DGOC.L Regulatory News (DGOC)

4 May 2020

DIVERSIFIED GAS & OIL PLC

("DGO" or the "Company")

Trading Update

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 following operations and trading update for the quarter ended 31 March 2020.

Highlights

Operating Highlights

· 1Q20 net daily production maintained at 94.0 thousand barrels of oil equivalent per day (MBoepd) (564.0 million cubic feet equivalent per day (MMcfepd)) while the Company maintains health and safety requirements, observing social distancing and navigating the COVID-19 pandemic

o ~0% net decline during the period from the Company's legacy(a), largely conventional assets that extends the effectiveness of DGO's Smarter Well Management programme to over 18 months, with well optimisation techniques continuing to offset natural production declines

o Total net production within 1% of the 2019 exit rate of 94.8 MBoepd (568.8 MMcfepd)

Recent Financial Highlights

· The Company expects to publish a prospectus on 13 May 2020 to support a transition of its Ordinary Shares from the AIM Market to the Official List and commence trading on the Main Market on 18 May 2020

· 1Q20 Adjusted EBITDA(b) of ~$78 million (hedged; 57% margin), unchanged from 4Q19 of $78 million (55% margin), supported by an average 1Q20 natural gas hedge price of $2.73/MMBtu

o Stable production combined with an efficient, low-cost structure supported a 1Q20 unhedged EBITDA margin of 41% despite an approximate 22% decline in Henry Hub NYMEX price from 4Q19

· 1Q20 total unit cash expenses(c) including lease operating expense, midstream expense and recurring administrative expense of $6.98/Boe ($1.16/Mcfe) down 22% vs. 1Q19 ($8.90/Boe, $1.48/Mcfe) and improved from 4Q19 ($7.09/Boe, $1.18/Mcfe) even with incrementally lower volumes

· Maintained quarterly dividend payments supported by an expanded hedge portfolio with ~90% of 2020 and ~90% of 2021 production hedged at $2.73/MMBtu and $2.59/MMBtu, respectively

· Today announced the 1Q20 dividend of 3.50¢/share, consistent with the final 2019 dividend and reflective of the Company's commitment to maintain its dividend and demonstrating DGO's commitment to deliver strong free cash flow even during periods of low commodity prices

· Year-to-date distributions include:

o ~$22 million in dividends to shareholders

o ~$16 million in share repurchases under the 2019 buyback programme

· Successful $200 million (approximately $191 million net) amortising securitised 8.5-year financing, announced on 14 April 2020, BBB rated by Fitch with a 5.25% coupon matching an additional portion of DGO's capital structure with the underlying long-life nature of the assets and reducing the utilisation of the Company's revolving credit facility

· ~2.3x Current Net Debt / Adjusted EBITDA(d)

· Current available liquidity of $190 million reflective of the aforementioned dividends and share repurchases as well as additional cash uses related to 1Q20 Main Market uplist and ERP conversion efforts

Update on conditional Purchase and Sale Agreement to acquire Appalachia assets

As announced on 8 April 2020, the Company entered into a conditional Purchase and Sale agreement to acquire certain conventional Appalachian upstream and midstream assets (the "Assets") from Carbon Energy Corporation and certain of its affiliates. DGO continues to progress customary due diligence on the Assets and will provide an update in due course as it completes the necessary diligence and reviews.

Reserve-Based Lending ("RBL") Redetermination

DGO's borrowing base on its revolving credit facility remains $425 million. The Company expects to complete its semi-annual redetermination process during May 2020 and is working with its bank group to schedule the review.

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

"Navigating unprecedented market volatility and general economic uncertainty validates the business model DGO defined nearly 20 years ago. Our unwavering commitment to maintain a healthy balance sheet while protecting capital returns to shareholders through responsible and long-term hedging remains a top priority. I'd like to commend the DGO team whose commitment to excellence during the ongoing pandemic has been realised through another exceptional quarter of strong production from our wells, including a seventh straight quarter of consistent production from our foundation of long-life and low-decline largely conventional assets. Our robust hedging programme, low cost structure and relentless focus on well productivity and operating efficiency continue to generate a healthy and consistent adjusted EBITDA margin in excess of 50 percent, which collectively underpin the consistency of our dividend to and for shareholders.

"I'm also encouraged by the improved pricing outlook for natural gas. While oil makes up just 1% of our production, dramatically lower oil prices combined with a fundamentally changed outlook for oil has shale oil developers, particularly within the Permian Basin, moving quickly to significantly reduce spending on new shale oil wells that, as a byproduct, also produce large amounts of associated gas. This behavioral shift is expected to therefore reduce the supply-side of natural gas while demand remains stable despite the ongoing pandemic, benefiting from continued transition from coal to natural gas-fired electricity.

"Having now formally announced our plans to transition from AIM to a premium listing on the Main Market, I remain optimistic as ever about DGO's future as we continue to evaluate ways to create long-term, sustainable value for shareholders."

Footnotes:

(a) Legacy assets defined as assets owned at 31 December 2018 and therefore prior to the Company's 2019 acquisitions of assets from HG Energy & EdgeMarc Energy.

(b) Adjusted EBITDA represents earnings before interest, taxes, depletion, depreciation and amortisation 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.

(c) Total cash expenses represent total operating costs plus recurring administrative costs. Total operating costs include base lease operating expense, owned gathering and compression (midstream) expense, third-party gathering and transportation expense, and production taxes. Recurring administrative expenses is a non-IRFS financial measure defined as total administrative expenses excluding non-recurring acquisition and integration costs.

(d) Assumes current net debt of approximately $622 million and 2019 year-end Adjusted EBITDA of $273 million.

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