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Diversified Gas &Oil (DGOC)

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Friday 16 June, 2017

Diversified Gas &Oil

Acquisition, Placing and Readmission to Trading

RNS Number : 2952I
Diversified Gas & Oil PLC
16 June 2017
 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE AN ADMISSION DOCUMENT AND DOES NOT CONSTITUTE OR FORM PART OF ANY OFFER OR INVITATION TO SELL OR ISSUE, OR ANY SOLICITATION OF ANY OFFER TO PURCHASE OR SUBSCRIBE FOR, ANY ORDINARY SHARES IN THE CAPITAL OF THE COMPANY, NOR SHALL IT (OR ANY PART OF IT), OR THE FACT OF ITS DISTRIBUTION, FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH OR ACT AS ANY INDUCEMENT TO ENTER INTO, ANY CONTRACT OR COMMITMENT WHATSOEVER.

16 June 2017

Diversified Gas & Oil PLC

Proposed acquisition of certain of the gas and oil assets of Titan Energy, LLC

Placing of a total of 39,300,000 new Ordinary Shares of 1 pence each at 70 pence per Ordinary Share

 

 

Diversified Gas & Oil PLC (AIM: DGOC), a US based gas and oil producer, is pleased to confirm that it has finalised the agreement to acquire certain gas and oil assets of Titan Energy, LLC which was announced on 5 May 2017. The Acquisition, which is subject to approval by Shareholders, has been funded through a $110m Loan Facility and a Placing to raise $35m. The Company has today published an Admission Document with details of the Acquisition and Fundraising, and expects that trading in the Company's Shares on AIM will resume at 8.00am today.

 

Highlights:

·      Successfully raised $35 million in heavily oversubscribed Placing

·      Transformational acquisition increases DGO's gross oil and gas production to approximately 18,300 boepd (11,000 boepd (net*)

·      Increases Proved Developed Producing reserves to 59.4 mmboe

·      Opportunities to further reduce operating costs below $8.26 boe achieved in 2016

·      The new wells will be immediately accretive to EBITDA 

 

*    Net production is stated after working interest and royalty adjustments.

 

Commenting on the Acquisition, CEO, Rusty Hutson said:

 

"We are delighted to have successfully raised the funds required to close out this transaction. We are grateful to the existing and new shareholders who participated in the Placing, and see the strong demand witnessed throughout the process as validation of our growth strategy and business model.

 

The impact of this acquisition is truly transformational for Diversified Gas and Oil. It cements our position as a leading conventional player in the Appalachian Basin and materially enhances our low-cost production and predictable cash flow, both of which underpin our ability to return money to shareholders in the form of a bi-annual dividend. Our near-term focus will be on the full integration of these newly acquired assets and identification of the areas in which we believe we can reduce operating costs. We anticipate that the synergies and streamlining of our enhanced operations will enable us to lower our operating costs below the level of $8.26 boe achieved in 2016, making our operations particularly resilient in a low commodity price environment and well positioned to benefit from any price increases, especially for natural gas which represents the large majority of our production.

 

Our acquisition pipeline remains buoyant with compelling opportunities and the additional funds raised through the Placing, combined with the undrawn funds from our debt facility, mean we can consider these more closely and continue to execute our effective roll-up strategy of complementary assets in the Appalachian Basin."

 



 

 

Diversified Gas & Oil PLC

Rusty Hutson Jr., Chief Executive Officer

Brad Gray, Finance Director

www.diversifiedgasandoil.com

 

+ 1 (205) 408 0909

 

Smith & Williamson Corporate Finance Limited

(Nominated Adviser & Joint Broker)

Russell Cook

Katy Birkin

 

+44 20 7131 4000

 

Mirabaud Securities LLP (Lead Broker)

Peter Krens

Edward Haig-Thomas

 

+44 20 7878 3362

 

Buchanan (Financial Public Relations)

Ben Romney

Chris Judd

Henry Wilson

[email protected]

 

+44 20 7466 5000

 

 

Defined terms used in this announcement have the same meaning as set out in the Company's Admission Document dated 16 June 2017.

 

 

Placing Statistics

Number of Existing Ordinary Shares

105,591,250

Placing Price per Ordinary Share

70 pence

Number of Placing Shares

39,300,000

Number of Bond Conversion Shares

184,837

Number of Firm Placing Shares

11,400,000

Enlarged Share Capital on First Admission

117,176,087

Firm Placing Shares expressed as a percentage of the Enlarged Share Capital at First Admission

9.73%

Number of Conditional Placing Shares

27,900,000

Enlarged Share Capital on Second Admission

145,076,087

Market capitalisation of the Company at the Placing Price on Second Admission

£101.5 million

Conditional Placing Shares expressed as a percentage of the Enlarged Share Capital at Second Admission

19.23%

Gross proceeds of the Placing

£27.5 million
($35.0 million)

Estimated net proceeds of the Placing receivable by the Company

£25.6 million
($32.6 million)



AIM ticker

DGOC

ISIN for the Ordinary Shares

GB00BYX7JT74

SEDOL for the Ordinary Shares

BYX7JT7

Legal Entity Identifier ("LEI")

213800YR9TFRVHPGOS67

 

Note: Figures are calculated based on a USD:GBP exchange rate of $1.273 = £1 as at 15 June 2017 

 

For further information, information provided under AIM Rule 26 and the Company's Admission Document please see the Company's website: www.diversifiedgasandoil.com.

