Diversified Energy Acquires Accretive Assets Worth $377M

Diversified Energy Company plc DEC has completed the acquisition of a proportionate working interest in certain assets from Oaktree Capital Management. The assets are located within the company's Central Region, in Oklahoma, East Texas and Louisiana. Diversified Energy announced the acquisition in March 2024, valued at $410 million before customary price adjustments.

The acquisition was completed at a net purchase price of $377 million, after applying customary price adjustments. The company will pay $83 million of the total consideration in deferred cash payments to Oaktree.  DEC also assumes Oaktree's proportionate debt to be approximately $120 million.

The acquired assets currently produce approximately 122 million cubic feet equivalent per day (MMcfe/d). These include Proved Developed Producing reserves of 510 billion cubic feet equivalent (Bcfe). The value of the PDP reserves at PV10 is estimated to be $462 million. DEC expects Adjusted EBITDA for these assets in 2024 to be approximately $126 million.

In addition, the company has also concluded an acquisition-related review of its revolving credit facility. The borrowing base of the revolving credit facility has been redetermined and increased to $385 million by 26%. Following the increase in its revolving credit facility, DEC estimates that it will have an available liquidity of $130 million after accounting for the acquisition.

Diversified Energy has highlighted that the deal with Oaktree was a unique opportunity for the company to consolidate its assets. Management has also mentioned that the company will keep a disciplined approach and continue focusing on accretive acquisitions that will enhance scale and boost free cash flows for the company.

Zacks Rank and Other Key Picks

Currently, DEC carries a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the energy sector are Archrock Inc. AROC, SM Energy SM and Hess Midstream Partners LP HESM. Archrock presently sports a Zacks Rank #1, while SM Energy and Hess Midstream carry a Zacks Rank #2 (Buy) each.

Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

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

Hess Midstream owns, operates, develops and acquires a wide range of midstream assets, providing services to Hess Corporation and other third-party customers. The partnership has a stable fee-based revenue model secured via long-term commercial contracts. Since Hess Midstream operates through 100% fee-based contracts, it is exposed to minimal commodity price risks.

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