The Company today announces its intention to carry out a placing of new ordinary shares in the capital of the Company
Diversified Gas & Oil PLC (AIM: DGOC), the U.S. based owner and operator of natural gas, natural gas liquids, and oil wells as well as midstream assets, is pleased to announce that it has signed a conditional Purchase and Sale Agreement (“PSA”) to acquire certain upstream and midstream assets from a US-listed oil and gas company (the “US-Listed Vendor”) (the “Potential Asset Acquisition”). This announcement follows a similar announcement on 8 April 2020 in relation to the conditional Purchase and Sale Agreement with Carbon Energy Corporation (the “Potential Carbon Acquisition” and, together with the Potential Asset Acquisition, the “Potential Acquisitions”).
The Company today announces its intention to carry out a placing of new ordinary shares in the capital of the Company (the “Placing”). The Placing is being conducted through an accelerated bookbuild process (the “Bookbuild”) outside the United States, which will launch immediately following the release of this announcement (including the appendices, the “Announcement”). Concurrently with the Placing, the Company is proposing to offer and sell new ordinary shares to certain institutional investors in the United States pursuant to direct subscription agreements (the “Subscriptions”, and together with the Placing, the “Proposed Fundraising”). The Proposed Fundraising will result, in aggregate, in the issue of up to 64,280,500 new ordinary shares representing up to 10.0% of the Company’s existing issued share capital, to raise approximately US$87.0 million (before expenses and based on the prevailing market price of the Company’s shares on 11 May 2020). The net proceeds will be used to part-fund the Potential Acquisitions in the event that either or both complete, whilst maintaining a Transaction Adjusted Net Debt/Transaction Adjusted EBITDA of approximately 2.3x.
Highlights of Potential Acquisitions
Initial gross aggregate consideration for the Potential Acquisitions expected to be US$235 million (subject to customary closing adjustments) (Carbon: US$110 million, US-Listed Vendor: US$125 million), with potential aggregate contingent consideration of US$35 million to be paid over a period of up to three years based on certain pricing targets should commodity prices rise. If completed, each acquisition will have a deemed effective date of 1 January 2020;
· The assets to be acquired pursuant to the Potential Acquisitions include approximately 7,000 net wells, with combined 2019 adjusted net production of approximately 18 Mboepd (99% natural gas), representing approximately 20% of 2019 group net production;
· Approximately 4,900 miles of gas gathering assets included within the Potential Acquisitions as well as two active natural gas storage fields. Midstream assets offer the potential for cost and operational synergies to the Company, including over 200 interconnects with existing DGO midstream and direct interstate access, as well as the ability to generate third-party storage revenues;
· Robust hedge portfolio covering the Potential Carbon Acquisition, with approximately two thirds of production for the next 27 months having an average NYMEX downside protection of approximately $2.60/MMBtu (based on adjusted 2019 produced volumes declined at an assumed 6% per year);
· If completed, the Potential Acquisitions are expected to add PDP Reserves of approximately 122 MMboe with an estimated pre-tax PV10 of approximately US$374 million, with the combined initial acquisition price reflecting an approximate 37% discount to PDP PV10;
· Adjusted EBITDA for the next twelve months from 1 June 2020 for the Potential Acquisitions is estimated to be US$61-65 million, resulting in a consideration to NTM EBITDA ratio for the assets of approximately 3.3 – 3.6x after adjusting for management’s estimated closing adjustments of approximately US$18 million;
· The Potential Assets are estimated to have attractive Total Cash Costs of US$5.99/boe, including immediately realisable synergies but not accounting for the longer term synergies that the Company expects to realise through its Smarter Well Management Programme and operational optimisation. The addition of these assets into the DGO portfolio is expected to drive a 5 – 10% reduction in unit-level base LOE and a 10 – 15% reduction in unit-level G&A for the Company;
· The Potential Acquisitions are expected to be immediately accretive to the Company’s earnings and dividends per share, based on the Company’s 2019 numbers, management’s estimates for the assets, and an assumed 10% placing at market;
· The Potential Acquisitions are both conditional and remain subject to, among other things, further diligence and there can be no certainty that either will complete;
· The Company’s intention is to part fund the Potential Acquisitions through the Proposed Fundraising, with the balance of the consideration funded from a new US$160 – 165 million long-term amortising senior secured term loan. At present, it is anticipated that the term loan will have a 10-year maturity and ~6.50% coupon, and be secured on certain of the upstream gas and oil assets from the Potential Acquisitions;
· The Company will announce further information on the Potential Acquisitions and the potential securitised term loan in due course following completion of customary diligence.
