Diversified Gas & Oil PLC DGO Announces Strategic Participation Agreement (0244B)

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 [phone] 
 Buchanan 
  Financial Public Relations 
  Ben Romney 
  Chris Judd 
  Kelsey Traynor 
  James Husband 
  [e-mail]                    [phone] 
 

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October 05, 2020 02:00 ET (06:00 GMT)