US DGO Builds up Appalachian Footprint

US-based Diversified Gas & Oil (DGO) has signed a conditional deal to acquire mature, conventional upstream and midstream assets in the Appalachian basin from Carbon Energy Corp, it said in a statement on April 8.

The deal covers fields in DGO's current area of operation West Virginia, Kentucky and Tennessee that flowed 9,900 barrels of oil equivalent/day last year, 97% of which is gas.

Around 75% of 2019 gas production is hedged for 18 months from the transaction's effective date, January 1 2020, ensuring downside protection of $2.6/mn Btu.

DGO will also take control of a 7,563-km gathering pipeline that handles the bulk of production from Carbon's Appalachian wells, as well as third-party volumes. In addition it will acquire two active gas storage fields that also generate third-party revenues.

The deal is pending due diligence, but DGO expects the purchase price to be $110mn. It will pay for the deal using its existing revolving bank facility, or a similar financing option. 

DGO CEO Rusty Hutson said the company was "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,"  he continued. "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."