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Diversified Gas & Oil stable and in a position to strengthen despite market turmoil

Snapshot

  • Owns thousands of simple, mature wells
  • Recent results show production was 94,800 boepd
  • Dividend safe, financing position secure
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Quick facts: Diversified Gas & Oil PLC

Price: 96.2 GBX

LSE:DGOC
Market: LSE
Market Cap: £680.24 m
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“It is critically important to me to position DGO to capitalise on this unique ability to grow scale and cash flows for the benefit of our dividend and shareholders.”

Rusty Hutson, chief executive.

How is it doing?

London-listed Diversified Gas & Oil PLC (LON:DGOC) has remained stable and is potentially in a position to strengthen at portfolio level amidst the turmoil in the US oil and gas industry.

DGOC has reassured investors over its dividend whilst providing a detailed update on its operations during the coronavirus (COVID-19) pandemic.

Through the early phases of the pandemic DGOC’s gas operations were designated as essential services in each of states that it has produces in.

Production continued to produce with little-to-no impact from COVID-19. The company noted that its operations are mostly located in rural locations which limits the amount of human-to-human interaction.

DGOC emphasised that production remained stable, operating costs were comparatively low and it benefits from a robust hedging strategy. The dividend was deemed safe by the company.

The company demonstrated its ability to do deals during the pandemic.

Two separate transactions have been agreed for a combined cost of US$235mln, to add 18,000 boepd of production to the asset portfolio.

The deals were supported by equity and debt financing, with US$85.8mln secured in a share placing to existing and new shareholders.

In April, DGOC also successfully completed a US$200mln financing arrangement providing more certainty and financial stability. It meant that more than two-thirds of the company’s debt is in long-term, fixed-rate, amortising notes. This debt exposure is underpinned with long-term hedges and without redetermination risk.

A prior review of the firm’s borrowing base set the firm’s credit limit set at US$650mln, and, at that time it had drawn US$437mln from the facility. Meanwhile, a number of blue-chip lenders (Credit Suisse, Goldman Sachs and Morgan Stanley) were added to the syndicate.

The company is advancing was promoted onto the premium segment of the London Stock Exchange in May. It expects the new listing will potentially improve liquidity and the valuation of its shares, and, noted that a larger number of institutional investors that regularly trade ‘main market’ shares.

What brokers say

Diversified Gas & Oil PLC’s (LON:DGOC) is “ideally positioned” thanks to its unique business model, according to broker Cenkos.

Amidst commodity market volatility, Cenkos highlights that 90% of 2020 and 2021 production is hedged – at average prices of US$2.73 and US$2.59 per mmbtu.

“With its industry-leading hedge position, DGO is able to navigate through the current uncertainty by producing highly visible, dependable cash flows which allow the company to sustain an annualised US$0.14 per share dividend,” Cenkos analyst James McCormack said in a note.

“DGO’s unique business model means that it is ideally positioned to pursue further value accretive growth, at a time when we expect significant, high-quality assets to become available to compelling valuations.”

What the boss says

“The strength and low-risk nature of our business model and current liquidity of nearly US$200 million ensures that DGO is ideally positioned to maintain its dividend, a factor that we believe to be a core pillar of our investment case, while strengthening our position in the market to opportunistically pursue prudent and accretive growth during a time when we expect significant, high-quality assets to become available at compelling valuations,” Rusty Hutson said.

“It is critically important to me to position DGO to capitalise on this unique ability to grow scale and cash flows for the benefit of our dividend and shareholders.”

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Diversified Gas & Oil raises US$250mln to help fund its largest acquisition

Rusty Hutson, chief executive of Diversified Gas & Oil plc (LON:DGOC), tells Proactive Investors they've raised US$250mln via an oversubscribed placing priced at 97p per share to part fund the recently announced US$575mln acquisition of additional assets in the Appalachian...

on 2/7/18

3 min read