LONDON: Diversified Gas & Oil (DGO), the U.S. based owner and operator of natural gas, natural gas liquids, and oil wells as well as midstream assets, announced that the asset purchase agreement  with EdgeMarc Energy Holdings, LLC, and certain of its subsidiaries, has been approved by the Seller and the United States Bankruptcy Court.

Accordingly, subject to satisfaction of certain remaining closing conditions, DGO will acquire EdgeMarc’s natural gas development, production and exploration assets for a total cash consideration of $50 million (subject to customary purchase price adjustments).

The assets to be acquired include 12 gross producing unconventional Utica natural gas wells and related facilities in Monroe and Washington counties within the State of Ohio, as well as certain undeveloped lands containing deep Utica rights.

The acquired wells are located in close proximity to DGO’s existing wells in Ohio and will benefit from the Company’s asset concentration and economies of scale within the Appalachian Basin.

The acquired wells’ Base LOE4 and Total LOE5 of $1.56/Boe and $4.05/Boe are 59% and 26%, respectively, lower than DGO’s consolidated Base LOE and Total LOE as reported in the Interim Results to 30 June 2019.

Consequently, the Acquisition will further reduce DGO’s consolidated Base LOE per Boe and enhance the Company’s overall cash margins. As with all of the Company’s acquisitions, Diversified Gas & Oil (DGO) will work to identify opportunities to further optimise the operations, enhance production and reduce operating costs. EBITDA attributable to the Assets for the 12 months to December 2018 was approximately $30.5 million.

Consistent with the Company’s stated acquisition valuation methodology, DGO has attributed value only to EdgeMarc’s PDP reserves, and has allocated no value to proved-undeveloped (“PUD”) reserves or undeveloped acreage.

Importantly, however, this Acquisition includes three DUC wells, classified as PUDs, located in Monroe County and valued at $14 million on a PV10 basis net of completion costs.

While DGO has the right to complete and produce these wells following closing, it expects to explore options that either monetise these wells entirely or allow the Company to participate at some level in their completion and future production on a joint or exclusive basis. Should DGO choose to monetise these wells entirely, the net proceeds would effectively serve to reduce the cost to acquire the producing wells and associated PDP reserves.

The Acquisition further includes approximately 10 net undeveloped drilling locations in the deep Utica formation that similarly Diversified Gas & Oil (DGO) could monetise or jointly or exclusively develop.

In order to protect its cash flows and mitigate commodity price volatility, DGO is also pleased to announce the acquisition of EdgeMarc’s 2019 and 2020 natural gas financial hedge book for additional consideration of approximately $2.0 million.

Rusty Hutson, Jr., CEO of the Company commented: “We are excited about the opportunity to bring these highly productive and complementary wells into our geographically concentrated and highly efficient Northern operations and at an attractive purchase price relative to their current cash flow and PV10 values.

The wells are consistent with our acquisition strategy in terms of adding high-quality, long-life assets to the portfolio. We are acquiring these wells at a fraction of the cost incurred to develop them and yet given their long-life nature, we will reap the margin-enhancing benefit from them for years to come.

Further, the value added to this transaction from the zero-cost capital outlay for the DUCs makes this acquisition even more attractive to DGO.”