LONDON: Diversified Gas & Oil PLC (DGO) has signed a definitive participation agreement with funds managed by Oaktree Capital Management to jointly identify and fund future proved developed producing (PDP) acquisition opportunities the company identifies.
Diversified Gas & Oil (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
· Oaktree Funding Commitment: Up to $1 billion in aggregate over three years for mutually agreed upon PDP acquisitions with transaction valuations greater than $250 million
· Funding Allocation: Oaktree and DGO fund equal portions of completed acquisitions (i.e. 50.0%/50.0%)
· Operator: DGO will serve as the sole operator of all assets the parties acquire under the Agreement
· Initial Promote: Oaktree will provide DGO a 5.0% upfront 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 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 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.
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.”