Diversified Gas & Oil acquisition of Core Appalachia Holding Co
Diversified Gas and Oil has announced the acquisition of Core Appalachia Holding Co (Core) for a consideration of $183m comprised of $130m in cash (funded through the assumption of $93m of Core debt and $40m DGO debt drawdown) and 35m new shares issued at £1.15. The deal is expected to be immediately accretive to cash flow and earnings with synergies with DGOs existing Appalachian asset base. Net working interest production is expected to increase 19% to 71,000boed and 1P reserves +25% to 493mmboe. DGO expects immediate to near term synergies of $5-10m pa. The deal is priced at 72% of management estimated PV10 of $255m and is in line with the EQT acquisition on this metric. Assuming we were to include the Core assets at PV10, post equity dilution, the deal would add c.8.4p/share to our last published valuation of 138.1p/share excluding synergies. We note that DGOs share price has disconnected from recent spot price strength in Henry Hub in recent weeks and on our last published forecasts the stock yields c 7.4%.
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