Diversified Gas & Oil acquiring assets in Louisiana's Cotton Valley

Diversified Gas & Oil announced the $135m (£96.95m) conditional acquisition of certain Cotton Valley upstream assets and related facilities, primarily in the US state of Louisiana, from Indigo Minerals on Friday.

The FTSE 250 company said the acquisition represented the first for the company in its newly-identified ‘central’ regional focus area, where it was expecting to replicate its proven business model on an expanded opportunity set.

It said the purchase price of $135m represented a 2.9x multiple on around $40m of adjusted EBITDA, before expected synergies.

The assets had proved-developed-producing reserves of around 50 million barrels of oil equivalent, with current production standing at around 16,000 barrels equivalent per day, including about 780 net operated wells.

Diversified said the assets benefited from Gulf Coast pricing, driving higher realisations, adding that it would retain key field employees to streamline integration.

It was being financed with borrowings on the firm’s revolving credit facility, with pro forma consolidated net debt-to-adjusted EBITDA unchanged at 2.4x.

The transaction effective date was set to be 1 March, with an anticipated closing in late May.

Diversified said on its existing operations, adjusted average net daily production was 105,000 barrels of oil equivalent per day, which was 3% higher for “identifiable, temporary and primarily winter weather-related” downtime.

Total operating expenses came in at $6.13 per barrel of oil equivalent, while total recurring administrative expenses were $1.73 per barrel equivalent.

The board declared a first quarter dividend of four US cents per share, payable on 24 September.

“Our new regional focus area covers a multi-state area in a similar size footprint to Appalachia, and meets our expansion criteria in terms of asset quality, infrastructure, market dynamics, opportunity set and supportive regulatory environment,” said chief executive officer Rusty Hutson, Jr.

“This first strategic acquisition outside of Appalachia also reflects our continued commitment to a consistent asset profile and valuation while affording us expanded value-accretive roll-up opportunities in this new region that will enable us to quickly build scale and drive efficiencies.

“Our financial and operational strengths continue to uniquely position Diversified to capitalise on current market conditions as the PDP buyer of choice.”

At 0804 BST, shares in Diversified Gas & Oil were up 3.53% at 122.58p.