 

 

Overview

 

Diversified Gas & Oil PLC (AIM: DGOC), a US based gas and oil producer, has today announced that it has finalised the agreement to acquire certain gas and oil assets of Titan Energy, LLC.  The Acquisition, which is subject to approval by Shareholders, has been funded through a $110m Loan Facility and a Placing to raise $35m. The Company has today published an Admission Document with details of the Acquisition and Fundraising, and expects that trading in the Company's Shares on AIM will resume at 8.00am today.

 

The consideration for the Acquisition is $84.2 million (approximately £66.1 million) (subject to adjustment in accordance with the terms of the Acquisition Agreement), to be satisfied in cash at Completion conditional on, inter alia, Shareholder approval.  Certain of the Titan Assets are held within a public partnership structure, which will be transferred after Completion, on or before 30 September 2017.  As a result DGO will pay $72.4 million (approximately £56.9 million) at Completion and a further $11.8 million (approximately £9.27 million) on or before 30 September 2017.

 

The Acquisition will be funded by a combination of the Facility and the Placing.  The Company has arranged a three year, senior secured credit facility of a total of $110 million (approximately £86 million) from the Lenders.  It is intended that $75 million will be drawn down at Completion and will be used to fund the majority of the Consideration.  The balance of the amount available under the Facility being $35 million will be available to the Company for additional working capital, as well as providing delayed draw liquidity for future development and acquisitions.

 

In addition, the Company has raised $35.0 million (approximately £27.5 million) by the issue of a total of 39,300,000 new Ordinary Shares pursuant to the Placing at 70p per Placing Share comprising 11,400,000 Firm Placing Shares and 27,900,000 Conditional Placing Shares.  The Placing Price represents a premium of approximately 8.5 per cent. to the Company's closing mid-market price of 64.5p on 4 May 2017 being the date prior to which the Existing Ordinary Shares were suspended from trading on AIM pending publication of the Admission Document.  At the Placing Price, DGO is valued at approximately $129.3 million (approximately £101.5 million).

 

Application has been made for the Firm Placing Shares, and the Bond Conversion Shares, to be admitted to trading on AIM on 20 June 2017.  Application will be made for the Conditional Placing Shares to be admitted to trading on AIM, subject to the passing of the Resolutions, and dealings in the Enlarged Share Capital (including the Conditional Placing Shares) are expected to commence on AIM on 3 July 2017.

 

Background to, and reasons for, the Acquisition

 

DGO was admitted to trading on AIM on 3 February 2017. The Company's stated strategy for growth includes:

(i)       acquisition and consolidation of other oil and gas producing assets;

(ii)      driving further expense leverage;

(iii)     improving the productivity of existing wells; and

(iv)    

 

The recent advances in shale production have caused a significant shift in emphasis of many investors and companies in mainland USA. The drive for shale investment has resulted in conventional gas and oil opportunities becoming available at reasonable prices. The Board believes these opportunities will continue as energy prices remain in the current trading range, which will help drive DGO's acquisition strategy. 

In line with its stated strategy, on 24 February 2017, DGO announced the acquisition of a package of approximately 1,300 producing gas and oil wells in the states of Ohio and Pennsylvania for a total cash consideration of $1.75 million following which DGO had total daily gas production of approximately 4,917 boepd and oil production of 547 boepd, representing a 14% increase in current gas production and a 23% increase in current oil production from the position on admission to AIM. 

Following the Board's continuing review of potential acquisition opportunities, the Board identified the Titan Assets and the Company entered into the Acquisition Agreement which is subject, inter alia, to Shareholder approval.

 

Daily gas production from the Titan Assets is approximately 12,500 gross boepd (6,550 net boepd) and oil production is 380 gross boepd (266 net boepd). The Acquisition will more than triple DGO's gross gas production, to approximately 17,367 boepd, and will increase gross oil production by 69% to approximately 930 boepd. Overall gross production will increase from approximately 5,400 boepd to 18,300 boepd. The wells comprising the Titan Assets will be immediately accretive to cash and earnings. 

 

The production figures in the table below show barrel of oil equivalent per day (boepd) for the Enlarged Group on a pro-forma basis:

 


Assets

total


Gas

Oil

Total

 

 

The Acquisition will increase proved developed producing reserves by approximately 35.2 mmboe to 59.4 mmboe and the Company will be producing from licences held by production over a total area of approximately 1.45 million acres, an increase of some 40%. The Acquisition delivers material growth to DGO, both operationally and financially.

