Diversified Energy makes Cotton Valley acquisition with Oaktree
Updated : 08:54
Diversified Energy announced the conditional acquisition of certain Cotton Valley and Haynesville upstream assets and related facilities in the US states of Louisiana and Texas on Monday, from Tanos Energy Holdings III.
The FTSE 250 company said that at the same time, Oaktree Capital Management would co-invest in the acquisition under the joint participation agreement it announced in October.
Oaktree would also co-invest in the assets Diversified recently acquired from Indigo Minerals, to “more fully align” both parties as working interest partners in assets located in the Cotton Valley and Haynesville region, given the contiguous nature of the assets.
The firm said the Tanos acquisition carried gross cash consideration of $154m (£111.26m)m, equal to 50% of the total cash consideration as per the Oaktree joint participation agreement.
Diversified said it would fund its portion entirely with cash on hand and its existing credit capacity, and would assume certain below-market natural gas hedge contracts through 2023, valued at around $24m as of 25 June.
It said the net purchase price represented a 2.8x multiple on around $51m of estimated next-12-months adjusted EBITDA before potential synergies, while it would receive a 51.25% working interest in the assets, inclusive of Oaktree's initial 2.5% working interest promote.
That working interest would increase to 60% once Oaktree achieves a 10% unlevered internal rate of return on its investment.
The company said its share of the next-12-months adjusted EBITDA would be 17% accretive to its 2020 reported hedged adjusted EBITDA.
Diversified said the assets contained proved developed producing reserves of around 40 million barrels of oil equivalent, and a PV10 of about $201m.
Favourable Gulf Coast pricing underpinned cash margins of at least 65%.
“When we announced our strategic entry into the Central RFA, we expected to quickly build scale as a capable buyer with a proven track record in a region with ample opportunity,” said chief executive officer Rusty Hutson, Jr.
“Just over two months later, we are excited to deliver results and build momentum with the addition of geographically proximate assets that represent the next step in achieving that goal and replicating our historical successes in Appalachia.
“Once complete, our Central RFA acquisitions will contribute over 30% of our production and Adjusted EBITDA.”
Hutson said the company was “excited” to partner with Oaktree in the Cotton Valley and Haynesville area, which he believed would be the first of many opportunities to partner in the region.
“Oaktree's participation not only demonstrates the attractive nature of these acquisitions, but also affords Diversified additional liquidity and line of sight to identify and pursue opportunities while continuing to maintain a strong balance sheet.
“Together, we will responsibly grow our Central RFA footprint, build scale and drive operational synergies.”
Diversified Energy also announced on Monday that it had completed the purchase of certain upstream assets and related infrastructure within the Central RFA from Blackbeard Operating, as it initially announced on 20 May.
At 0833 BST, shares in Diversified Energy Company were down 0.12% at 109.47p.