[Editor's note: This story was updated at 10:15 a.m. CST March 27.]

Diversified Gas & Oil Plc is branching out from its conventional roots with a proposed $400 million acquisition in the Appalachian Basin from privately held HG Energy LLC.

The Birmingham, Ala.-based company, known as DGO, set out a couple years ago to build a position in the Appalachian Basin by acquiring conventional legacy wells to increase production and lower overhead.

In its latest acquisition, DGO said March 27 it expects to acquire 107 unconventional, producing gas wells close to its existing operations in Appalachia in Pennsylvania and West Virginia. The combined net production from the assets is over 20,000 barrels of oil equivalent per day (boe/d).

DGO is planning to fund the acquisition through a combination of its existing KeyBank facility and proceeds from a proposed financing.

“This is yet another transformative transaction consistent with our ambitious and proven growth strategy,” DGO CEO Rusty Hutson said in a statement regarding the proposed acquisition. 

“This package comprises significantly higher volumes per well than our previous acquisitions and achieve higher realized gas prices, resulting in a positive impact for the overall economics of the enlarged portfolio as we continue to reduce operating costs and drive higher margins,” Hutson continued.

Hutson said the HG Energy assets, comprised of properties HG Energy acquired from Noble Energy Inc. in 2017 for $1.225 billion, are “synergistically compatible” with the existing portfolio DGO has already built in the Appalachian Basin.

RELATED: DGO’s Appalachia A&D Strategy: Predictable Equals Profitable

The company grew rapidly following its IPO in February 2017 starting with the purchase of 1,300 producing wells from EnerVest Ltd. for $1.75 million. DGO followed that up with the acquisition of Titan Energy LLC’s 7,300 producing gas and oil wells for $35 million.

DGO continued its deal-making spree into 2018, closing four acquisitions worth over $1.1 billion by the end of the year. The larger of the four transactions included the acquisition by DGO of EQT Corp.’s noncore Huron position in Kentucky, Virginia and southern West Virginia for $775 million.

The company’s other acquisitions from 2018 include the purchase of Alliance Petroleum Corp. for $95 million and a second deal with CNX Resources Corp. for $85 million in March. Plus, the company acquired privately held Core Appalachia Holding Co. LLC in a cash-and-stock transaction worth about $183 million in October.

Following close of the proposed acquisition of the HG Energy assets, Hutson estimates DGO will have net average production of over 90,000 boe/d, making it a top-tier of London-listed producers.

The HG Energy assets have proven reserves of about 92 million barrels of oil equivalent with an estimated NPV10 of $462 million, according to DGO.

The working interest across all the HG Energy wells is 100%, DGO said. Meanwhile, the overall average net revenue interest is roughly 87%.

Mirabaud Securities Ltd. and Stifel Nicolaus Europe Ltd. are acting as joint book-runners for DGO’s financing. Cenkos Securities Plc is the company’s nominated adviser.

DGO currently has in place a $1.5 billion, five-year senior secured credit facility with a syndicate of 12 U.S. banks, led by KeyBank National Association. The facility has a borrowing base of $725 million and, as of Feb. 28, DGO had $460 million drawn down.

Following completion of the proposed HG Energy acquisition, DGO said it expects the borrowing base to increase as a result of the anticipated boost to the company’s PDP reserves.

Emily Patsy can be reached at epatsy@hartenergy.com.

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