REG - Diversified Energy - Acquisition of High-Quality East Texas Assets

Diversified EnergyAnnouncement

20/08/2024 07:15

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RNS Number : 0748B  Diversified Energy Company PLC  20 August 2024

 

August 20, 2024

 

 

 Diversified Energy Company PLC

("Diversified" or the "Company")

 

 Diversified Announces Joint Acquisition to Acquire Package of High-Quality
East Texas Assets

 

Represents Second East Texas Bolt-On Addition of PDP Production in 2024 and
Further Increases Scale in Central Region

 

Joint Acquisition Partner to Directly Purchase Undeveloped Acreage

 

Diversified Energy Company PLC (LSE:DEC; NYSE:DEC) ("Diversified" or the
"Company") is pleased to announce the execution of a conditional purchase and
sale agreement for the acquisition of operated natural gas properties located
within eastern Texas (the "Assets") from a regional operator (the "Seller")
(the "Acquisition"). Notably, the Assets contain a significant Proved
Developed Producing ("PDP") component, approximately $68 million, which will
be purchased by Diversified.

 

 

Concurrently, an active third-party development company with operations in the
area will purchase an additional amount of undeveloped acreage with a value of
approximately $19 million, the majority of which will be purchased by the
third-party development company, with Diversified maintaining only a minority
5% interest for $1 million in consideration. The total purchase price to the
Seller, inclusive of both the PDP assets and undeveloped acreage is
approximately $87 million before customary purchase price adjustments. The
Development company will pay cash consideration of approximately $18 million
to directly to the Seller at the closing of the Acquisition.

 

The consideration for the acquisition of the Assets to be paid by Diversified
will be funded through a combination of the issuance of new US-dollar
denominated ordinary shares direct to the Seller in the amount of
approximately $35 million and new and existing liquidity supported by the
increased availability as the result of increased collateral associated with
the Assets. The Company expects to close the Acquisition in the fourth quarter
of 2024 and is subject to a break fee, should the Acquisition not occur.

 

Acquisition Highlights (Diversified Allocated Consideration)

 

•     Total gross purchase price of $69 million, inclusive of ~$1
million (or 5%) of the retained undeveloped acreage, and before anticipated
customary purchase price adjustments

◦     PDP gross purchase price of ~$68 million

◦     Estimated total Net Purchase Price of $64 million

◦     Anticipated close during the fourth quarter of 2024

•     Net PDP purchase price represents a PV-18 valuation

•     Current PDP net production of 21 MMcfepd (4 MBoepd)((a))

◦     Complements industry-leading corporate declines and capital
intensity

◦     Primarily gas-weighted production with ~69% gas volumes((b))

◦     Provides opportunities for additional cost efficiencies utilizing
Diversified's Smarter Asset Management program and existing East Texas
resources

•     Estimated PDP production NTM EBITDA of ~$19 million((b))
representing a 3.5x purchase multiple

◦     PDP Reserves of 70 Bcfe (12 MMBoe) with PV-10 of $89 million((c))

 

Commenting on the Acquisition, CEO Rusty Hutson, Jr. said:

 

"This purchase strengthens Diversified by expanding our footprint in our East
Texas operating area, increasing our scale, and allowing for margin
enhancement. Importantly, this acquisition extends our proven track record of
completing disciplined transactions at attractive valuations. By joining
resources with a development partner, we are highlighting our Company's
ability to creatively and thoughtfully structure transactions that add value
and maximize cash flow generation for shareholders."

 

Assets Acquired at Attractive Valuations

 

The Acquisition's estimated NTM EBITDA of ~$19 million represents a 3.5x
purchase multiple and reflects an attractive valuation of PV-18 for the PDP
assets, excluding the undeveloped acreage.

 

The Assets include 331 net PDP wells (total) and are expected to add 21
MMcfepd (4 MBoepd) of production and 70 Bcfe (12 MMBoe) PDP reserves with a
PV-10 of $89 million. Additionally, the production profile of the Assets is
highly complementary to the Company's existing portfolio and operational
strategy, with low annual production declines of ~15% for the next twelve
months((b)).

