Diversified Energy and Oaktree to acquire Tanos Energy’s assets

6 July 2021 hydrocarbons-technology.com

Diversified Energy, together with Oaktree Capital Management, has agreed to acquire certain natural gas assets in the US from Tanos Energy Holdings III for $308m.

The firms will purchase Cotton Valley and Haynesville upstream assets and related facilities in the states of Louisiana and Texas.

These include 390 net operated wells, which have a combined production capacity of 14,000 barrels of oil equivalent per day.

Diversified Energy will have a 51.25% working interest in the assets while Oaktree will own the remainder.

The deal represents the first participation for Oaktree under a joint-participation agreement signed in October 2020.

However, Diversified Energy’s stake in the assets is expected to rise to 60% once Oaktree reaches a 10% internal rate of return (IRR) on its investment.

Diversified Gas & Oil CEO Rusty Hutson Jr said: “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.”

The transaction, which is subject to customary diligence, reviews and approvals, is scheduled to close in mid-August 2021.

Diversified Energy will finance its portion of the transaction using cash reserves and existing credit capacity.

Additionally, Oaktree agreed to acquire 48.75% of the assets that diversified recently acquired in the Cotton Valley/Haynesville region from Indigo Minerals for $58m.

Separately, Diversified Energy concluded the acquisition of certain upstream assets and related infrastructure within its Central Regional Focus Area from Blackbeard Operating for a net consideration of around $166m.

The acquisition forms part of the firm’s efforts to broaden its operating footprint within the Central Regional Focus Area.

It also marks the entry of Diversified Energy into the historic Barnett producing area.

Hutson Jr said: “Similar to our nearby and recently closed acquisition of Indigo assets in the Cotton Valley area, the Barnett area provides access to a portfolio of future consolidation opportunities, which meet our preferred asset criteria and afford us the opportunity to build scale and operating efficiencies.”

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I have interest in well operated by Tanos. I got a letter from them asking me to sign a form indicating my approval of the sale to Diversified Production, LLC. And, they asked me to keep it confidential. Why should I sign it? Why would they want me to keep it confidential? The letter states that I should reply promptly "in order to ensure prompt payment of any sums due" essentially, to me. Is that a threat? Can they delay my royalty checks if I don't sign it? Thanks in advance.

Does your lease contain language that speaks to the right to assign?  If not, then I'm stumped.  Is the well in TX or LA?  I can see Diversified wanting to confirm personal information regarding taxes but unless something has changed Tanos should have had all the information required for title and payment in their Division Order Title Opinion and in the pay deck for that well.  Obviously personal information for tax purposes would be confidential but I can't think of anything else.  Of course, I'm not privy to the form you are being asked to sign.  I think you should put your questions to Diversified and see how they respond.  They should be willing to explain but I can see them sending out the forms without an explanation as many mineral lessors basically sign anything put in front of them.

Thanks. I'll call them.

As I know you're aware, many leases require permission to Assign, but go on to say that it can't be unreasonably withheld.

Thanks, SB.  You are correct however without viewing the lease language, we're just guessing here.  The question of assignment language in a lease is often, who supplied it?  It the operating company or their land company, I'm with you as to permission not unreasonably withheld.  However for custom leases drafted by savvy O&G attorneys for clients with considerable acreage, it might be different.  Devil is in the details.  Isn't it always.

I sent an email to the landman working for Tanos. She called me about a minute later. Yes, their request was because I have a consent to assign clause with the language about not unreasonably withheld. I was originally P.O.'d with the implied threat of delayed payment and their ask to keep it confidential (fat chance of that), but I ended up signing it. Thanks for your comments.

Yeah, needless threats and suspicious confidentiality requirements send up red flags and are pointless considering the specific lease language.  Poor communication and bullying can lead to unnecessary delays and get an operator and lessors off on the wrong foot. 

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