BIRMINGHAM, AL – Diversified Energy Company PLC (LSE:DEC)(NYSE:DEC) has announced a new acquisition of properties in East Texas, marking its second bolt-on addition of Proved Developed Producing (PDP) assets in the region for the year. The company has entered a conditional purchase and sale agreement to acquire these assets for approximately $68 million, with an estimated net purchase price of $64 million after adjustments.
This acquisition complements Diversified’s existing operations, adding 21 MMcfepd (4 MBoepd) of production and 70 Bcfe (12 MMBoe) of PDP reserves. The assets are expected to contribute an estimated Next Twelve Months (NTM) EBITDA of approximately $19 million, which translates to a 3.5x purchase multiple based on the gross purchase price.
In a concurrent transaction, an unnamed third-party development company will acquire undeveloped acreage valued at $19 million, with Diversified retaining a 5% interest for $1 million. The overall purchase price for both PDP assets and undeveloped acreage totals about $87 million, subject to customary adjustments.
The acquisition funding will be a mix of approximately $35 million in new US-dollar denominated ordinary shares issued directly to the seller and additional liquidity supported by the increased collateral associated with the assets.
CEO Rusty Hutson, Jr. highlighted the strategic benefits of the acquisition, stating it enhances the company’s scale and margin in East Texas and demonstrates Diversified’s ability to structure value-adding transactions.
The assets, comprising 331 net PDP wells, are expected to be highly synergistic with Diversified’s existing portfolio, offering opportunities for cost efficiencies and aligning with the company’s Smarter Asset Management program. The low annual production declines of approximately 15% for the next twelve months further align with the company’s operational strategy.
The closing of the acquisition is anticipated in the fourth quarter of 2024 and is subject to a break fee if the transaction does not go through.
Legal counsel for Diversified was provided by Gibson, Dunn & Crutcher LLP, while the seller was advised by Opportune LLP and Kirkland & Ellis LLP.
The information in this article is based on a press release statement.
In other recent news, Diversified Energy Company has declared an interim dividend of $0.29 per share for the second quarter of 2024. The energy company also caught the attention of Truist Securities, which increased its price target for the company to $20 while maintaining a Buy rating. This revised target is based on updated financial forecasts for the years 2024 through 2026, with a particular emphasis on an estimated 2025 EBITDAX of $420 million.
Furthermore, Diversified Energy has expanded its operations in Texas through a $106 million acquisition of natural gas properties from Crescent Pass Energy. This acquisition is expected to add 38 million cubic feet equivalent per day of production. The purchase is funded through the issuance of new U.S. dollar-denominated ordinary shares and a senior secured bank facility.
In addition, the company is set to join the Index, a development that is expected to increase the company’s visibility in the U.S. investment community. These are the recent developments concerning Diversified Energy Company as it continues to make strides in its sector.
InvestingPro Insights
Diversified Energy Company PLC’s recent acquisition of natural gas properties in East Texas has been a strategic step to bolster its production and reserves. As investors evaluate the potential impact of this move, it’s crucial to consider key financial metrics and insights that can provide a deeper understanding of the company’s current standing and future prospects.
One of the critical metrics for Diversified Energy is its attractive P/E Ratio, which stands at a modest 4.45. This valuation metric, which compares the company’s share price to its earnings per share, suggests that the stock might be undervalued relative to its earnings potential. The P/E Ratio (Adjusted) for the last twelve months as of Q2 2024 is slightly higher at 4.82, still indicating a potentially attractive valuation for value investors.
The company’s dividend yield is notably high at 6.1%, reflecting the company’s commitment to returning value to shareholders. This aligns with one of the InvestingPro Tips, which highlights that Diversified Energy has not only maintained but also raised its dividend for 7 consecutive years. For income-focused investors, this could be a compelling reason to consider the stock, especially in a market where reliable dividends are highly valued.
However, it’s important to note that the company’s revenue has experienced a significant decline of 50.1% over the last twelve months as of Q2 2024. This contraction in revenue growth could be a point of concern for investors looking for companies with stable or increasing revenue streams. Investors may find additional insights and tips on Diversified Energy’s financial health and future outlook by visiting InvestingPro, which currently lists 8 additional tips for the company.
With the acquisition expected to contribute an estimated $19 million in EBITDA for the next twelve months, it’s important to consider how this aligns with the company’s current operating income margin of 31.23%. This margin reflects the company’s efficiency in converting revenue into operating income, a key factor in assessing the potential profitability of new acquisitions.
As Diversified Energy continues to expand its operations, the InvestingPro platform provides a comprehensive suite of tools and analytics, including a fair value estimate of $14.66, which can help investors make informed decisions about the company’s stock.
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