TIDMDEC
RNS Number : 0875E
Diversified Energy Company PLC
05 July 2021
5 July 2021
Diversified Energy Company PLC
("Diversified" or the "Company")
Conditional Acquisition with Oaktree Participation in Central
RFA
Diversified Energy Company PLC (LSE: DEC) announces the
conditional acquisition of certain Cotton Valley and Haynesville
upstream assets and related facilities ("the Assets") in the states
of Louisiana and Texas from Tanos Energy Holdings III LLC ("Tanos")
(the "Acquisition").
Concurrently, Oaktree Capital Management, L.P. ("Oaktree") will
co-invest in the Acquisition under the joint participation
agreement announced on 5 October 2020, marking Oaktree's inaugural
participation in a transaction with Diversified and affirming their
confidence in the Company's recently defined Central Regional Focus
Area ("Central RFA"). Total cash consideration for the Acquisition
is $308 million.
Oaktree will also co-invest in the assets Diversified recently
acquired from Indigo Minerals LLC ("Indigo") to more fully align
both parties as working interest partners in assets located in the
Cotton Valley/Haynesville region given the contiguous nature of the
assets Indigo Minerals LLC ("Indigo").
Tanos Acquisition Highlights - Diversified's Interest:
-- Gross cash consideration of $154 million ($118 million net at
closing), equal to 50% of the total cash consideration as per
Oaktree joint participation agreement
Diversified will fund its portion entirely with cash on hand and
existing credit capacity
Diversified assumes certain below-market natural gas hedge
contracts through 2023, valued at $24 million as of 25 June 2021
(the "Assumed Hedges")(collectively with the cash consideration,
the "Purchase Price")
Net Purchase Price represents a 2.8x multiple on $51 million of
estimated next twelve months' ("NTM") Adjusted EBITDA(a) before
potential synergies
-- Diversified receives 51.25% working interest in the Assets
inclusive of Oaktree's initial 2.5% working interest promote
Diversified's working interest increases to 60% once Oaktree
achieves a 10% unlevered internal rate of return ("IRR") on its
investment
Diversified's share of the NTM Adjusted EBITDA(a) is 17%
accretive to the Company's 2020 reported Hedged Adjusted
EBITDA(b)
-- Proved Developed Producing ("PDP") reserves of 40 MMBoe (241
Bcfe) and PV10 of $201 million(c)
-- Current production of 14 MBoepd (82 MMcfepd) with 92% from 390 net operated wells
-- Favourable Gulf Coast pricing underpins >65% cash margins
-- Post-transactions with Oaktree participation leverage ratio (2020YE pro forma) of 1.9x
Oaktree Participation in Indigo - Highlights
-- Oaktree will acquire 48.75% of Diversified's working interest
in the Indigo assets for $58 million, representing 50% of the
previously announced net purchase price
-- Consistent with the terms of the Acquisition, Diversified's
working interest will increase to 60% once Oaktree achieves a 10%
unlevered IRR
-- Adjusted for Oaktree's participation, Diversified retains 8
Mboepd (49 MMcfepd) current production and $21 million NTM
EBITDA
Building Scale within the Central Regional Focus Area
Operations
The Company signed a conditional purchase and sale agreement
with Tanos on 2 July 2021 to acquire 390 net operated wells
producing 14 MBoepd (82 MMcfepd; 96% natural gas) located within
the Cotton Valley/Haynesville producing area of northwest Louisiana
and east Texas. Diversified and Oaktree expect to close the
transaction in mid-August 2021 following customary diligence,
reviews and approvals.
With an effective date of 1 January 2021, the Acquisition will
add 40 MMBoe (241 Bcfe) in PDP reserves, with a PV10 of $201
million(c) . The average production-weighted age of the acquired
wells is 9 years.
Consistent with Diversified's acquisition strategy, the long
life, predictable and shallowing decline of the Assets' estimated
$51 million of NTM Adjusted EBITDA(a) enhances the Company's free
cash flow generation, with strong cash margins underpinned by high
realisations from favourable Gulf Coast natural gas pricing.
The gross Purchase Price represents an approximate PV14 of the
acquired reserves, and estimated net Purchase Price represents just
a 2.8x multiple of NTM Adjusted EBITDA(a) before any anticipated
synergies. Accordingly, the Acquisition strengthens Diversified's
dividend distribution capabilities and creates opportunities to
deliver operational synergies.
This Acquisition represents the Company's third acquisition in
just over two months and demonstrates its significant momentum
consolidating high quality assets within its newly defined Central
RFA. The Assets are complementary to the Company's recently
acquired Cotton Valley assets from Indigo, and includes additional
working interest in 42 wells previously acquired from Indigo.