 

Recent advances in shale production have caused a significant shift in emphasis of many investors and companies in mainland USA, resulting in conventional gas and oil opportunities becoming available at reasonable prices to credible and proven operators who can maintain production from the conventional reservoirs and in doing so, retain the rights to the shale licences on behalf of the vendors.  The Directors believe that value accretive opportunities lie in field optimisation and the application of production techniques used across the existing portfolio.  The Company has a proven track record in reducing the operating costs of acquired assets through the implementation of operating and financial efficiencies.

 

The Board believes that these opportunities will continue as energy prices remain in the current trading range, and it continues to evaluate complementary opportunities.

 

Information on Titan and the Acquisition

 

On 4 May 2017, the Company entered into the Acquisition Agreement with Titan, with an effective date of 1 April 2017, pursuant to which Diversified Energy, LLC, a wholly owned subsidiary of the Company, conditionally agreed to acquire the Titan Assets. The consideration payable is $84.2 million (subject to adjustment in accordance with the terms of the Acquisition Agreement), to be satisfied entirely in cash at Completion.

 

Completion of the Acquisition is conditional, inter alia, on (i) the passing of the Resolutions at the General Meeting and (ii) the Facility Agreement being unconditional.

 

The Titan Assets comprise approximately 7,300 producing gas and oil wells, close to the Group's existing operations in the Appalachian Basin in the eastern United States, principally in the states of Ohio, Pennsylvania, southern New York and northeast Tennessee.

 

Historically, Titan secured funding for the drilling of new wells and the purchase of its portfolio of wells through investments from thousands of individuals seeking to secure tax incentives on their personal tax returns. As such, Titan held its working interest percentage in the Titan Assets in hundreds of United States partnership structures, each funded by the partners to their respective working interest percentage. Generally, Titan was the operating general partner for each partnership structure.

 

The table below sets out detail on the wells comprising the Titan Assets and the relative reserve figures:

 

Well District

equivalent, mboe

Waynesburg

Deerfield

Jackson Center

Lycoming

Tennessee

New Philadelphia

No district exp

Mayville

Cambridge

McKean

Totals

 

The table below sets out the total proved reserves figures by state for the Titan Assets:

 

State

Kentucky

New York

Ohio

Pennsylvania

Tennessee

West Virginia

Totals

Source: Titan Competent Person's Report

 

 

Details of the Fundraising

 

The Acquisition will be funded by a combination of drawdown under the Facility and the proceeds from the Firm Placing Shares.

 

Facility Agreement

The Company has arranged a three year, senior secured credit facility of up to $110 million (approximately £86.4 million) from the Lenders. It is intended that $75 million will be drawn down on Completion and will be used to fund the Acquisition and to pay related closing costs. 

 

The Facility Agreement stipulates that the loan proceeds are to be utilised for the Acquisition, the development of the Titan Assets pursuant to an approved plan of development, working capital and transaction costs. The Facility is a 36 month facility bearing an interest rate of LIBOR plus 8.25% per annum.

 

The Facility Agreement is subject to, inter alia, the following conditions precedent:

(i)       the Company having received cash proceeds of a minimum of $10 million through an issue of Ordinary Shares;

(ii)      satisfactory completion of legal, collateral and commercial due diligence;

(iii)     75% PDP hedge coverage for 36 months following the closing date of the Facility; and

(iv)     evidence that the Company has $2.5 million in unrestricted cash as of the closing date of the Facility.

 

The Facility Agreement contains standard representations and warranties, affirmative and negative covenants and events of defaults, including financial reporting requirements (e.g., annual audited financial statements, quarterly and monthly unaudited financial statements, compliance certificates, financial plans, reserve reports and information regarding oil and gas properties) and performance covenants (e.g., net leverage ratio and asset coverage ratio).

 

Placing

The Company has conditionally raised $35.0 million (approximately £27.5 million), before expenses ($32.6 million (£25.6 million) net of expenses) through the Placing being undertaken by Mirabaud of a total of 39,300,000 Placing Shares at 70 pence per Placing Share from certain existing and new institutional investors. The Placing Shares comprise 11,400,000 Firm Placing Shares and 27,900,000 Conditional Placing Shares. 

The Firm Placing Shares are being issued under the Company's existing share authorities. The issue of the Conditional Placing Shares is conditional, inter alia, on the passing of the Resolutions at the General Meeting.

 

The Placing Price represents a premium of approximately 8.5 per cent. to the Company's closing mid-market price of 64.5p on 4 May 2017 being the date prior to which the Existing Ordinary Shares were suspended from trading on AIM pending publication of this document. The Placing Shares will represent approximately 27.1 per cent. of the Enlarged Share Capital on Second Admission.  The Placing is not underwritten or guaranteed.

