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No pause for Diversified Gas & Oil

The Appalachian driller still sounds hungry for more deals
September 12, 2018

As is now standard for Diversified Gas & Oil (DGOC) given its rate of dealmaking, half-year numbers landed obsolete-on-arrival. In the first half of 2018, production averaged 19.3kboepd (thousand barrels of oil-equivalent per day); by July, following the acquisition of three separate portfolios of conventional assets, that had tripled to 60kboepd.

IC TIP: Buy at 111p

A jump in the main credit facility to $1bn (£770m), and another equity raise, further obscure matters. In fact, the most useful financial metric to investors at this stage might be the second-quarter dividend, which was raised 62 per cent to 2.8¢ a share, and suggests the new wells are already generating the levels of cash management hoped for.

So can we expect Aim's largest producer to pause the deal-making, if only to allow investors to understand their company’s current financial picture? In short, no. “In a normal world, where acquisitions came to you on a normal course, I would say that may be a fair request,” chief executive Rusty Hutson told us.

Where capital has flowed into or consolidated within shale basins, there is now often a need to find spare cash or synergies via 'non-core' conventional acreage sales. For Mr Hutson, this dynamic continues to generate “a plethora of great assets in the market that have tremendous value”.

On average, analysts expect earnings per share of 6.75¢ this year, and 12.7¢ in 2019.

DIVERSIFIED GAS & OIL (DGOC)  
ORD PRICE:111pMARKET VALUE:£560m
TOUCH:109.5-111p12-MONTH HIGH:130pLOW: 69p
DIVIDEND YIELD:5.5%PE RATIO:18
NET ASSET VALUE:60¢NET DEBT:43%
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
2017 (restated)10.929.424.02.0
201858.021.49.04.5
% change+432-27-63+127
Ex-div:29 Nov   
Payment:19 Dec   
£1=$1.30. *Refers to Q2 dividend of 2.8¢; Q1 dividend went ex 12 Jul, and will be paid on 24 Sep.