Diversified Gas & Oil PLC DGO Announces Strategic Participation Agreement (0244B)
05 October 2020 - 5:00PM
UK Regulatory
TIDMDGOC
RNS Number : 0244B
Diversified Gas & Oil PLC
05 October 2020
5 October 2020
Diversified Gas & Oil PLC
("DGO" or the "Company")
DGO Announces Strategic Participation Agreement
Diversified Gas & Oil PLC (LSE: DGOC), the US based owner
and operator of natural gas, natural gas liquids and oil wells as
well as midstream assets , is pleased to announce the signing of a
definitive participation agreement (the "Agreement") with funds
managed by Oaktree Capital Management, L.P. ("Oaktree") to jointly
identify and fund future proved developed producing ("PDP")
acquisition opportunities the Company identifies.
DGO continues to demonstrate its proven ability to identify
prudent ways to advance its growth strategy while strengthening its
balance sheet. The Agreement with Oaktree, a premier global firm
with a history of successful partnerships, enhances DGO's access to
capital in an opportunity-rich acquisition market and positions
both parties for continued success when other market participants
lack the capital or management teams to transact.
Key Terms
Up to $1 billion in aggregate over three years
* Oaktree Funding Commitment for mutually agreed upon PDP acquisitions with
transaction valuations greater than $250 million
Oaktree and DGO fund equal portions of completed
* Funding Allocation acquisitions (i.e. 50.0%/50.0%)
DGO will serve as the sole operator of all assets
* Operator the parties acquire under the Agreement
Oaktree will provide DGO a 5.0% upfront promote
* Initial Promote of its funded working interest (2.5% incremental)
at the time of an acquisition:
* DGO receives 52.5% working interest for a 50.0%
investment
* Oaktree receives 47.5% working interest for a 50.0%
investment
Upon achieving a 10.0% unlevered IRR on its investment
* Reversion Promote by acquisition tranche, Oaktree will convey to
DGO 15.0% of its working interest (7.125% incremental).
Upon Oaktree achieving the threshold rate of
return (10.0%):
* DGO's ownership will increase to 59.625%
* Oaktree's ownership will decrease to 40.375%
DGO has the right of first offer to acquire Oaktree's
* Right of First Offer ("ROFO"); Tag Rights interest when Oaktree decides to divest. DGO
and Oaktree each have the right to participate
in a sale by the other party with a third party
upon comparable terms
Strategic Benefits
In exchange for the opportunity to partner with a proven
management team, with a track record of successfully sourcing and
closing accretive acquisitions and then efficiently operating its
assets, and in exchange for DGO's administrative services, the
Agreement provides the following strategic benefits to DGO:
Initial Promote provides immediate accretion
* Accretive Promotes to DGO shareholders ($50 million on a fully funded
commitment) and Reversion (back-end) Promote
provides increased economics to DGO over time
Enhances DGO's ability to complete larger acquisitions
* Greater Scale with less debt and equity to fund its 50% portion
than would otherwise be needed to fund 100% of
the acquisition, driving greater efficiencies
on a per barrel equivalency basis
Enhances DGO's insight into distressed assets
* Supplementary Market Intel that meet the Company's asset profile and that
will benefit from the Company's Smarter Well
Management programme
DGO's partnership with a premier global private
* Enhanced Buyer Credibility capital provider who specialises in alternative
investment strategies offers greater visibility
to potential sellers of DGO's ability to fund
and close large-scale acquisitions
DGO's operatorship and its ROFO provides visibility
* Creates Visible Pipeline of Future Acquisitions into future assets that DGO can potentially acquire
as Oaktree elects to divest of its investment
Provides DGO with the agility and added flexibility
* Acquisition Timing Flexibility to acquire and finance acquisitions (i.e. Oaktree's
interest) throughout the commodity price cycles
Commenting on the Agreement, CEO, Rusty Hutson, Jr. said:
"We are excited to partner with Oaktree, a well-respected and
well-funded firm. 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. 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 $165
million in dividends since our 2017 IPO, including last week's
quarterly dividend totalling nearly $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."
Similarly, Brook Hinchman, Co-Head of North America for the
Oaktree Opportunities Funds, said:
"We are excited to partner with Diversified's world-class
management team. 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."
Jefferies LLC acted as financial advisor to DGO.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
For further information, please contact:
Diversified Gas & Oil PLC
Teresa Odom, Vice President Investor
Relations
www.dgoc.com + 1 (205) 408 0909
Buchanan
Financial Public Relations
Ben Romney
Chris Judd
Kelsey Traynor
James Husband
dgo@buchanan.uk.com +44 (0)20 7466 5000
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