Diversified and Oaktree Partner to Acquire Cotton Valley/Haynesville Assets
LSE-listed Diversified Energy Company Plc and its strategic partner Oaktree Capital Management LP, a global alternative investment management firm, have entered into a conditional agreement with privately-held E&P company Tanos Energy Holdings III LLC to acquire approximately 192,000 net acres of Cotton Valley/Haynesville play assets located in north-west Louisiana and east Texas. The companies will jointly pay a gross cash consideration of US$308 million for the assets. The transaction represents Diversified Energy’s third strategic entry into a new central regional focus area (RFA) that includes producing areas within Louisiana, Texas, Oklahoma and Arkansas.
In addition to Oaktree’s investment in the Tanos acquisition, it has also entered into an agreement with Diversified Energy to acquire a 48.75% working interest in the assets acquired by Diversified from Indigo Minerals LLC in May this year. Under the terms of that deal, Oaktree will pay a total consideration of approximately US$58 million.
In October last year, Diversified Energy entered into a joint participation agreement with funds managed by Oaktree, to jointly identify and fund future proved developed producing (PDP) acquisition opportunities that Diversified identifies, and equally fund the completed acquisitions.
Under the terms of the Diversified-Tanos transaction, Diversified Energy and Oaktree will fund 50% of the gross cash consideration, i.e. US$154 million (US$118 million net) each in exchange for working interests of 51.25% and 48.75%, respectively. Oaktree will provide Diversified a 5.0% upfront promote of its funded working interest, which is 2.5% of Oaktree’s investment. Upon achieving a 10% unlevered internal rate of return (IRR) on its investment by acquisition tranche, Diversified’s working interest will further increase to 60%.
The acreage acquired from Tanos contains approximately 855 wells, with an average age of nine years. The assets have significant upside from ample existing infrastructure, with proximity to the Gulf Coast market and LNG export terminals underpinning favorable pricing. Total proved (1P) reserves attributable to the acreage are approximately 79 million barrels of oil equivalent (MMboe) as of January 1, 2021, with current average daily production amounting to approximately 27 thousand barrels of oil equivalent per day (Mboe/d), of which 96% is gas.
The acreage acquired from Indigo contains approximately 815 wells, with an average age of 17 years. The assets offer significant opportunity to grow scale through complementary bolt-on opportunities, and have substantial existing infrastructure. Total proved (1P) reserves attributable to the acreage are approximately 305 billion cubic feet equivalent (Bcfe) as of March 2021, with the current average daily production amounting to approximately 95 million cubic feet equivalent per day (MMcfe/d).
Truist Securities is acting as financial advisor to Diversified Energy on the Diversified-Tanos transaction.
The transactions are subject to customary closing conditions, including customary diligence, reviews and approvals, and are expected to be completed in mid-August.