Diversified Gas & Oil to buy US wells for $1.75m

AIM-listed explorer Diversified Gas & Oil is to buy a package of producing wells in Ohio and Pennsylvania in the US for $1.75m, which is expected to increase its daily production.

The acquisition of the 1,300 oil and gas wells, which will close by the end of March, is expected to increase the company's production to about 5,400 barrels of oil equivalent per day and expand its production acreage by about 75,2500 acres.

The $1.75m purchase price, which will be funded from existing cash resources, represents less than a two times multiple of forward operating cash flows and is consistent with the DGO’s acquisition criteria for mature assets.

The wells, which are located in DGO's existing areas of operations, currently produce 3,800 cubic feet of natural gas, which add 14% to the company’s current gross gas production, and 110 barrels of oil per day, which will add 23% to its gross oil production.

They generated net revenues of about $3m in the year to 31 December 2016 and are expected to contribute operating cash flow of about $1m per year. The anticipated PV 10 of the proven developed producing reserves for the assets is around $10m.

Chief executive Rusty Hutson Jr said: "This acquisition is in line with our growth strategy that we set out at the time of our admission to AIM in early February. DGO aims to grow production, and shareholder value, through the addition of complementary low-cost producing assets. We have a proven track record for acquiring assets of this kind at attractive valuations and are positioned to execute on these transactions as a result of our regional reputation, quality operator status and access to capital.

“Post completion of this transaction, our near-term focus will be on enhancing the profitability of these newly acquired assets by leveraging our existing operational resources and practices."

Shares in Diversified Gas & Oil were up 2.34% to 63.45p at 0936 GMT.