisitions").
Tapstone Acquisition Highlights - Diversified's Interest:
-- Gross cash consideration of $218 million ($174 million(a)
estimated net after customary purchase price adjustments) funded
entirely with cash and debt financing ("Purchase Price")
-- Represents a 1.8x multiple based on net Purchase Price and
$95 million of estimated Adjusted EBITDA(b) before potential
synergies
80% increase to the Company's previously announced anticipated
Adjusted EBITDA contribution from the Central Region Acquisitions,
bringing the region's total to approximately $214 million
(--) Net Purchase Price approximates a PV27 valuation at the
effective date of 1 August 2021 with Proved Developed Producing
("PDP") reserves of 35 MMBoe (208 Bcfe) and PV10 of $324 million as
of the effective date and based on 28 September 2021 NYMEX
strip
-- Current production(c) of 12 MBoepd (72 MMcfepd) from 660 net operated PDP wells
33% increase to previously announced anticipated Central Region
production
Gas-weighted production (80% natural gas and NGLs) and
commitment to optimise existing assets aligns with Diversified's
ESG strategy
(--) High cash margins(d) of 65% reflective of favourable
realised pricing benefitting from higher liquids content and a
competitive and scaling cost structure ($11.69/Boe; $1.95/Mcfe)
-- Expands the Company's Central Region footprint into the
well-established, operator-fragmented Mid-Continent producing area
that broadens the Company's consolidation opportunities
-- Pro-forma Net Debt / Adjusted EBITDA of 2.1x(e)
Oaktree Participation Highlights
-- Oaktree will acquire 48.75% of the working interest in the
Assets for $192 million(a) , representing 50% of the net total
consideration after customary purchase price adjustments and
reflective of the 2.5% initial promote
-- Oaktree's third co-investment within Diversified's Central
Region, deploying an aggregate $370 million of its $1 billion
commitment
Rapidly Building Scale within the Central Region
The Company signed a conditional Plan of Merger and Purchase and
Sale Agreement with the Sellers on 6 October 2021, its fourth
acquisition of producing assets within the Company's Central Region
within the past five months. Net of Oaktree's co-investment,
Diversified will acquire 660 operated producing wells with August
2021 production of 12 MBoepd (72 MMcfepd; over 80% natural gas and
NGLs) located in Oklahoma within the broader Mid-Continent
producing area. This Acquisition demonstrates Diversified's status
as a capable consolidator, highlighting its ability to build
regional scale at compelling valuations. As with the broader
region, the Mid-Continent also benefits from a constructive
regulatory environment and aligns with the Company's operating and
ESG strategic initiatives. Diversified and Oaktree expect to close
the acquisition in early December 2021 upon completing customary
diligence.
Diversified's expansion into the Mid-Continent producing area is
a natural next step in further consolidating the Central Region and
represents an entry into an established and well-developed area
with strong economic fundamentals including high cash margins
reflective of favourable takeaway pricing and competitive cost
structure. The production weighted average well age of 12 years
complements the Company's target asset profile of mature, long-life
and low-terminal decline wells. Following the Acquisition, the
Company estimates its consolidated corporate decline will
approximate a peer-leading 9% (f) .
The net Purchase Price represents a highly attractive
approximate PV27 of the acquired producing reserves, and the
estimated net Purchase Price represents 1.8x multiple of estimated
Adjusted EBITDA(b) , which is leverage enhancing compared to the
Company's consolidated 2.1x multiple. Importantly, the Acquisition
highlights the Company's ability to execute value-additive
acquisitions throughout the commodity price cycle.
With an effective date of 1 August 2021, Diversified's 51.25%
working interest in the Acquisition adds 35 MMBoe (208 Bcfe) of net
PDP reserves, with a PV10 of $324 million with an estimated
Adjusted EBITDA of $95 million(b) , and strong cash operating
margins of 65%(d) reflective of high realisations and a low
operating cost structure that excludes the potential benefit of
immediate or future synergies.
Consistent with the Company's growth strategy, Diversified
intends to retain Tapstone personnel who will assist with
Diversified's Smarter Asset Management programme to optimise asset
performance, reduce costs and add value through realisation of
operational synergies within the Central Region.
The Company will fund its portion of the net cash consideration
entirely with cash on hand and debt financing, resulting in an
approximate pro-forma leverage of 2.1x(e) .