 

David Johnson, a director of the Company, has agreed to subscribe for 50,000 Placing Shares.  Immediately following Admission, the Board and their immediate families are expected to hold in aggregate 44,260,481 Ordinary Shares amounting to approximately 30.6 per cent. of the Enlarged Share Capital on Admission.

 

On 15 June 2017, the Company, the Directors, Mirabaud and Smith & Williamson entered into the Placing Agreement pursuant to which Mirabaud agreed, subject to certain conditions, to use its reasonable endeavours to procure subscribers for the Placing Shares pursuant to the Placing.

 

The Placing of the Firm Placing Shares is conditional, inter alia, upon:

(i)      

(ii)     

 

(i)       the Resolutions to be proposed at the General Meeting being passed without amendment;

(ii)      compliance by the Company in all material respects with its obligations under the Placing Agreement;

(iii)     Completion of the Acquisition; and

(iv)    

 

Under the Placing Agreement, which may be terminated by Mirabaud and Smith & Williamson in certain circumstances (including force majeure) prior to First Admission or Second Admission, the Company and the Directors have given certain warranties and indemnities to Mirabaud and Smith & Williamson concerning, inter alia, the accuracy of the information contained in this document.

 

Dealings in the Existing Ordinary Shares will recommence on publication the Admission Document.  Application has been made for the Firm Placing Shares to be admitted to trading on AIM. It is expected that First Admission will become effective and that dealings in the Firm Placing Shares will commence on AIM on 20 June 2017.

 

 As a consequence of the Acquisition constituting a reverse takeover, the Company is required to apply for re- admission to AIM as the Enlarged Group. Therefore, application will be made for the Enlarged Share Capital to be admitted to trading on AIM. It is expected that Second Admission will become effective and that dealings in the Enlarged Share Capital including the Conditional Placing Shares will commence on AIM on 3 July 2017. The Placing Shares will rank, on issue, pari passu in all respects with the Existing Ordinary Shares including the right to receive all dividends and distributions paid or made in respect of the Ordinary Shares. The Placing Shares will be issued free from all liens, charges and encumbrances.

 

Use of proceeds

 

The gross proceeds of the Placing Shares together with the draw down under the Facility Agreement, totaling $110.0 million (approximately £86.4 million), will be used to fund the Consideration for the Acquisition, costs of Admission, repayment of a debt facility and working capital requirements of the Group, as follows:



 

 


Consideration

Working capital

Repayment of debt facility

Costs

Total

 

Existing Bank Facilities

 

As at 16 June 2017 and excluding the funds available for draw down under the Facility Agreement, the Group currently has in place a revolving line of credit of up to $25 million senior credit facility with CrossFirst Bank collateralised with certain of the assets of the Group (the ''CrossFirst Facility'').  The balance outstanding on the CrossFirst Facility is $2 million.  The CrossFirst Facility has an expiration date of 30 June 2017 and will continue to be available to the Group on the current terms up to this date.  The interest rate on the CrossFirst Facility is The Wall Street Journal prime rate plus 50 basis points. Interest is paid monthly with no required principal reduction. The Group intends to repay the entire outstanding balance on this facility from the proceeds of the Fundraising.

 

The Group has in place total borrowings, as at the date of this document, of approximately $3.8 million.

 

 

DGO's activities comprise the development and operation of conventional natural gas and oil assets in the Appalachian Basin in the northeastern United States. The Group operates approximately 8,800 conventional gas and oil producing wells across Ohio, Pennsylvania and West Virginia and has an experienced operating team managing all of the wells internally. The Group has grown significantly since its formation in 2001, primarily through the acquisition of operating assets with some drilling of existing leases. 
 

As at the date of this document, DGO has total proved reserves of oil of approximately 2,610 mbbl (1,812 mbbl producing) and gas reserves of approximately 28,036 mboe (24,198 mboe producing). Current daily gas production is running at approximately 4,917 boepd and oil production is approximately 547 boepd. Since incorporation in 2001, the Group has never drilled a non producing well. The Group now has 1,108,750 acres under lease which are all held by production (''HBP''). HBP means that the lease does not expire as long as the land is still producing.

 

The Company has capitalised upon opportunities to acquire conventional, low risk oil and gas producing assets from larger US exploration and production companies which are today focused increasingly upon the opportunities from unconventional shale production as well as from small, family run companies. The Company is well positioned to acquire further conventional assets and intends to continue its growth strategy through the acquisition of proven producing assets in and around its current areas of operation. 

The Company has an experienced management team with proven ability to drive operational efficiency, creating opportunities for additional value for Shareholders even in a low commodity price cycle. The Directors have a successful track record of sourcing, financing and closing acquisitions.

