DGOC.L Regulatory News (DGOC)

23 April 2019

Diversified Gas & Oil PLC

("Diversified" or the "Company")

Completion of Acquisition and Hedging Update

Diversified Gas & Oil PLC (AIM: DGOC), a U.S.-based owner and operator of natural gas, natural gas liquids, oil wells and midstream assets, announced on 27 March 2019 that it had signed a conditional sale and purchase agreement to acquire certain gas producing assets from HG Energy II Appalachia, LLC for a total cash consideration of approximately $400 million (the "Acquisition"). The Company is pleased to announce that the Acquisition has now been completed.

The Acquisition of the mature, unconventional assets continues Diversified's strategy of acquiring stable, long-life, low-decline producing assets in a focused region and complement the Company's existing conventional and unconventional asset base across the Appalachian Basin. The Acquisition of the 107 gross producing wells and related surface rights increases Diversified's pro-forma net daily production by approximately 30% to over 90,000 barrels of oil equivalent per day. As previously announced, the Aquisition is immediately accretive on a variety of per-share metrics including earnings and free cash flow through significant top-line revenue growth coupled with a further reduction of unit-level operating expenses.

"This is yet another transformative transaction consistent with our ambitious and proven growth strategy," commented Rusty Huston, Jr., CEO of Diversified. "The HG Energy Acquisition firmly establishes Diversified as a top-tier London-listed producer, supported by a healthy balance sheet, a strong cash flow profile and a healthy dividend yield. We now turn our attention to the seamless integration of these assets into our smarter well management program."

These newly acquired wells, when coupled with its owned unconventional and conventional wells spanning Appalachia, increase Diversified's operating scale and enable the Company to further optimize operations and solidify its status as the consolidator of choice for mature producing and midstream assets in Appalachia. Moreover, the transaction taps into a robust and scalable inventory of target assets which align with the Company's acquisition strategy, which when combined with the organic development opportunities associated with its more than 7.8 million acres of largely undeveloped leasehold, provides visibility for future growth.

To fund the net $384 million purchase price (including customary adjustments of $16 million), the Company successfully completed a $234 million institutional share placing underpinned by strong investor demand. Diversified funded the remainder of the purchase price with a draw on its existing credit facility. Inclusive of the additional debt and reflective of the strong earnings profile of the acquired assets, the Company's Net Debt-to-EBITDA ratio remains unchanged at just 1.8x, sitting comfortably within the Company's stated target of ~2x.

Hedging Update

To protect cash flow and in line with its overall policy to mitigate risk, Diversified utilized a foreign currency swap on £170 million at $1.3255 per £1.00 resulting in a realized gain upon settlement of over $4 million.

Additionally, Diversified has a stated policy to use a mixture of physical and financial contracts to protect its cash flow and minimize commodity price volatility. Accordingly, and to protect the cash flows associated specifically with this Acquisition, Diversified successfully executed financial NYMEX gas hedges for the period of May 2019 through April 2020 for 80,000 MMBtu per day (~13,300 Mboepd; 63% of the ~21,000 Mboepd produced by these wells in 2018) at an average price of $2.73 per MMBtu, which represents a premium to current month pricing of approximately 9%.

For the same time period, the Company also executed gas basis hedges for 70,000 MMBtu per day (~11,700 Mboepd; 56% of the ~21,000 Mboepd produced by these wells in 2018) at an average TETCO M2 price of ($0.40) per MMBtu, which also represents a premium to current month pricing of approximately 9%.

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