Diversified Energy Co. Plc agreed to acquire Midcontinent assets from ConocoPhillips Co. for $240 million, further bolstering Diversified’s central regional focus area.

“Building on our success in Appalachia, we are excited to increase our holdings within the central region that position us to drive greater synergies and unlock additional shareholder value through scale,” Diversified CEO Rusty Hutson Jr. commented in a company release on July 28.

The acquisition, which includes an interest in roughly 1,500 producing wells located in Oklahoma and Texas, represents Diversified’s sixth major acquisition within the central region and its second in the Midcontinent.

Hart Energy July 2022 - Diversified Energy ConocoPhillips Midcontinent acquisition - Investor presentation acquired asset map
The ConocoPhillips assets include 60% operated production across 250,000 net acres in Oklahoma and Texas. (Source: Diversified Energy Co. Plc investor presentation)

Headquartered in Birmingham, Ala., and listed on the London Stock Exchange, Diversified’s business model focuses on buying high-margin, low-decline producing assets. Until an acquisition of Cotton Valley assets in Louisiana in May 2021, the company had focused exclusively in the Appalachian Basin.

However, since the initial Louisiana purchase last year, Diversified has continued to add to its central region portfolio with additional acquisitions in the Haynesville and Barnett shale plays. In late 2021, Diversified expanded its central region footprint further through the acquisition of Oklahoma operator Tapstone Energy LLC, which gave the company a stronghold in the Midcontinent region.

Diversified has also been acquiring well services businesses including the acquisition of Contractor Services Inc. (ConServ) of West Virginia announced July 27. The ConServ deal marked the third Appalachia plugging company Diversified had acquired so far in 2022. 

In a company release on July 28, Diversified said it had signed a purchase and sale agreement with ConocoPhillips on July 27 to acquire Oklahoma and Texas assets for a purchase price of $240 million. The ConocoPhillips assets include 60% operated production across 250,000 net acres.

Net production of the ConocoPhillips assets is about 9,000 boe/d including 52 MMcfe/d comprising 90% natural gas and NGL. With an effective date of June 1, the ConocoPhillips acquisition also adds about 31 MMboe (186 Bcfe) of net PDP reserves, with a PV-10 of roughly $297 million, using Nymex strip pricing as of July 25.

The proximity of the ConocoPhillips assets, according to Diversified, to its previously acquired Tapstone assets “creates further potential to develop operational synergies of scale in the central region and benefits from a constructive regulatory environment.”

Hart Energy July 2022 - Diversified Energy ConocoPhillips Midcontinent acquisition - Investor presentation synergies asset map
The proximity of acquired ConocoPhillips assets to existing Midcontinent properties creates new optimization opportunities and increased synergies, Diversified Energy said. (Source: Diversified Energy Co. Plc investor presentation)

The estimated acquisition cost due at closing is about $210 million, which the company said reflects the estimated customary purchase price adjustments through the close date, anticipated in late September. It also represents a roughly 2.5x acquisition price multiple before any anticipated synergies, the company added.

Diversified plans to finance the acquisition with cash on hand and existing availability on its revolving credit facility. After funding the acquisition, approximately 95% of the company’s borrowings will exist in fixed-rate, fully amortizing and predominantly investment grade rated notes that benefit from hedge-protected cash flows. 

“Financed entirely with existing liquidity,” Hutson added, “this non-dilutive acquisition represents a compelling opportunity to further scale our central region portfolio while maintaining a strong balance sheet.”

Diversified projects its post-acquisition funding liquidity at $250 million before any increase in the company’s revolving credit facility borrowing base for the additional collateral from the acquisition.

Consistent with its asset acquisition strategy, Diversified intends to retain certain ConocoPhillips company experienced personnel who will complement Diversified’s asset stewardship operating philosophy designed to improve well performance, enhance margins and lower emissions, according to the release.