The enlarged and geographically dense asset base is better
positioned to drive near-term operating and administrative
synergies. Consistent with the Company's growth strategy and to
ensure an efficient and effective transition, Diversified will
retain certain Tanos field personnel currently servicing the wells
who will quickly begin to leverage Diversified's Smarter Asset
Management programme to both optimise and maintain asset
performance and realise synergies.
Oaktree Participation
Under the terms of the joint participation agreement, Oaktree
jointly evaluated the asset economics and elected to coinvest in
the Acquisition. Accordingly, both Diversified and Oaktree will
fund 50% of the net Purchase Price in exchange for working
interests of 51.25% and 48.75%, respectively. Diversified's larger
share reflects the up-front promote it will receive from Oaktree
(2.5% of Oaktree's investment) and its working interest will
further increase to 60% once Oaktree achieves a 10% unlevered IRR
based on its investment in the Assets.
Given the contiguous nature of the Tanos Assets with
Diversified's recently acquired assets from Indigo, Oaktree will
also participate in the Indigo transaction to align both parties as
working interest partners in assets located in the Cotton
Valley/Haynesville region. Under the same participation terms
detailed above, Oaktree will acquire from Diversified a 48.75%
working interest in the Cotton Valley upstream assets and related
infrastructure for $58 million (or 50% of the Company's net
purchase price for the Indigo assets). Diversified will use the
proceeds to reduce outstanding balances on the Company's Revolving
Credit Facility, with a post-transactions leverage ratio (2020YE
pro forma) of approximately 1.9x. Following Oaktree's
participation, the Company's working interest in the previously
announced annualised Adjusted EBITDA of $40 million and current
production of 16 MBoepd (95 MMcfepd) will adjust proportionately to
$21 million and 8 MBoepd (49 MMcfepd), respectively. As the result
of the transaction, Diversified will retain an interest in 400 net
operated wells and 26 MMBoe (156 Bcfe) of PDP reserves with a PV10
value of $90 million. Consistent with the terms of the Acquisition,
Diversified's interest will further increase to 60% when Oaktree
achieves 10% unlevered internal rate of return ("IRR") on its
investment.
Net of Oaktree's participation in both Tanos and Indigo, and
assuming the successful completion of the Acquisition and the
previously announced acquisition of Barnett assets from Blackbeard
Operating LLC, the aggregate contribution of the Company's Central
RFA assets represents a greater than 30% increase to Diversified's
2020 reported production and Hedged Adjusted EBITDA.
Upon closing the Acquisition, expected in mid-August 2021, the
Company will fund its portion of the net cash consideration
entirely with cash on hand and existing credit capacity. Subsequent
to the closing, the Company will pursue increasing its Revolving
Credit Facility with the additional collateral obtained from the
acquisitions.
Commenting on the Acquisition, CEO Rusty Hutson, Jr. said:
"When we announced our strategic entry into the Central RFA, we
expected to quickly build scale as a capable buyer with a proven
track record in a region with ample opportunity. Just over two
months later, we are excited to deliver results and build momentum
with the addition of geographically proximate assets that represent
the next step in achieving that goal and replicating our historical
successes in Appalachia. Once complete, our Central RFA
acquisitions will contribute over 30% of our production and
Adjusted EBITDA. I would like to welcome the Tanos operations
personnel who service the assets into the Diversified family, and I
look forward to working with them to build value for our
stakeholders.
"We are excited to partner with Oaktree in the Cotton
Valley/Haynesville area, which I believe will be the first of many
opportunities to partner in the region. Oaktree's participation not
only demonstrates the attractive nature of these acquisitions, but
also affords Diversified additional liquidity and line of sight to
identify and pursue opportunities while continuing to maintain a
strong balance sheet. Together, we will responsibly grow our
Central RFA footprint, build scale and drive operational
synergies."
The Company will host a conference call later today to discuss
the Acquisition, with call details as follows:
Date: 5 July 2021
Time: 1:00 pm BST / 07:00 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
Truist Securities, Inc. is serving as exclusive financial
advisor to Diversified in connection with the Tanos
Acquisition.
The Acquisition and the separate divestment by the Company of
Oaktree's proportionate share of the Indigo assets each constitute
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):
(a) Acquisition NTM Adjusted EBITDA assumes historical cost structure
and not reflective of synergies that may be realised following
post-acquisition integration; Purchase Price multiple based
on estimated net Purchase Price and Acquisition's NTM Adjusted
EBITDA (unhedged)
(b) Based on the Company's 2020 reported Adjusted EBITDA of $301
million and the Acquisition's estimated NTM Adjusted EBITDA
(unhedged) of $51 million
(c) Based on 1 January 2021 effective date and the full NYMEX
strip as of 28 June 20211
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 ("UK MAR"), as it forms part of UK domestic law by
virtue of the European Union (Withdrawal) Act 2018, 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
Kelsey Traynor
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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