 

 

Net oil reserves

Net gas reserves

Net natural gas liquids reserves

Total


Source:  DGO Competent Person's Report

 

DGO represents a unique investment opportunity within the E&P sector of the US oil and gas industry. As many US oil and gas investments are primarily focused on companies searching for revenues from new shale formation drilling prospects, DGO differentiates itself by offering existing, consistent production and cash flows for Shareholders. Additionally, DGO's growth strategy, which is the acquisition of proven production at historically low valuations, provides an attractive investment upside for increasing dividend yields and capital price appreciation.

 

The Directors believe that there are a numbers of factors which differentiate DGO from other companies in the market:

•    Actual cash flow and strong EBITDA margins create opportunities with a commitment from the Board to return not less than 40 per cent. of operating free cash flow to Shareholders by way of a dividend.

•    Larger public and private E&P companies are selling conventional assets to focus their investment capital on shale development.

•    Due to the importance of continuation of production by a competent operator, sellers are less price sensitive for asset sales, thus creating value purchase opportunities for DGO. The larger US shale E&P companies are seeking buyers for their conventional assets that are proven and competent operators. The competency of the buyer is an important factor for these companies because the continuation of production from the conventional assets protects the future drilling opportunity for the deeper shale formations retained by the E&P vendors.

•    DGO has a successful track record for safely operating acquired wells whilst also successfully integrating assets and employees into its existing operations.

•    DGO has a successful track record of sourcing, financing and closing acquisitions. Only a small number of operators in the region have shown the sophistication or ability to execute these larger transactions.

•    DGO's experienced management team and its proven ability to drive operational efficiency creates opportunities for additional value in a low commodity price cycle.

•    DGO's assets have the following attributes:

-       

-       

-       

-       

-       

•    As at the date of this document, the Group has 1,108,750 acres under lease which are all HBP. This expansive leasehold interest provides DGO the flexibility to develop new production through drilling at favourable rates of return when the commodity price cycle improves.

 

Selected Financial Information

 

DGO

The preliminary announcement of results for the Group for the year ended 31 December 2016 is set out in Part III of this document and the accountant's report on the Group for the three years ended 31 December 2016 is set out in Part IV of this document.

 

The table below shows the selected key historical financial information of the Group for the three years ended 31 December 2016 extracted without material adjustment from the historical financial information on the Group contained within the Admission Document.



 

 

Summary income statements


2014
(Audited)

2015
(Audited)

For the year ended 31 December

Revenue


Gross profit


Loss before taxation before non- recurring items


Non-recurring items:





Gain on bargain purchases


Gain on debt cancellation


Income/(loss) before taxation


Taxation on income/(loss)


Income/(loss) after taxation












Summary statements of financial position


For the 2014

For the 2015

For the 2016

Cash and cash equivalents


Borrowings


Total assets items


Net assets/(liabilities)


 

Titan Assets

The table below sets out summary pro-forma financial information for the Titan Assets for the year ended 31 December 2016 extracted from the Titan Assets' unaudited management accounts as adjusted by the Directors:

Unaudited pro-forma results (extracts)


2016
(Unaudited)

Revenue

29,017

Cost of sales

(21,202)

Depreciation and depletion

(5,916)

Gross profit

1,899

Administrative expenses

(550)

Operating profit

1,349

Accretion of decommissioning provision

(900)

Income before taxation

449

Taxation of income

(157)

Profit after taxation

292

 

 

2016 ended with gross production for the Group of 4,417 boepd, a 120% increase from the 2015 year end. The Acquisition will add approximately 6,800 boepd to daily production, an increase of 161%. Following Completion, the Company will produce approximately 11,000 boepd of net daily production, making the Company a material producer amongst its small-mid cap peer group.

 

In April 2017, DGO completed the acquisition of 1,300 oil and gas wells in Ohio and Pennsylvania, increasing total production to approximately 5,550 boepd. These assets complemented the Group's existing portfolio in both states and increased daily natural gas production by 14% and daily oil production by 23%.

 

The Board has recommended a final dividend for the year ended 31 December 2016 as detailed in paragraph 13 below.

 

Current Trading -  Titan Assets

During the year ended 31 December 2016, and as presented on a proforma adjusted basis, the Titan Assets produced an average 7,068 boepd, with 6,576 boepd being produced in December 2016. During the three- month period ended 31 March 2017, production averaged 6,544 boepd.

 

Prospects -  Enlarged Group

The Directors believe that, following Second Admission and completion of the Acquisition and its corresponding earnings enhancing impact on the Enlarged Group, the future prospects for the Enlarged Group are good. The Board is delivering on its stated acquisitive strategy as demonstrated with the initial acquisition following the February 2017 Admission and the Acquisition. The Directors continue to identify suitable acquisition targets which the Board intends to execute following Second Admission.

 

Distribution and Dividend Policy

 

Following the February 2017 Admission, the Directors adopted a progressive dividend policy to reflect the expectation of future cash flow generation and long-term earnings potential of the Group. The Board intends that not less than 40 per cent of operating free cash flow will be paid to Shareholders by way of dividend.