 

The Assets are in close proximity to the Company's previously acquired East
Texas assets and provide opportunities to realize synergies attributable to
operating scale and asset density.

 

Gibson, Dunn & Crutcher LLP served as legal counsel to Diversified.
Opportune LLP served as sole financial advisor and Kirkland & Ellis LLP
served as legal counsel to the Seller.

 

Footnotes:

 (a)  Current production based on estimated average daily production for October

    2024; Estimate based on historical performance and engineered type curves for
      the Assets
 (b)  Based on engineering reserves assumptions using historical cost assumptions
      and NYMEX strip as of August 12, 2024 for the twelve months ended September
      30, 2025. Purchase price multiple based on Gross Purchase Price and
      Acquisition's estimated Next Twelve Months (NTM) Adjusted EBITDA (unhedged).
      NTM Adjusted EBITDA is a Non-IFRS measure. See "Use of Non-IFRS Measures"
 (c)  Estimated annual rate of production declines and PDP reserves values
      (including volumes, PV-10 and approximate PV value) calculated using
      historical production data, asset-specific type curves and an effective date
      of June 1, 2024 and based on the NYMEX strip at August 12, 2024 through
      December 2026, with WTI held flat at $70.00/bbl and Henry Hub held flat at
      $3.61/MMBtu thereafter.  PV-10 is a Non-IFRS measure. See "Use of Non-IFRS
      Measures"

For Company-specific items, refer also to the Glossary of Terms and/or
Alternative Performance Measures found in the Company's  2024 Interim Report
dated 30 June 2024 and Form 20-F for the year ended December 31, 2023 filed
with the United States Securities and Exchange Commission.

 

The Acquisition constitutes a significant transaction for the purposes of the
FCA Listing Rules, and this announcement is made in accordance with the
Company's disclosure obligations pursuant to Chapter 10 of the FCA Listing
Rules.

 

This announcement contains inside information for the purposes of Article 7 of
the UK version of Regulation (EU) No. 596/2014 on Market Abuse ("UK MAR"), as
it forms part of the UK domestic law by virtue of the European Union
(Withdrawal) Act 2018.

 

For further information, please contact:

 

 Diversified Energy Company PLC                                             +1 973 856 2757
 Doug Kris                                                                 dkris@dgoc.com
 Senior Vice President, Investor Relations & Corporate Communications      www.div.energy

 FTI Consulting                                                            dec@fticonsulting.com
 U.S. & UK Financial Public Relations

 

 

About Diversified Energy Company PLC

 

Diversified is a leading publicly traded energy company focused on natural gas
and liquids production, transport, marketing, and well retirement. Through our
differentiated strategy, we acquire existing, long-life assets and invest in
them to improve environmental and operational performance until retiring those
assets in a safe and environmentally secure manner. Recognized by ratings
agencies and organizations for our sustainability leadership, this
solutions-oriented, stewardship approach makes Diversified the Right Company
at the Right Time to responsibly produce energy, deliver reliable free cash
flow, and generate shareholder value.

 

Forward-Looking Statements

 

