LONDON: Diversified Gas & Oil PLC (DGO) has completed the purchase of certain upstream and midstream assets from Carbon Energy Corporation.

Concurrent with the acquisition, DGO also closed on a 10-year amortising $160 million gross senior secured term loan underwritten and funded by Munich Re Reserve Risk Financing, Inc. that includes a 6.5% fixed coupon and a 10-year hedge portfolio to stabilise cash flows.

For the acquisition and at closing, DGO paid net consideration of approximately $98 million ($110 million, gross) after customary purchase price adjustments with a 1 January 2020 effective date.

Depending on future natural gas prices and measured on an annual basis over the next three years, Carbon may earn additional contingent consideration of up to $15 million in aggregate if actual NYMEX natural gas prices exceed certain established thresholds. Based on forward NYMEX natural gas prices at the time of closing, total estimated contingent consideration is less than $5 million.

Using the financing proceeds, DGO funded the acquisition and repaid the short-term draw on its revolving credit facility used to fund a portion of the EQT asset acquisition announced on 26 May 2020.

DGO collateralised the Financing primarily with working interest in certain of its newly acquired upstream assets and related landholdings from EQT and Carbon. As with the Company’s previous securitised financing transactions, DGO created a wholly owned and fully consolidating special purpose vehicle (SPV) to hold the Collateral Assets, which DGO will operate.

The financing represents the Company’s second transaction with MRRF, the sole investor in the Company’s inaugural $200 million asset-backed securitised financing arrangement completed in November 2019.

Commenting on the acquisition, Rusty Hutson, Jr., CEO of the Company said: “Today’s transactions continue our commitment to create long-term shareholder value through selective expansion of our upstream and strategically important midstream assets. Like our largely conventional legacy assets, Carbon’s wells display the same long-life, low-decline profile and expand our base of stable production and Smarter Well Management opportunities. To that end, we welcome the members of Carbon’s team who today join the Diversified family and partner with us to realise the full, combined potential of these wells and the complementary midstream assets. I would also like to thank Munich Re Reserve Risk Financing, Inc. for their commitment to fund our acquisition of assets from EQT and Carbon, increasing their total investment in Diversified to $360 million during a time when many lenders are reducing their exposure to the sector. We share a common belief in the low-risk profile and high-quality nature of the underlying assets and their associated cash flows, and believe this amortising financing, in concert with proceeds from our successful equity fundraising, further demonstrates our commitment to maintain a healthy balance sheet and appropriate leverage profile relative to the strength, reliability and visibility of our cash flow.”