 

The Company has announced that the Board is recommending payment of a final dividend of 1.99 cents per Ordinary Share in respect of the year to 31 December 2016, which is to be paid on 31 July 2017 to those Shareholders on the share register on 7 July 2017. 
 

The Directors may further revise the Group's dividend policy from time to time in line with the actual results and financial position of the Group.

 

General Meeting

 

A notice convening a General Meeting of the Company, to be held at 11.00 a.m. on 30 June 2017 at the offices of Buchanan Communications Limited, 107 Cheapside, London EC2V 6DN, has been sent to Shareholders.  At that meeting a resolution will be proposed in order to obtain Shareholder approval for the Acquisition. In addition, resolutions will be proposed at the General Meeting granting powers of allotment and disapplying of pre-emption rights in respect of, inter alia, the Conditional Placing Shares to assist the Enlarged Group going forward. 

 

Irrevocable Undertakings

 

The Company has received irrevocable undertakings from Robert Post, Rusty Hutson Jr, Bradley Gray, David Johnson, Martin Thomas, Chelverton Asset Management Limited, Hadron Capital LLP, and Amati Global Investors to vote in favour of the Resolutions in respect of, in aggregate 52,937,899 Ordinary Shares representing approximately 50.1 per cent. of the Existing Ordinary Shares. 

Admission to AIM

 

Application has been made for the Firm Placing Shares and the Bond Conversion Shares to be admitted to trading on AIM. It is expected that First Admission will become effective and that dealings in the Firm Placing Shares and Bond Conversion Shares will commence on AIM on 20 June 2017.

 

Application will be made to the London Stock Exchange for the Enlarged Share Capital including the Conditional Placing Shares to be admitted to trading on AIM. It is expected that Second Admission will become effective and that dealings in the Enlarged Share Capital will commence on AIM on 3 July 2017.

 

Relationship Agreement

The Company, Rusty Hutson Jr. and Robert Post entered into the Relationship Agreement at the time of the February 2017 Admission, which regulates the ongoing relationship between them with a view to ensuring that, inter alia, (i) DGO is capable of carrying on its business independently of Rusty Hutson Jr. and Robert Post and (ii) transactions and relationships between DGO and Rusty Hutson Jr. and Robert Post are entered into at arm's length and on normal commercial terms. A summary of the terms of the Relationship Agreement is set out in paragraph 12.19 of Part VII of this document.

 

Lock-in Agreements

Each of Robert Post, Rusty Hutson Jr, Bradley Gray and Martin Thomas (the ''Locked-in Persons'') has undertaken with Smith & Williamson, Mirabaud and the Company (subject to certain exceptions) not to dispose of any interest in any of their Ordinary Shares until 18 months after the February 2017 Admission without the prior written consent of each of Smith & Williamson and Mirabaud. Further details of these lock-in agreements are set out in paragraph 12.14 of Part VII of this document. The Locked-in Persons will hold, in aggregate, 44,260,481 Ordinary Shares (approximately 30.5 per cent. of the Enlarged Share Capital) on Second Admission

 

 

Board and Senior Management

 

 

 

 

 

 

 

 

 

DEFINITIONS

 

''Act''

the Companies Act 2006, as amended

''Acquisition''

the proposed acquisition of certain of the gas and oil assets of Titan by the Company, pursuant to the terms of the Acquisition Agreement

''Acquisition Agreement''

the conditional agreement between (1) Titan and (2) the Company relating to the Acquisition

''Admission''

together (or separately) the First Admission or the Second Admission as the context so requires

''AIM''

the AIM Market of the London Stock Exchange

''AIM Rules''

together, the AIM Rules for Companies and the AIM Rules for Nominated Advisers

''AIM Rules for Companies''

the AIM Rules for Companies which govern the admission to trading on and the operation of AIM published by the London Stock Exchange, as amended from time to time

''AIM Rules for Nominated Advisers''

the AIM Rules for Nominated Advisers published by the London Stock Exchange, as amended from time to time

''Board'' or ''Directors''

the board of directors of the Company, including a duly constituted committee thereof

''Bond'' or ''Bonds''

the remaining 90,440, 8.5 per cent. unsecured bonds due 23 June 2020 constituted by a bond instrument dated 10 June 2015 and issued by the Company at £1 per Bond

''Bond Conversion Shares''

the 184,837 new Ordinary Shares to be issued to bondholders in consideration for the redemption of the bondholder's unlisted bonds pursuant to the bond instrument dated 6 October 2016

''Company'' or ''DGO''

Diversified Gas & Oil PLC, incorporated and registered in England & Wales with registered number 09156132 and, where the context permits, its subsidiaries

''Competent Person''

Wright & Company, Inc., the competent person in relation to Admission, as defined by the AIM Rules, and author of the Competent Person's Reports

