Diversified Energy to lift interests in US oil and gas assets

London and New York-listed Diversified Energy Company (LSE: DEC) has entered into a conditional agreement with Oaktree Capital Management for the strategic acquisition of working interests in a number of operated assets in the Central Region of the US.

The US$386 million acquisition will consolidate Diversified’s working interest in its existing operated wells in the Central Region by adding around 510 billion cubic feet of gas equivalent (bcfe) of reserves.

The assets include wells currently operated by Diversified throughout the Central Region.

Successful acquisition strategy

Chief executive officer, Rusty Hutson Jnr said the acquisition represents a continuation of Diversified’s successful multi-year track record of strategic asset purchases, with the company acquiring Oaktree’s proportionate interest in the previously announced Indigo, Tanos III, East Texas, and Tapstone acquisitions.

“We finished the year with strong financial, operational, and sustainability results, which reflect the continued execution and success of our business strategy and the contributions of our teams. Despite headwinds in the natural gas market, Diversified grew annual adjusted EBITDA by approximately 8%, increased margins by approximately 6%, and generated US$219 million in free cash flow,” he said.

Significant production increase

The new interests are expected to provide approximately 15% in new production and offsets the natural declines in Central Region output with an expected 122 million cubic feet equivalent per day (mmcfepd) in additional production.

The new interests also increase Diversified’s exposure to favourable US Gulf Coast pricing and takeaway capacity.

Diversified currently obtains around 35% of its production from the Central Region with the remaining 65% coming from the Appalachia region.

Mr Hutson junior said Diversified’s average working interest in the assets will increase by approximately 100% as a result of the transaction, highlighting the company’s emphasis on efficient operation of high ownership interest assets to maximise cash returns for the life of the acquired assets.

Gas market position

“The gas market is sending a clear signal today; there is too much supply in the marketplace. Producers have already started to respond with reduced activity levels and production guidance,” he said.

“We believe Diversified is one of the best-positioned operators to take advantage of this lower commodity price marketplace. We are highly hedged in 2024, and our production base has one of the lowest decline profiles in the gas industry.”