A new entrant to the AIM oil and gas universe is expected to land before Christmas and unlike most its peers it plans to pay a dividend. Diversified Oil & Gas is looking to raise £48m to support its production-led buy-and-build strategy in the US Appalachian basin.
RAPID GROWTH
In some respects, the model seems like that of Magnolia Petroleum (MAGP:AIM). Magnolia enjoyed a stellar start to life on AIM, at one point up nearly eight-fold on its 0.55p issue price, but has since disappointed.
However, its incoming peer is in a different US postcode and operating on a different scale. Whereas Magnolia’s current production numbers are in the hundreds of barrels, Diversified has output of 4,400 barrels of oil equivalent per day (boepd).
It has rapidly built up this portfolio, which also includes 3.8m barrels of oil equivalent (boe) in proven undeveloped reserves, through M&A. Picking up conventional oil and assets from US operators interested in the larger scale opportunities in shale production.
CASH RETURN
Expertise in managing these assets efficiently allows the company to generate significant cash flow with an average operating cost reported at $9.53 boe. This underpins plans to pay dividends twice a year with the first covering the year to 31 December 2016 set to be paid on or before 30 June 2017. Revenue for the six months to 30 June 2016 came in at $7.6m against $2.9m for the same period a year earlier.
Previous deals have been funded through debt and prospective investors should take note of total borrowings of $42.5m, with $13.4m in unsecured 8.5% convertible bonds maturing in June 2020.