''Competent Person's Reports'' or ''CPRs''

the reports relating to the Enlarged Group's production assets produced by the Competent Person being the DGO Competent Person's Report and the Titan Competent Person's Report, set out in Part VI of this document

''Completion''

completion of the Acquisition

''Concert Party''

Robert Post, Rusty Hutson Jr. and Bradley Gray

''Conditional Placing Shares''

27,900,000 new Ordinary Shares to be issued at the Placing Price by the Company pursuant to the Placing, conditional on, inter alia, the passing of the Resolutions, First Admission, Second Admission and Completion

''Consideration''

the cash consideration to be paid in accordance with the terms of the Acquisition Agreement

''DGO Competent Person's Report''

the report relating to DGO's production assets produced by the Competent Person

''EBITDA''

earnings before interest, tax, depreciation/depletion and amortization

''Enlarged Group''

DGO and its subsidiaries and partnership interests following Completion and Admission

''Enlarged Share Capital''

the issued share capital of the Company on the relevant Admission comprising the Existing Ordinary Shares, the Bond Conversion Shares and the relevant Placing Shares in issue at the relevant Admission

''Existing Ordinary Shares''

the 105,591,250 ordinary shares of 1p each in the capital of the Company in issue

''Facility''

the facility totalling $110 million made available by the Lenders under the Facility Agreement

''Facility Agreement''

the facility agreement between, inter alia, (1) AG Energy Funding, LLC and MSD Credit Opportunity Fund, L.P. (as lenders), (2) Angelo, Gordon Energy Services, LLC as administrative agent and collateral agent and (3) DGO as borrower comprising a $110 million senior secured credit facility

''February 2017 Admission''

the previous admission of the Company's entire issued share capital to trading on AIM on 3 February 2017 in accordance with the AIM Rules

''Financial Conduct Authority'' or ''FCA''

the UK Financial Conduct Authority

''Firm Placing Shares''

11,400,000 new Ordinary Shares to be issued at the Placing Price by the Company pursuant to the Placing, conditional on, inter alia, First Admission

''First Admission''

the admission of the Firm Placing Shares and the Bond Conversion Shares to trading on AIM becoming effective in accordance with the AIM Rules for Companies

''Fundraising''

the Placing and initial draw down under the Facility Agreement

''General Meeting''

the general meeting of the Company to be held at 11.00 a.m. on 30 June 2017 (and any adjournment of such meeting) at Buchanan Communications Limited, 107 Cheapside, London EC2V 6DN

''Group''

the Company and its subsidiaries from time to time

''ISIN''

International Security Identification Number

''Lenders''

AG Energy Funding, LLC and MSD Credit Opportunity Fund, L.P.

''London Stock Exchange''

London Stock Exchange plc

''Mirabaud''

Mirabaud Securities LLP, the Company's sole bookrunner

''Notice of General Meeting'' or ''Notice of GM''

the notice convening the General Meeting set out at the end of this document

''Ordinary Shares''

ordinary shares of £0.01 each in the capital of the Company

'Placee''

those persons subscribing for Placing Shares at the Placing Price pursuant to the Placing

''Placing''

the conditional placing by Mirabaud on behalf of the Company of the Placing Shares pursuant to the Placing Agreement

''Placing Agreement''

the conditional agreement dated 15 June 2017 between the Company (1), the Directors (2) Smith & Williamson (3) and Mirabaud (4) relating to the Placing

''Placing Price''

70 pence per Placing Share

''Placing Shares''

a total of 39,300,000 new Ordinary Shares to be issued at the Placing Price by the Company pursuant to the Placing, comprising the Firm Placing Shares and the Conditional Placing Shares

''Proposals''

the Acquisition, the Fundraising and Admission, in each case as described in this document

''Resolutions''

the resolutions to be put to Shareholders at the General Meeting

''Second Admission''

the admission of the Enlarged Share Capital including the Conditional Placing Shares to trading on AIM becoming effective in accordance with the AIM Rules for Companies

''Securities Act''

United States Securities Act of 1933, as amended

''Shareholders''

holders of Ordinary Shares from time to time

"Share Options''

share options granted or issued pursuant to the Share Option Scheme

''Smith & Williamson''

Smith & Williamson Corporate Finance Limited, the Company's nominated adviser and joint broker

''Subsidiary'' or ''Subsidiaries''

a subsidiary undertaking (as defined by section 1159 of the Act)

''Titan''

Titan Energy, LLC comprising Atlas Energy Tennessee, LLC, Atlas Pipeline Tennessee, LLC, Atlas Noble, LLC, Viking Resources, LLC, Resource Energy, LLC, Atlas Resources, LLC, REI-NY, LLC, Resource Well Services, LLC, Atlas Energy Ohio, LLC and Atlas Energy Group, LLC

''Titan Assets''

certain of the gas and oil assets of Titan

''Titan Competent Person's Report''

