Diversified Energy Acquires East Texas Assets Worth $69M

Diversified Energy Company PLC DEC has inked a conditional purchase and sale agreement to acquire certain operated natural gas properties from a regional operator for $68 million. The assets are located in east Texas.

Furthermore, a third-party development firm has agreed to acquire additional undeveloped acreage from the regional operator for a total consideration of $19 million. DEC has stated that it would acquire a minority 5% stake in the undeveloped acreage for $1 million.

The gross purchase price of the properties was $69 million. The deal is anticipated to be closed in the fourth quarter of 2024. Diversified Energy plans to fund a part of the acquisition by issuing new U.S.-dollar denominated ordinary shares to the regional operator. The new shares issued will amount to approximately $35 million. The remaining part will be financed via new and existing liquidity sources, supported by the collateral available due to the acquired assets.

A substantial part of the acquired properties consists of Proved Developed Producing ("PDP") components. The acquisition includes an estimated 331 net PDP wells. The production from these wells contains approximately 69% gas volumes. The net production from the acquired assets is estimated to be 21 million cubic feet of gas equivalent per day (MMcfe), with an additional 70 billion cubic feet of gas equivalent (Bcfe) in PDP reserves. The PV-10 of these reserves is estimated to be $89 million.

Moreover, the acquired assets lie close to Diversified Energy's previously acquired properties. This enables the company to achieve potential synergies due to the proximity as well as operational scale. The production profile of the new assets complements DEC's existing portfolio of assets and its operational strategy. The assets are characterized by low annual production declines of around 15% for the next twelve months.

Diversified Energy states that this acquisition should expand its presence in the East Texas region, thereby improving its operational scale and margins. The company remains committed to maintaining a disciplined approach in making strategic acquisitions at compelling valuations. DEC's partnership with a development firm highlights its ability to structure transactions. It is also anticipated to add value and enhance cash flow for the company's shareholders.

Zacks Rank and Key Picks

Currently, DEC carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the energy sector are SM Energy SM, Northern Oil and Gas, Inc. NOG and MPLX LP MPLX. SM Energy presently sports a Zacks Rank #1 (Strong Buy), while Northern Oil and Gas and MPLX carry a Zacks Rank #2 (Buy) each.

SM Energy is an upstream energy firm operating in the prolific Midland Basin and the South Texas regions. For 2024, the company expects its production to increase from the prior-year reported figure, signaling a bright production outlook.

Northern Oil and Gas is an independent upstream company involved in the acquisition, exploration and production of oil and natural gas assets. Its operations are concentrated in three leading basins of the United States, namely the Williston, Permian and the Appalachian Basin. The company has recently acquired additional assets in the Uinta Basin that are driving growth by expanding its asset base and increasing its production. 

MPLX LP owns and operates a wide range of midstream assets. The partnership's midstream assets include oil and natural gas gathering systems and transportation pipelines for crude, natural gas and refined petroleum products. MPLX is least exposed to commodity price fluctuations as it generates stable fee-based revenues. Furthermore, it surpasses its industry peers in terms of distribution yield, reflecting its commitment to returning capital to its unitholders.

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