Diversified Gas & Oil’s (DGO) acquisition of Core Appalachia (Core) offers multiple synergies. These include a material increase in natural gas liquid (NGL) yield from acquired rich gas streams, optimisation of well tender routings, rationalisation of compressor stations, utilisation of existing administrative capabilities to eliminate duplicate functions, and leveraging DGO’s expansive midstream operations. The deal values Core at $183m, which is broadly in line with the valuation of the EQT transaction on a price to NPV10, price to flowing barrel and price to trailing cash flow metric. On addition of the Core assets, assumption of incremental debt and issue of 35m new shares at 115p/share, our valuation rises from 138.1p/share to 145.9p/share (+6%).
Value accretive bolt-on transaction
Our updated valuation includes the positive impact of the acquisition of Core at a c 28% discount to management-estimated NPV10, as well as the impact of potential corporate and operational synergies, which management estimates at c $5–10m per year. The deal highlights further potential for value-accretive, bolt-on asset deals within DGO’s core areas of operation. Our valuation is based solely on existing assets within the DGO portfolio, with potential for upside in the event of improved gas realisations or further asset M&A.
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