 

the report relating to Titan's production assets produced by the Competent Person

''UK'' or ''United Kingdom''

the United Kingdom of Great Britain and Northern Ireland

''US'' or ''USA'' or ''United States''

United States of America, its territories and possessions, any state of the United States and the District of Columbia

'Warrants''

the warrants issued and to be issued under the warrant agreements dated 30 January 2017 and 15 June 2017

''$'' or ''US$''

the lawful currency of the United States

''£'' or ''GBP''

the lawful currency of the United Kingdom

 

 

 

 

Important Notice

Smith & Williamson Corporate Finance Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority and is a member of the London Stock Exchange, is acting exclusively for the Company and no one else in connection with the proposed Admission and Placing. Smith & Williamson Corporate Finance Limited will not regard any other person as its customer or be responsible to any other person for providing the protections afforded to customers of Smith & Williamson Corporate Finance Limited nor for providing advice in relation to the transactions and arrangements detailed in this announcement for which the Company and the Directors are solely responsible. The responsibilities of Smith & Williamson Corporate Finance Limited as the Company's nominated adviser and joint broker for the purposes of the AIM Rules are owed solely to the London Stock Exchange and are not owed to the Company, any Shareholder or any Director or to any other person in respect of his decision to acquire Ordinary Shares in reliance on any part of this announcement. Smith & Williamson Corporate Finance Limited has not authorised the contents of any part of this announcement and is not making any representation or warranty, express or implied, as to the contents of this announcement and accordingly, without limiting the statutory rights of any recipient of this document, no liability whatsoever is accepted by it for the accuracy of any information or opinions contained in this announcement or for the omission of any material information for which it is not responsible.

 

Mirabaud Securities LLP, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority and is a member of the London Stock Exchange, is acting exclusively for the Company and no one else in connection with the proposed Admission and Placing. Mirabaud Securities LLP will not regard any other person as its customer or be responsible to any other person for providing the protections afforded to customers of Mirabaud Securities LLP nor for providing advice in relation to the transactions and arrangements detailed in this announcement for which the Company and the Directors are solely responsible. The responsibilities of Mirabaud Securities LLP as the Company's lead broker are not owed to the Company, any Shareholder or any Director or to any other person in respect of his decision to acquire Ordinary Shares in reliance on any part of this announcement. Mirabaud Securities LLP is not making any representation or warranty, express or implied, as to the contents of this announcement and accordingly, without limiting the statutory rights of any recipient of this announcement, no liability is accepted by it for the accuracy of any information or opinions contained in this announcement or for the omission of any material information for which it is not responsible.

 

This announcement is for information purposes only and does not constitute an admission document and does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any ordinary shares in the capital of the company, nor shall it (or any part of it), or the fact of its distribution, form the basis of, or be relied on in connection with or act as any inducement to enter into, any contract or commitment whatsoever.

 

This announcement is not for publication or distribution, in whole or in part, directly or indirectly, in or into the United States, Australia, Canada, the Republic of South Africa, Japan or any other jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction. The distribution of this announcement may be restricted by law in certain jurisdictions and persons into whose possession this announcement, or other information referred to herein, comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

 

The securities referred to herein may not be offered or sold, directly or indirectly, in the United States unless registered under the US Securities Act of 1933, as amended (the "US Securities Act") or offered in a transaction exempt from, or not subject to, the registration requirements of the US Securities Act. The offer and sale of securities referred to herein has not been and will not be registered under the US Securities Act or under the applicable securities laws of Australia, Canada, the Republic of South Africa or Japan. There will be no public offer of the Ordinary Shares in the United States, Australia, Canada, the Republic of South Africa or Japan. Subject to certain exceptions, the Ordinary Shares referred to herein may not be offered or sold in Australia, Canada, the Republic of South Africa or Japan or to, or for the account or benefit of, any national, resident or citizen of Australia, Canada, the Republic of South Africa or Japan.

 

No reliance may or should be placed by any person for any purpose whatsoever on the information contained in this announcement or on its completeness, accuracy or fairness. The information in this announcement is subject to change. Investments to which this announcement relates may expose an investor to a significant risk of losing all of the amount invested. This announcement does not constitute a recommendation concerning the Placing. The value of shares can decrease as well as increase. Potential investors should consult a professional advisor as to the suitability of the Placing for the person concerned.

 

Forward Looking Statements

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These statements relate to, among other things, analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to the Company's future prospects, developments and business strategies. These forward-looking statements can be identified by their use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will" or the negative of those variations, or comparable expressions, including references to assumptions. The forward-looking statements in this announcement, including statements concerning projections of the Company's future results and operations are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements.

These forward-looking statements speak only as of the date of this announcement. The Group expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group's expectations with regard thereto, any new information or any change in events, conditions or circumstances on which any such statements are based, unless required to do so by law or any appropriate regulatory authority.

 


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