The London-listed firm is acquiring 17,000 boepd of production and adding a package of 50 undeveloped locations in a US$250mln deal
Diversified Energy Company PLC (LSE:DEC, OTCQX:DECPF) this morning confirmed it has raised US$163mln (£156.4mln) of new equity, after announcing a new US$250mln asset acquisition in a statement after Wednesday’s close.
The deal sees the firm add around 17,000 barrels oil equivalent of production, driving a 20% increase in free cash flow, with the addition of wells and acreage in its ‘Central Region’ area of focus (comprising Texas, Louisiana, and Oklahoma).
Today, DEC said it has arranged a placing of some 128.4mln news shares priced at 105p each, a discount of around 5%. The new shares, meanwhile, equate to around 15% of the company’s current share capital.
In addition to the equity funding, DEC will fund the remainder of the US$250mln acquisition through a US$90mln drawdown of its existing sustainability linked loan (SLL).
Chief executive Rusty Hutson described himself, in Thursday’s statement, as pleased with the results of the placing.
"Grateful for strong support from our existing holders and excited to welcome new investors to Diversified, I am pleased with the results of today's fundraise that positions the company to add high-quality, accretive assets to our portfolio,” Hutson said.
“The assets we are acquiring are accretive to earnings and cash flow and strengthen our balance sheet as we start the year.”
The company is acquiring a package of assets from Tanos Energy Holdings II LLC comprising wells and facilities in Louisiana and Texas, described as complementary to assets previously acquired from Tanos in 2021 (Cotton Valley and Haynesville).
It is acquiring 150 operated production wells currently yielding around 17,000 boepd, of which around 76% is gas.
As a result DEC’s group production increases by around 12%, meanwhile, free cash flow and adjusted earnings (EBITDA) are expected to be boosted by 20% and 19% respectively.
“The assets offer the same long-life, gas-weighted production potential and low terminal decline as the company's broader portfolio and are ideally located within Diversified's core Central Region focus area, providing an opportunity for strong synergy potential,” the company detailed.
The asset package also includes a hedge book (covering 60% of the acquired annual production, at an average floor gas price of US$3.80 which is above DEC’s wider hedge book) and some 33,700 acres in the Cotton Valley and Haynesville region of Texas.
DEC highlighted that the acreage comes with around 50 already identified "undeveloped" areas which are deemed to have “significant potential upside opportunity”.
In addition, there are four wells that are partially developed presently, which can be completed to production for a total of US$25mln in 2023.
Rusty Hutson yesterday said the latest deal marks an exciting start to the year.
“This transaction will drive additional synergies of scale and reduce the combined assets' unit-level expenses to increase already high margins,” he said.
“Accordingly, this acquisition will nicely align with our emphasis on generating free cash flow while increasing our exposure to the premium Gulf Coast market, providing access to the higher realized pricing, lower regional differentials, and the long-term demand pull from the growth in LNG markets.
“With an attractive purchase price of 2.3 times the next 12 months EBITDA for the period ended 31 January 2024 equating to an equivalent PV-17 PDP value, these assets will be accretive to adjusted EBITDA and Free Cash Flow representing long-term value for our shareholders.”
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I don't get it! Does DEC just plan to let these assets gradually liquidate or do they ever plan to develop the assets through the drill bit?
It would appear that both the new and existing properties have a large amount of development potential at both the Cotton Valley and
All Diversified's operate wells were drilling by others. I've never seen a well permit for them. Their business model appears to be keep operating costs as low as possible and sit on what they operate.
Brookston Energy from East Texas seems to have the same model. They buy older wells which they say they can operate with their low overhead costs and make money when the larger companies can’t. Sounds like Diversified is doing the same thing, but on a much larger scale.
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