(Alliance News) - Diversified Gas & Oil PLC on Monday said it has signed an up to USD1 billion definitive participation agreement with funds managed by Oaktree Capital Management LP.
The agreement covers the joint identification and funding of future proved developed producing acquisition opportunities identified by Diversified, with Oaktree's funding commitment amounting to up to USD1 billion over three years for mutually agreed acquisitions with transaction value exceeding USD250 million.
Oaktree and Diversified will fund equal portions of the completed acquisitions with Diversitied to be sole operations of all assets acquired under the agreement.
Oaktree is to provide a 5.0% upfront, 2.5% incremental, at the time of an acquisition to Diversified, with Diversified to receive a 52.5% working interest for a 50% investment while Oaktree receives 47.5%.
On achieving a 10% unlevered internal rate of return on its investment, Oaktree is to convert 15% of its working interest - 7.1% incremental - to Diversified. At that point, Diversified's ownership will increase to 60% while Oaktree's stake will fall to 40%.
Diversified has right of first offer to acquire Oaktree's interest when Oaktree opts to invest, and each has the right to participate in a sale by the other party with a third party on comparable terms.
Diversified Chief Executive Rusty Hutson Junior said: "We are excited to partner with Oaktree, a well-respected and well-funded firm. We continuously evaluate various [proved developed producing] asset packages and anticipate more coming to market over the near term as the prolonged lower commodity price environment and capital market conditions create an environment poised for consolidation. This agreement uniquely positions [Diversified] and Oaktree to capture long-term value for our respective shareholders, including opportunities of a greater size than we otherwise might have approached on a stand-alone basis.
"Additionally, having paid and declared over USD165 million in dividends since our 2017 IPO, including last week's quarterly dividend totalling nearly USD25 million, this agreement enhances visibility into DGO's future opportunities to sustain production and cash flow through the acquisition of producing assets, underpinning our commitment to create tangible returns for shareholders through the dividend."
Shares in Diversified were up 1.2% at 103.20 pence in London on Monday morning.
By Anna Farley; annafarley@alliancenews.com
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