DGOC.L Regulatory News (DGOC)

29 August 2019

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

DGO to acquire assets in the State of Ohio from EdgeMarc Energy Holdings

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 the asset purchase agreement with EdgeMarc Energy Holdings, LLC, and certain of its subsidiaries, ("EdgeMarc" or the "Seller") as announced on 25 July 2019 (the "Acquisition") has been approved by the Seller and the United States Bankruptcy Court. Accordingly, subject to satisfaction of certain remaining closing conditions, DGO will acquire EdgeMarc's natural gas development, production and exploration assets for a total cash consideration of $50 million (subject to customary purchase price adjustments). The assets to be acquired include 12 gross producing unconventional Utica natural gas wells and related facilities (the "Assets") in Monroe and Washington counties within the State of Ohio, as well as certain undeveloped lands containing deep Utica rights.

Acquisition Highlights:

·; Current production (~99% gas) of approximately 46 MMcfe per day (~7.7 MBoepd)1

·; Purchase price represents a multiple of less than 3x projected cash flow

·; Proved-Developed-Producing ("PDP") reserves of approximately 13.5 MMBoe valued at approximately $58 million on a PV10 basis2 (unhedged)

·; Purchase price (gross) equates to an approximate PV14 value on only the PDP reserves

·; Low Base LOE4 of $1.56/Boe ($0.26/Mcfe), which is 59% lower than DGO's consolidated rate at 30 June 2019

·; No incremental administrative expense required

·; Production has direct access to multiple interstate pipelines with the potential for higher realised pricing

·; High average working interest and net revenue interests approximating 99% and 79%, respectively

·; Wells require no near-term maintenance capital expenditures

·; Three Drilled-and-Uncompleted ("DUC") wells valued at approximately $14 million in aggregate on a PV10 basis2, net of future completion costs3 - DGO has allocated no purchase price value to the DUCs and will explore monetisation options to effectively further reduce the net purchase price of the PDP reserves

·; DGO to acquire EdgeMarc's 2019 and 2020 natural gas financial hedge book for additional consideration of approximately $2.0 million

·; Acquisition consideration to be funded from existing debt facilities resulting in net debt-to-Adjusted EBITDA of approximately 2.1x

·; Target completion date of mid-September with an effective date of 1 August 2019

The acquired wells are located in close proximity to DGO's existing wells in Ohio and will benefit from the Company's asset concentration and economies of scale within the Appalachian Basin. The acquired wells' Base LOE4 and Total LOE5 of $1.56/Boe and $4.05/Boe are 59% and 26%, respectively, lower than DGO's consolidated Base LOE and Total LOE as reported in the Interim Results to 30 June 2019. Consequently, the Acquisition will further reduce DGO's consolidated Base LOE per Boe and enhance the Company's overall cash margins. As with all of the Company's acquisitions, DGO will work to identify opportunities to further optimise the operations, enhance production and reduce operating costs. EBITDA attributable to the Assets for the 12 months to December 2018 was approximately $30.5 million.

Consistent with the Company's stated acquisition valuation methodology, DGO has attributed value only to EdgeMarc's PDP reserves, and has allocated no value to proved-undeveloped ("PUD") reserves or undeveloped acreage. Importantly, however, this Acquisition includes three DUC wells, classified as PUDs, located in Monroe County and valued at $14 million on a PV10 basis net of completion costs3. While DGO has the right to complete and produce these wells following closing, it expects to explore options that either monetise these wells entirely or allow the Company to participate at some level in their completion and future production on a joint or exclusive basis. Should DGO choose to monetise these wells entirely, the net proceeds would effectively serve to reduce the cost to acquire the producing wells and associated PDP reserves. The Acquisition further includes approximately 10 net undeveloped drilling locations in the deep Utica formation that similarly DGO could monetise or jointly or exclusively develop.

Hedging

In order to protect its cash flows and mitigate commodity price volatility, DGO is also pleased to announce the acquisition of EdgeMarc's 2019 and 2020 natural gas financial hedge book for additional consideration of approximately $2.0 million. The Seller's hedge portfolio includes:

Based on a 1 August 2019 effective date for the Acquisition, DGO will receive the benefit of any settled hedges and adjust the purchase price for any hedge impact from the effective date to the closing date.

Rusty Hutson, Jr., CEO of the Company commented:

"We are excited about the opportunity to bring these highly productive and complementary wells into our geographically concentrated and highly efficient Northern operations and at an attractive purchase price relative to their current cash flow and PV10 values. The wells are consistent with our acquisition strategy in terms of adding high-quality, long-life assets to the portfolio. We are acquiring these wells at a fraction of the cost incurred to develop them and yet given their long-life nature, we will reap the margin-enhancing benefit from them for years to come. Further, the value added to this transaction from the zero-cost capital outlay for the DUCs makes this acquisition even more attractive to DGO."

1 Based on actual average daily production from 1 August-25 August 2019

2 Based on Management internal estimates prepared using Society of Petroleum Engineer standards; reserves assume a 1 August 2019 effective date and NYMEX strip prices as of 26 August 2019

3 The acquired DUC PV10 value assumes average completion costs of $7.5 million per well

4 Base LOE defined as the expenses incurred to operate and maintain producing oil and gas leases including labour, equipment repair, maintenance, utilities, insurance, and overhead

5 Total LOE defined as Base LOE plus production taxes plus third-party gathering & transportation expense

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.