DGOC.L Regulatory News (DGOC)

27 August 2019

DIVERSIFIED GAS & OIL PLC("DGO" or the "Company")

Acquisition of Natural Gas Gathering Systems

Diversified Gas & Oil PLC (AIM: DGOC), the U.S. based owner and operator of natural gas, natural gas liquids, and oil wells as well as midstream assets, is pleased to announce that it has entered into binding agreements to acquire two separate packages of margin enhancing natural gas gathering systems in Pennsylvania and West Virginia for an aggregate cash consideration of $7.5 million (the "Assets").

The Assets, purchased from Dominion Gathering and Processing, Inc. and Equitrans, L.P. (together, the "Sellers"), comprise approximately 1,700 miles of low-pressure wet and dry gas gathering pipelines together with compressors, measurement stations and related facilities and equipment. Along with the Assets, the Company expects to hire several midstream employees who, with their previous experience operating the system, will be instrumental in efficiently integrating and operating these Assets alongside the Company's existing midstream assets and team.

The Assets currently move approximately 109,000 MMBtu of natural gas per day, of which DGO currently produces approximately 60% with third parties producing the remaining 40% of the throughput volumes. As with the Company's existing approximately 10,500-mile southern midstream system, the Assets hold strategic importance and will enhance DGO's margins in the following ways:

·; Increases third-party midstream revenues by over $3 million per annum from tariffs charged and production volumes retained and sold that together partially offset costs to operate the systems

·; Allows DGO to control the flow of production through these systems, increasing optionality to re-route gas to sales points with higher realised prices that would expand cash margins

·; Eliminates the risk of future rate increases to move gas on the systems, which further insulates DGO's low operating cost structure

·; Advances synergies with DGO's existing midstream network, allowing for operating and staffing optimisation to reduce the Assets' operating costs

·; Provides visible opportunities to deploy DGO's expertise to enhance the systems' efficiency with incremental, low-cost and short pay-back maintenance initiatives

The expansion of DGO's midstream system into the Company's northern operations further enhances the Company's earnings potential and expands the Company's net cash margins. Combined with DGO's existing southern midstream system, the Company owns and operates approximately 12,000 miles of pipelines across the Appalachian Basin. DGO expects to substantially close on the transactions in September, and will immediately thereafter start integration of the Assets, improving the efficiency and optimising gas sales to the most advantageous markets.

Commenting on the acquisitions, CEO Rusty Hutson said:

"In keeping with DGO's growth strategy, we have capitalized on the opportunity to acquire what has become non-core assets for these Sellers. These small, yet strategically complementary bolt-on acquisitions will add scale to our midstream capabilities and provide a high level of optionality with regards to both routes to market and improved pricing. These acquisitions further diversify our operations and revenue streams and strengthen our long-term ability to control costs and protect margins."