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Diversified Gas and Oil Acquires Core Appalachia Holding for USD 183m
Friday 12 October 2018

12 October 2018 - US-based gas and oil producer Diversified Gas and Oil plc (AIM: DGOC) has acquired Core Appalachia Holding Co LLC from TCFII Core LLC for total consideration of approximately USD 183m, the company said.

This consideration is comprised of a USD 130m cash payment and the issuance of 35m new ordinary shares of 1 pence at an effective issue price of GBP 1.15 (USD 1.51) per share.
The purchase price is consistent with the company's said multiple of PDP cash flows and with the ratio of purchase price-to-PV10 for assets purchased from EQT in July 2018
It will be immediately accretive to cash flow and earnings.
Diversified said the assets are highly complementary to the upstream and midstream assets acquired from EQT in July 2018, and allow the company to unlock significant incremental value through consolidation to a single operator
Core's assets consist of approximately 100 mmboe of proved developed producing reserves and ~4,100 miles of gathering infrastructure with a pre-tax PV10 of USD 255m, based on management's internal estimates rolling forward the most recently available data from Core's independent reserve engineer.

Consistent with DGO's significant base of PDP reserves in the Appalachian Basin, these reserves have long lives and demonstrated low annual declines approximating 4% per annum since 2011.

Core's produced gas has a high BTU content of approximately 1,230 BTU and is largely unprocessed at present.

This dynamic creates the potential for significant natural gas liquids-driven margin improvement by redirecting rich gas to processing capacity that was historically inaccessible without combining the two midstream systems.
Given the tight geographic proximity of Core's assets with the recently acquired EQT package, the company has identified significant immediate and near-term operational synergy opportunities that positively impact the acquisition.

Annualising the first half of 2018, Core has generated approximately USD 44m of field level cash flow.

During the six months ended 30 June 2018, Core reported total upstream revenues of USD 38.4m (excluding reservation charges on contracted firm transportation capacity), third party midstream revenues of USD 7m, and field level cash flow or net cash operating profit of USD 22.1m.

In the 12 months to 31 December 2017, Core reported total revenues of USD 127.8m and EBITDA of USD 28.7m.
The cash consideration of USD 130m has been funded through the assumption of the USD 93m balance on Core's revolving credit facility led by KeyBank and an incremental draw of USD 40m under the company's existing KeyBank debt facility.

Collectively, these components comprise approximately 70% of the purchase price.
Diversified Gas and Oil is an operator of oil and gas producing assets. Founded in 2001, DGO has deep roots in the mineral-rich Appalachian United States, and currently produces approximately 500,000 mcfe/day of natural gas.
Date Published: 12/10/2018
Target: Core Appalachia Holding Co LLC
Country: USA
Deal Size: 183m (USD)
Sector: Petroleum/Natural Gas/Coal
Type: Corporate acquisition
Financing: Cash and Stock
Status: Agreed
Vendor: TCFII Core LLC
Buyer: Diversified Gas and Oil