This announcement contains forward-looking statements (within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995). These
forward-looking statements, which contain the words "anticipate", "believe",
"intend", "estimate", "expect", "may", "will", "seek", "continue", "aim",
"target", "projected", "plan", "goal", "achieve", "opportunity" and words of
similar meaning, reflect the Company's beliefs and expectations and are based
on numerous assumptions regarding the Company's present and future business
strategies and the environment the Company will operate in and are subject to
risks and uncertainties that may cause actual results to differ materially. No
representation is made that any of these statements or forecasts will come to
pass or that any forecast results will be achieved. Expected benefits of the
Acquisition may not be realized and the Acquisition may not close on the terms
described in this release at all. Forward-looking statements involve inherent
known and unknown risks, uncertainties and contingencies because they relate
to events and depend on circumstances that may or may not occur in the future
and may cause the actual results, performance or achievements of the Company
to be materially different from those expressed or implied by such
forward-looking statements. Many of these risks and uncertainties relate to
factors that are beyond the Company's ability to control or estimate
precisely, including the risk factors described in the "Risk Factors" section
in the Company's Annual Report and Form 20-F for the year ended December 31,
2023, filed with the United States Securities and Exchange Commission. The pro
forma financial information in this announcement is for informational purposes
only, is not a projection of our future financial performance, and should not
be considered indicative of actual results should the Acquisition be
consummated. Forward-looking statements speak only as of their date and
neither the Company nor any of its directors, officers, employees, agents,
affiliates or advisers expressly disclaim any obligation to supplement, amend,
update or revise any of the forward-looking statements made herein, except
where it would be required to do so under applicable law. As a result, you are
cautioned not to place undue reliance on such forward-looking statements.

 

Use of Non-IFRS Measures

 

Certain key operating metrics that are not defined under IFRS (alternative
performance measures) are included in this announcement. These non-IFRS
measures are used by us to monitor the underlying business performance of the
Company from period to period and to facilitate comparison with our peers.
Since not all companies calculate these or other non-IFRS metrics in the same
way, the manner in which we have chosen to calculate the non-IFRS metrics
presented herein may not be compatible with similarly defined terms used by
other companies. The non-IFRS metrics should not be considered in isolation
of, or viewed as substitutes for, the financial information prepared in
accordance with IFRS. Certain of the key operating metrics are based on
information derived from our regularly maintained records and accounting and
operating systems.

 

Adjusted EBITDA

 

As used herein, EBITDA represents earnings before interest, taxes, depletion,
depreciation and amortization. Adjusted EBITDA includes adjusting for items
that are not comparable period-over-period, namely, accretion of asset
retirement obligation, other (income) expense, loss on joint and working
interest owners receivable, (gain) loss on bargain purchases, (gain) loss on
fair value adjustments of unsettled financial instruments, (gain) loss on
natural gas and oil property and equipment, costs associated with
acquisitions, other adjusting costs, non-cash equity compensation, (gain) loss
on foreign currency hedge, net (gain) loss on interest rate swaps and items of
a similar nature.

 

Adjusted EBITDA should not be considered in isolation or as a substitute for
operating profit or loss, net income or loss, or cash flows provided by
operating, investing, and financing activities. However, we believe such a
measure is useful to an investor in evaluating our financial performance
because it (1) is widely used by investors in the natural gas and oil industry
as an indicator of underlying business  performance; (2) helps investors to
more meaningfully evaluate and compare the results of our operations from
period to period by removing the often-volatile revenue impact of changes in
the fair value of derivative instruments prior to settlement; (3) is used in
the calculation of a key metric in one of our Credit Facility financial
covenants; and (4) is used by us as a performance measure in determining
executive compensation. We are unable to provide a quantitative reconciliation
of forward-looking Adjusted EBITDA to the most directly comparable
forward-looking IFRS measure because the items necessary to estimate such
forward-looking IFRS measure are not accessible or estimable at this time
without unreasonable efforts. The reconciling items in future periods could be
significant.

 

PV-10

 

PV-10 is a non-IFRS financial measure and generally differs from Standardized
Measure, the most directly comparable IFRS measure, because it does not
include the effects of income taxes on future net cash flows. While the
Standardized Measure is free cash dependent on the unique tax situation of
each company, PV-10 is based on a pricing methodology and discount factors
that are consistent for all companies. In this announcement, PV-10 is
calculated using NYMEX pricing. It is not practicable to reconcile PV-10 using
NYMEX pricing to standardized measure in accordance with IFRS at this time.
Investors should be cautioned that neither PV-10 nor the Standardized Measure
represents an estimate of the fair market value of proved reserves.

 

 

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