Proposed Fundraising Highlights
· The Company today announces its intention to carry out the Placing of new ordinary shares, available to eligible institutional investors outside the United States in “offshore transactions” as defined in, and in accordance with, Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Stifel Nicolaus Europe Limited, Mirabaud Securities Limited and Credit Suisse Securities (Europe) Limited (together, the “Joint Global Coordinators”) are acting as joint global coordinators and joint bookrunners in connection with the Placing. Cenkos Securities plc is acting as Nominated Adviser to the Company;
· The Joint Global Coordinators are conducting the Placing through the Bookbuild which they will launch immediately following the release of this Announcement and that they will make available to eligible institutional investors;
· The Company expects to close the Bookbuild no later than 8.00 a.m. on 12 May 2020, but the Joint Global Coordinators and the Company reserve the right to close the Bookbuild earlier or later, without further notice;
· Concurrently with the Placing (and conditional upon the placing agreement executed in connection with the Placing not having been terminated), the Company is proposing to offer and sell new ordinary shares in the United States to certain institutional investors pursuant to direct subscription agreements through the Subscriptions in which the new ordinary shares are being offered and sold pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act;
· The Proposed Fundraising is expected to raise approximately US$87.0 million in aggregate (before expenses and based on the prevailing market price of the Company’s shares on 11 May 2020). The number of shares the Company will issue pursuant to the Proposed Fundraising will not exceed 10.0% of the existing issued share capital of the Company;
· The Company has consulted with a number of existing shareholders and other investors ahead of the release of this announcement, including regarding the rationale for the Placing;
· As detailed above, and subject to closing the Potential Acquisitions, the Company will use the net proceeds from the Proposed Fundraising to part fund the Potential Acquisitions. The Placing and the Subscriptions are not conditional on the completion of the Potential Acquisitions. Should the Company not close the Proposed Acquisitions, the Company will determine the most appropriate use of the net proceeds, including potentially paying down amounts drawn on its revolving credit facility and/or investing in other acquisition opportunities aligned with its stated strategy;
· Shares issued pursuant to the Proposed Fundraising will be eligible for the Q4 2019 and Q1 2020 dividends, each of 3.50 cents per share, as well as all future dividends. The ex-dividend dates of the Q4 2019 and Q1 2020 dividends are 28 May 2020 and 3 September 2020 respectively, and are expected to be paid on 26 June 2020 and 25 September 2020 respectively.
Transfer to the Main Market
As announced on 4 May 2020, the Company is in the final stages of its previously announced transfer from AIM to listing on the Premium Listing Segment of the Official List of the Financial Conduct Authority (the “Official List”) and to trading on the London Stock Exchange’s Main Market for listed securities (the “Main Market”). The Company expects to publish a prospectus on 13 May 2020 in connection with the transfer. Key information from the prospectus is contained in Appendix 2 to this Announcement.
Settlement of the Proposed Fundraising, together with the admission of the Company’s ordinary share capital, as enlarged by the Proposed Fundraising, to the Premium Listing Segment of the Official List and the London Stock Exchange’s Main Market (“Admission”) is anticipated to occur on or around 18 May 2020.
As a consequence of its Admission, Diversified Gas & Oil PLC is expected to enter the FTSE All-Share in the September 2020 review.
Commenting on the Potential Acquisitions and Proposed Fundraising, CEO, Rusty Hutson said:
“DGO’s continued success is built on its ability to capitalise on opportunities to acquire and enhance complementary producing assets and to leverage our operational excellence and cost discipline to extract maximum value. These Potential Acquisitions are entirely consistent with this growth strategy and represent a compelling opportunity to enhance the profitability of the business, and subsequently the shareholder returns. As we have always stated, maintaining a healthy balance sheet is a key priority, and we are therefore seeking to fund these proposed acquisitions through a combination of debt and equity, consistent with the financing of our acquisitive growth to date. Our unique business model, underpinned by low-cost and low-risk cash flow from US natural gas, enables the Company to deliver shareholder returns at a time when many other industry players are unable to do so. We look forward to providing an update on this process in due course as we seek value creation opportunities through prudent growth and funding.”
Source: Company Press Release