Diversified Gas & Oil aims for December IPO

US-based Diversified Gas & Oil is to float on the London Stock Exchange's AIM junior market in December, as it seeks to raise about £48m ($60m) for further investment via a share placing.

DGO operates a number of wells within the Appalachian Basin spread across Ohio, Pennsylvania and West Virginia, a hydrocarbon prospective area, which is geologically regarded as a low-risk oil and gas play.

Due to its operational structure, the company is able to generate operating free cash flow, even in the current low energy price environment, with an average operating cost equivalent to $9.53 per barrel of oil equivalent.

It buys conventional, low risk, gas and oil producing assets from the larger US operating companies who typically are increasingly focused upon the larger scale opportunities across the country from unconventional shale production, and the company is able to find operational cost savings and to improve production efficiency in areas overlooked by the larger operators.

So far acquisitions have been financed from borrowings, as at the end at the end of June its net assets were $27.7m and total borrowings of $42.5m.

Rusty Hutson, founder and chief executive, said: “We have demonstrated our ability to acquire sound gas and oil producing assets and to further increase the productivity of those assets. There is a strong pipeline of similar assets available to us, and with the support of the AIM market we intend to capitalise on these opportunities to create additional value and to secure long term positive cash flows for the benefit of DGO’s shareholders."

He added that the company does not rely on speculative resource exploration or development offering instead to investors exposure to a profitable dividend-paying play in the US energy market.

It has a daily production in excess of 4,400 barrels of oil equivalent from about 24.1m barrels of oil equivalent from proven reserves, and has a further 3.8m barrels of oil equivalent of proven undeveloped reserves.

Gas and oil production in the six months to 30 June was 428,522 barrels of oil equivalent, up from 129,277 last year, while revenues rose to $7.6m from $2.9m.

The company expects to generate significant cash flows from its producing assets and to “establish a progressive dividend policy”, with a maiden dividend to be paid on or before 30 June 2017

Meanwhile, the company also announced it had appointed Bradley G. Gray as finance director and US chief operating officer.

Gray, a qualified accountant with Arthur Anderson, was previously senior vice president and chief financial officer for Royal Cup, a US-based distributor of coffee, tea and other beverages.

Before that he worked at worked at oil and natural gas company, The McPherson Companies and Saks Incorporated, a retail group.