DGOC.L Regulatory News (DGOC)

16 May 2019

DIVERSIFIED GAS & OIL PLC

("Diversified", "DGO" or the "Company")

Operating Update

Diversified Gas & Oil plc (AIM: DGOC), the US-based owner and producer of gas and oil wells and operator of midstream assets in the Appalachian Basin, is pleased to announce the following operational update.

Highlights

· Q1 net production of approximately 69 thousand barrels of oil per day (kboepd) in line with year-end production

· April production exceeded 70 kboepd from existing assets and over 90 kboepd including production from the HG Energy II assets

· Ongoing integration of HG Energy II wells into portfolio with production in line with expectations, with net production over 20 kboepd at the end of April

· Q1 adjusted EBITDA of $62 million (hedged), with margins of approximately 55%, consistent with year-end margins

Operations and Well Integration Update

The Company's Smarter Well Management programme (the "SWM Programme") continues to support strong production from the Company's assets. Net production for the three months ended 31 March 2019 averaged approximately 69 kboepd, generally in line with 31 December 2018 year-end net production of approximately 70 kboepd. When adjusted for typical seasonal and weather-related production curtailments, net average production delivered a marginal increase in the period compared with year end production. April net production from existing assets exceeded 70 kboepd and further increased to over 90 kboepd inclusive of the recently acquired HG Energy II assets.

In addition to optimising production from existing assets, DGO is integrating the wells from HG Energy II acquisition (the "Acquisition"), which closed in late April. The acquired wells are producing in line with expectations and the seller-financed compression projects previously disclosed are progressing to plan. Enhanced compression on two producing pads in Pennsylvania, on which 21 wells sit, increased net production from approximately 6.2 kboepd to approximately 8.4 kboepd, an increase of more than 35% and consistent with the Company's expectations of the project. Total net production from the acquired assets was over 20 kboepd by the end of April, and DGO expects to complete the remaining compression project this month.

Financial Update

Realized prices for the quarter were in line with expectations as DGO continues to actively manage commodity price volatility through its ongoing hedging program, providing for stable cash flows. The Company's lease operating expenses per unit of production remained in-line with the fourth quarter 2018 and general and administrative expenses were constant. Despite lower commodity prices and the winter weather-related production curtailments, on an unhedged and hedged basis, adjusted EBITDA* in the first quarter approximated $63 million and $62 million, respectively, equating to margins of nearly 55%, consistent with year-end margins of approximately 61% and 53%, respectively.

Strong margins translated into healthy cash flow of approximately $47 million in debt reduction payments prior to the March dividend payment and amounts escrowed for the Acquisition. With the previously announced $225 million increase in the Company's borrowing base available on its credit facility, DGO's liquidity was enhanced and exceeds $330 million after drawing approximate $160 million to close on the Acquisition. Net debt-to-adjusted EBITDA* remained unchanged from year-end at approximately 1.8x.

Rusty Hutson, Jr., CEO of Diversified commented, "The production performance through the first quarter demonstrates the effectiveness of our SWM Programme, and we continue to see plenty of opportunities within our portfolio to organically grow production through various field and well-level initiatives. The hard-working members of Diversified's team who make the SWM Programme a success are also now focused on overseeing the seamless integration of the HG Energy assets, which is progressing well. With strong cash flows from our producing and midstream assets and current liquidity of over $330 million that increases monthly as we utilize our free cash flow to paydown our revolver balance, we are well positioned to respond to market dynamics and redeploy our liquidity into the best opportunities for creating long-term shareholder value."

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

* Adjusted EBITDA represents earnings before interest, taxes, depletion, depreciation and amortization and adjustments for non-recurring items such as gain on the sale of assets, acquisition related expenses and integration costs, mark-to-market adjustments related to the Company's hedge portfolio, non-cash equity compensation charges and items of a similar nature.