DGOC.L Regulatory News (DGOC)

14 November 2019

DIVERSIFIED GAS & OIL PLC

("DGO" or the "Company")

Completion of Securitised Financing

Diversified Gas & Oil plc (AIM: DGOC), the U.S. based owner and operator of natural gas, natural gas liquids, and oil wells and midstream assets, is pleased to announce the successful completion of its securitised financing arrangement, originally announced on 30 October 2019.

Highlights

·; Closed inaugural $200 million securitised financing (the "Notes") with key terms summarised below:

o 5% coupon

o 10-year amortising note

o 17-year final maturity

o Secured by ~21.6% working interest of certain upstream asset cash flows (fully owned & controlled by DGO)

o 10-year hedging on 85% of the production volumes of the collateralised assets to provide stable cash flow

·; BBB- investment grade rating provides:

o Superior cost of financing vs. unsecured bonds

o Affirms underlying quality of DGO's assets and their associated cash flows

·; Higher advance rate of upstream asset PV10 value increases liquidity as compared to reserve-based lending ("RBL") advance rate

·; Amortising feature aligns with asset cash flows and provides for systematic de-levering

·; DGO used the Notes' net proceeds to partially repay its existing RBL balance, proactively reducing its exposure to RBL lending with borrowing limits that can contract during period of lower commodity prices

·; Notes are not subject to redetermination, and the partial repayment of the RBL:

o Reduces DGO's reliance on commercial lending banks

o Lowers its utilisation of the RBL borrowing base

o Bolsters the sustainability of DGO's ability to pay the dividend

·; Provides access to a dynamic, scalable and low-cost structure with potential to fund future growth

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

"Our new securitised financing structure provides DGO with access to a high-quality capital base and allows the Company to diversify and enhance the duration of our debt capital structure while simultaneously enhancing liquidity. As an acquisitive growth company, the ability to fix attractive rates for a 10+ year period on a portion of our debt while freeing capacity on our revolving credit facility is paramount to our continued success and demonstrates to sellers of assets our ability to transact."

Securitised Financing Update

On 13 November 2019, the Company closed its inaugural BBB- investment grade-rated securitised financing arrangement (the "Arrangement") with a coupon of 5%. The Notes, rated by both Fitch and Morningstar, have a 10-year scheduled maturity, though provide for a longer, 17-year final legal maturity.

To facilitate the Arrangement, DGO created a wholly-owned and fully consolidated (for accounting purposes) special purpose vehicle, Diversified ABS LLC (the "LLC"), to issue $200 million (approximately $190 million net) of non-recourse asset-backed securities, collateralised by a ~21.6% working interest in the Company's existing upstream proved developed producing asset portfolio (the "Collateral"). Importantly, the Notes allow DGO to retain 100% ownership and operational control of the Collateral, and the Collateral exclude the Company's midstream assets and its most recently acquired upstream EdgeMarc assets due to the timing of the EdgeMarc acquisition close.

The financing structure is ideally suited for long-tenor hedges that protect its cash flows from commodity price volatility. Accordingly, DGO hedged 85% of the SPV's forecasted production at a NYMEX price of $2.46 per MMBtu. DGO will also maintain two rolling years of basis hedges initially swapped at $0.43 per MMBtu.

The BBB- investment grade Notes, provide a superior PV10 advance rate compared to DGO's existing revolving credit facility and create approximately $60 million of additional liquidity. The structure also protects the Company's liquidity with no semi-annual borrowing base redeterminations and provides for flexible and limited financial covenants tied only to the performance of the securitised assets.

DGO used the net proceeds after establishing a required ~$7 million Reserve Account from the Notes to reduce its borrowings on its RBL by approximately $183 million. Going forward, DGO will use the hedge-protected cash flows generated by the LLC's working interests to satisfy the payment of principal and interest on the Notes, with any excess cash flows distributed upstream to the parent on a monthly basis and available to further paydown the RBL.

The structure places no covenants on the parent company and places no restrictions on any cash flow distributed from the LLC to the parent company so long as the LLC remains in covenant compliance.

The Company has the ability, if desired, to upsize the borrowings under the Notes in the future with the same high-quality, private investor base and at the same attractive fixed rate by increasing the working interest share of upstream assets allocated to the LLC.

Reserve-Based Lending ("RBL") Redetermination

Positioning DGO to thrive in lower commodity prices while remaining capable of successfully acquiring high-quality assets driven to market by a challenging market cycle means enhancing the Company's debt capital structure. While RBL provide low-cost financing relative to other forms like bonds, an RBL is subject to redetermination risk. Accordingly, during periods of lower commodity prices where the underlying future value of the loan collateral (primarily PDP reserves) falls, the RBL simultaneously contracts, potentially when it is most needed since lower prices also mean lower revenues and cash flows. Expanding DGO's debt capital structure to include a portion of fixed term financing reduces its exposure to downward revisions of its RBL upon redetermination (performed semi-annual on the RBL) while simultaneously creating additional liquidity by virtue of a higher advance rate of the underlying collateral value.

Concurrent with this Arrangement, the 14-bank syndicate led by Key Bank will conduct its semi-annual redetermination of the Company's existing revolving credit facility, planned for 15 November 2019 and expected to conclude by mid-December 2019. Once complete, DGO will provide an additional update in due course.

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