Hedging
The Company is acquiring the Assets unhedged and, upon closing,
will opportunistically protect the Acquisition's cash flows,
capitalising on the improved forward commodities price curves.
Upon successfully completing the Acquisition, Diversified's
Central Region production and Adjusted EBITDA contribution will
equate to 50% and 70% of the Company's prior year (2020) Appalachia
production and hedged Adjusted EBITDA, respectively. The Company
remains active in its evaluation of strategically aligned asset
acquisitions in this and its legacy Appalachian regions with both
providing significant opportunities for further consolidation to
build scale and drive synergies.
Commenting on the Acquisition, CEO Rusty Hutson, Jr. said:
"With a net purchase price of less than two times net cash flow,
this acquisition represents another highly accretive, fully balance
sheet-financed acquisition that further demonstrates our status as
a capable consolidator of producing assets within the Central
Region. Our enlarged regional footprint strengthens our portfolio
with additional high-quality assets and added scale to drive
synergies. We are pleased to once again partner with Oaktree to
acquire assets at a compelling multiple and with material upside
potential available through asset optimisation.
"Replicating our success in Appalachia, we have quickly
established ourselves as a significant operator in the Central
Region, which positions us for additional growth. As we work to
seamlessly integrate these assets, we look forward to welcoming
Tapstone's employees to the growing Diversified family."
Later today, the Company will host a webcast / conference call
to discuss the Acquisition.
Event details:
Date 7 October 2021
Time 2:00 pm BST / 8:00 am CDT
US (toll-free) +1 877-407-5976
UK (toll-free) +44 (0)800 756 3429
Web Audio www.div.energy/news-events/events
Evercore is serving as exclusive financial advisor to
Diversified in connection with the Acquisition. Jefferies acted as
sole financial advisor to the Sellers.
The Acquisition constitutes a Class 2 transaction for the
purposes of the Listing Rules, and this announcement is made in
accordance with the Company's disclosure obligations pursuant to
Chapter 10 of the Listing Rules.
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 and Interim Results for the Six
Months Ended 30 June 2021):
(a) Differences in the allocation of Purchase Price relates to certain assets
the Company is acquiring at 100% of the proportionate interest in the
Acquisition (including the indirect ownership and retention of a 50.8%
interest in the units of the Chesapeake Granite Wash Trust (NYSE:CHKR),
a publicly traded royalty interest entity) and other customary purchase
adjustments and tax matters
(b) Reflects Diversified's proportionate interest of the Acquisition's next
twelve months (ended 31 December 2022) Adjusted EBITDA; assumes historical
cost structure using NYMEX strip as of 28 September 2021 and is not
reflective of synergies that may be realised following post-acquisition
integration; this figure is not intended in any way to constitute a
projection of actual results attributable to the Central Region Acquisitions
or consolidated pro-forma Company
(c) Current production defined as August 2021 average daily production (net)
for the acquired assets
(d) Cash Margin calculated as the Acquisition's Adjusted EBITDA, see footnote
(b), as a percentage of Adjusted Total Revenue (which includes as applicable
natural gas, NGLs and crude oil commodity revenue, midstream revenue
and other revenue)
(e) Pro-forma Net Debt / Adjusted EBITDA ("leverage") calculated as estimated
post-closing Net Debt / LTM Adjusted EBITDA (hedged) as of 30 June 2021,
pro-forma for the annualised impact of previously announced Central
Region acquisitions; this figure is not intended in any way to constitute
a projection of actual results attributable to the Central Region Acquisitions
or consolidated pro-forma Company
(f) Illustrative value represents consolidated one-year total Diversified
production decline, pro-forma for the Acquisition and the previously
announced Central Region Acquisitions; excludes production contribution
from 5 Tanos wells with less than 12 months of production history at
the time of acquisition
Market Abuse Regulation
This announcement contains inside information for the purposes
of article 7 of the UK version of regulation (EU) no. 596/2014 on
market abuse, as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018 ("UK MAR"), and regulation
(EU) no. 596/2014 on market abuse ("EU MAR").
For further information, please contact:
Diversified Energy Company PLC +1 205 408 0909
Teresa Odom
www.div.energy
ir@dgoc.com
Buchanan +44 20 7466 5000
Financial Public Relations
Ben Romney
Chris Judd
Jon Krinks
James Husband
dec@buchanan.uk.com
About Diversified Energy Company PLC
Diversified Energy Company 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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