Diversified Energy Company PLC (LSE: DEC) (NYSE: DEC) has announced a major acquisition in East Texas, acquiring a substantial package of high-quality natural gas assets for $87 million. The deal, set to close in the fourth quarter of 2024, includes both proved developed producing (PDP) assets valued at approximately $68 million and undeveloped acreage worth around $19 million.

Diversified Energy’s Strategic Acquisition: Key Details

The acquisition involves two main components: a significant PDP component and a smaller stake in undeveloped acreage. Diversified Energy will purchase the PDP assets, valued at approximately $68 million, which will enhance its production capabilities. Concurrently, a third-party development company will acquire the undeveloped acreage, with Diversified retaining a minority 5% interest for $1 million. This brings the total purchase price paid to the Seller to approximately $87 million.

The funding for this acquisition will come from issuing new U.S. dollar-denominated ordinary shares worth around $35 million directly to the Seller. The remaining funds will be sourced from existing liquidity and increased collateral associated with the acquired assets. The deal is structured to close by the end of 2024, subject to customary purchase price adjustments and a break fee if the acquisition does not proceed.

Financial Highlights and Operational Impact

The gross purchase price for Diversified Energy’s portion of the deal is $69 million, including the PDP assets and a minor stake in undeveloped acreage. The PDP assets alone have a gross purchase price of about $68 million, with an estimated net purchase price of $64 million after adjustments. The deal represents a 3.5x purchase multiple based on anticipated net production and EBITDA, with current PDP production estimated at 21 MMcfepd (4 MBoepd).

These assets include 331 net PDP wells and are expected to add significant production to Diversified Energy’s portfolio. The acquisition will contribute an additional 21 MMcfepd in production and 70 Bcfe (12 MMBoe) of PDP reserves with a PV-10 value of $89 million. The production profile of the assets, characterized by low annual declines of approximately 15% over the next twelve months, is highly complementary to Diversified’s existing operations.

Strategic Benefits and Expert Insight

This acquisition underscores Diversified Energy’s strategic expansion into East Texas, a region known for its significant natural gas reserves. The assets are situated in close proximity to Diversified’s previously acquired properties, allowing for operational synergies and cost efficiencies. The integration of these assets is expected to enhance Diversified’s scale and operational capabilities in the region.

CEO Rusty Hutson, Jr., remarked on the strategic value of the acquisition, emphasizing that it strengthens Diversified Energy’s position in East Texas, expands operational scale, and enhances margins. He highlighted the company’s track record of executing disciplined transactions at attractive valuations and its ability to structure deals that maximize shareholder value.

Market Context and Future Outlook

This acquisition comes at a time of increased activity in the natural gas sector, with companies seeking to expand their asset bases and operational footprints. Diversified Energy’s strategic move aligns with broader industry trends toward consolidation and scale expansion. The integration of these assets will likely provide Diversified with additional opportunities for cost reductions and operational efficiencies, leveraging its Smarter Asset Management program.

The deal also reflects a growing interest in the East Texas region, known for its rich natural gas reserves and favorable production economics. Diversified Energy’s focus on acquiring high-quality assets in this region positions it well for future growth and operational success.

  Diversified Energy Company, Dunn & Crutcher LLP, East Texas, Gibson, Kirkland & Ellis LLP, natural gas assets, Opportune LLP, Rusty Hutson Jr