DGOC.L Regulatory News (DGOC)

8 April 2020

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

DGO enters into a conditional Purchase and Sale Agreement to acquire Appalachia assets

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 signed a conditional Purchase and Sale Agreement (the "Agreement") to acquire certain conventional Appalachian upstream and midstream assets (the "Assets") from Carbon Energy Corporation and certain of its affiliates ("Carbon") ( the "Transaction").

While the Company can provide no certainty that it will complete the Transaction, DGO continues to negotiate the terms of the Agreement. The Transaction is subject to ongoing due diligence, which DGO will complete to its satisfaction prior to confirming the final terms, including the gross purchase price which it expects to approximate $110 million (subject to various purchase price adjustments). Importantly, the Transaction falls within the Company's stated valuation criteria of less than 4x EBITDA based on diligence to date and will have an effective date of 1 January 2020, if completed.

The Assets are located within DGO's existing West Virginia, Kentucky and Tennessee footprint and further increase its operating scale and efficiencies. Specifically, they include:

· Mature, low decline conventional net daily production in 2019 of 59,400 million cubic feet equivalent or ~9,900 barrels of oil equivalent; 97% natural gas primarily from ~6,500 net operated wells

· Intrastate gathering pipeline of approximately 4,700 miles in West Virginia which currently transports the majority of the production from Carbon's Appalachia wells and provides additional third-party transportation revenue along with direct interconnects to higher-priced interstate pipelines

· Two active natural gas storage fields that generate third-party storage revenue and greater control optionality for DGO

· Robust hedge portfolio that includes an average NYMEX downside protection of approximately $2.60/MMBtu for a period of eighteen months from the Transaction effective date representing approximately 75% of the Asset's 2019 produced volumes

The Company believes these Assets complement its portfolio of existing assets and are capable of generating accretive returns. If successful, the Company intends to fund the cash purchase price, net of purchase price adjustments, with funds available on its existing revolving bank facility or similar financing. The Company expects that this non-dilutive growth will enhance the accretion to the dividend while maintaining leverage below 2.4x net debt-to-Adjusted EBITDA. Notably, because DGO targets producing wells that generate significant positive cash flow and because the Company is always committed to maintaining a strong balance sheet, DGO will continue to allocate appropriate amounts to debt repayments alongside its stated commitment to the dividend. The Company will provide an update in due course as it completes the necessary due diligence and reviews.

Commenting on the proposed acquisition, CEO Rusty Hutson, Jr. said:

"DGO is uniquely positioned to capitalise on compelling opportunities in the current market and moved quickly to secure exclusivity on this value accretive package. We can comfortably fund the acquisition without dilution to our loyal shareholders using our existing credit facility. These Assets, strategically located in our existing area of operations, will allow us to leverage our talented field personnel and Smarter Well Management program across additional assets as we relentlessly drive operating efficiencies and cost savings. Expanded scale combined with our focus on a variety of identified opportunities to further improve the assets' free cash flow will enhance operating margins and provide additional insulation and resilience in this low commodity price environment. Further expanding our midstream system will provide both greater certainty and optionality to transporting our production, and together with the storage fields, provide ways to generate additional third-party revenue. This proposed complementary acquisition, if completed, remains consistent with our commitment to pursue prudent growth that enhances our dividend per share to shareholders."

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