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RNS
Diversified Gas & Oil PLC  -  DGOC   

Half-year Report

Released 07:00 11-Sep-2018

RNS Number : 3366A
Diversified Gas & Oil PLC
11 September 2018
 

11 September 2018

 

DIVERSIFIED GAS & OIL PLC

("DGO" or the "Company")

 

Interim Results

 

Diversified Gas & Oil PLC (AIM: DGOC), the US based gas and oil producer with a focus on the Appalachian Basin, is pleased to announce its interim results for the six-month period ended 30 June 2018.

Period Highlights:

•       Revenue  of $58.0m (2017: $10.9m*)

•       Adjusted EBITDA of $22.87m

•       Materially increased production through acquisition

•       Average daily production of 19.3 kboed

•       Exit rate of approximately 27 kboed at period end (June average)

•       Current net production of approximately 60 kboed (July average)

•       Strong adjusted EBITDA margins of 40%

•       Continued success of value accretive acquisitions:

•       Alliance Petroleum for $80.7m completed in early March

•       Conventional assets from CNX Resources for $89.3m completed in early April

•       $575m of gas, oil and midstream assets from EQT Corporation completed post period (July)

•       Commencement of quarterly dividend payment

•       Q1'18 dividend of 1.725 cents per share announced previously to be paid on 24 September 2018 to shareholders on the register at 13 July 2018

•       Q2 '18 dividend declared of 2.8 cents per share to be paid on 19 December 2018

•       Significantly strengthened balance sheet & liquidity

•       $439m of new gross equity raised (inclusive of July 2018 equity raise)

•       Enlarged credit facility of $1bn with a $600m committed borrowing base

•       Maintains 1.7x leverage ratio on prospective basis

•       Strong liquidity position of $187m

•       Successful integration process of acquired assets delivering operating synergies:

•       Lower unit costs (H1'17 vs H1'18)

•       Enhanced operating margins (H1'17 vs H1'18)

 

*              figures have been restated to reflect the revisions for operator revenue, cost of sales and administrative expenses. Operator revenue of $641k has been reclassified as reductions in operator expenses included in cost of sales for the six months to 30 June 2017. This represents operator expenses recharged to and recovered from holders of working interests.

 

Commenting on the Results, CEO Rusty Hutson said:

"We would define the first half of 2018 as a period of transformative growth resulting in a material step-change for our operational and financial profile.  We continued to deliver on our growth strategy and capitalised on compelling, per-share accretive acquisition opportunities in the Appalachian Basin to grow our production by more than 90% since year end, and we accomplished this growth without risking the balance sheet. Instead, our financial strength has been improved with the addition of our low cost credit facility and a leverage profile of less than two times adjusted EBITDA.  The real impact of these game-changing acquisitions will be achieved in the second half of the year and beyond, as we realise the benefits of scale in the form of materially increased cash flow, lower costs and enhanced EBITDA margins, all of which underpin the reliable and peer-leading quarterly dividend.  Our near-term focus will remain on extracting maximum value from our enlarged portfolio by leveraging operating synergies to drive both top line growth and further cost reductions that collectively elevate our already compelling margins.  Our operating environment is increasingly positive, and we continue to screen a robust pipeline of growth opportunities from our position as the consolidator of choice in the Appalachian Basin."

Results presentation and audiocast

An analyst presentation will be held at 10:30am BST on 11 September 2018 at the offices of Buchanan (107 Cheapside, London, EC2V 6DN).

The presentation will be made available on the Company website, www.dgoc.com.

An audiocast of the presentation can be accessed shortly after the live presentation concludes through the following link: http://webcasting.buchanan.uk.com/broadcast/5b800ba90f6d547ed12e613c

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Diversified Gas & Oil PLC

Rusty Hutson Jr., Chief Executive Officer

Brad Gray, Chief Operating Officer and Finance Director

Eric Williams, Chief Financial Officer

www.dgoc.com

 

 +1 (205) 408 0909

Smith & Williamson Corporate Finance Limited

(Nominated Adviser)

Russell Cook

Katy Birkin

Ben Jeynes

 

+44 (0)20 71314000

Mirabaud Securities Limited

(Joint Broker)

Peter Krens

Edward Haig-Thomas

 

+44 (0)20 3167 7221

Stifel Nicolaus Europe Limited

(Joint Broker)

Callum Stewart

Nicholas Rhodes

Ashton Clanfield

 

+44 (0)20 7710 7600

Buchanan

(Financial Public Relations)

Ben Romney

Chris Judd

Henry Wilson

dgo@buchanan.uk.com

+44 20 7466 5000

 

Introduction

The first half of 2018 saw DGO accelerate the speed of its growth through a series of transformative events.  Although the Half Year Results tell the story of dramatic growth in the period, they do not reflect the scale of DGO's current operational footprint and financial profile, following the completion of two major acquisitions in the second quarter, and yet another game-changing transaction that made DGO one of the largest producers by volume, listed in London.

The focus for the business throughout the period has been on positioning the Company to grow production, cashflow and EBITDA margins, all with a view to generating long-term value for its shareholders through capital appreciation and a competitive dividend yield.  As highlighted by these results, DGO has been successful in every measure and is well placed to demonstrate a step-change in all key metrics as it benefits from its recently expanded operational footprint and associated operating efficiencies.

The Board is pleased to announce a dividend for the second quarter of 2.8 cents per share, payable on 19 December 2018 to those shareholders on the Company's register on 30 November 2018.  This represents an increase of 62 per cent over the 2018 Q1 dividend of 1.725 cents.  Together these dividends are an increase of 128 per cent over the first half of 2017.

Accelerating our strategy

Throughout the period, the Company continued to effectively implement its growth strategy by leveraging its highly visible growth profile within both the Appalachian Basin and the Capital Markets to capitalise on the acquisition opportunities created by often larger, drilling-oriented companies wishing to divest of non-core assets, particularly within its focus region of Appalachia.

DGO has cemented its position as the leading consolidator for mature, cash-flowing assets in the region to become the largest producer from conventional assets in the Appalachian Basin. The Company has successfully leveraged its established dividend-paying investment case and track record for closing value-creating acquisitions to access the capital required to continue targeting sizeable transactions through a combination of new equity and debt.

In January, DGO announced the nearly simultaneous and highly complementary acquisitions of Alliance Petroleum for $80.7m and certain producing assets from CNX for $89.3m, which it funded through a placing raising gross proceeds of $189m. These transactions took net production to over 26 kboepd on a historical pro forma basis, an increase of 170% from year-end 2017.

Even more transformative still was the $575m acquisition of assets from EQT Corporation announced just prior to the period-end, which again more than doubled the already elevated production levels and increased DGO's PDP Reserves to 393 mmboe. The Company funded this transaction, which was immediately accretive to cash and earnings, through a placing which raised $250m, and with low-cost funding from its existing credit facility, which was doubled to $1 billion with a $600m borrowing base.  After the completion of the EQT acquisition in July, DGO's current net production of approximately 60 kboepd has made it the largest producer on AIM by some margin and one of the largest independent producers in terms of volumes quoted in London. Demonstrating the value creating nature of the transaction, DGO's declared dividend for the second quarter of 2018 is 62% higher than its previous first quarter dividend, and is compelling evidence of its commitment to its dividend policy to provide robust income for shareholders.

The EQT acquisition also included more than 6,400 miles of gathering pipe, incorporating some 59 compression stations. This acquisition enhanced the economics of the Company's production in the region and will form a basis from which to develop the Company's mid-stream operations.

Leveraging an expanded operational footprint

The opportunity to acquire complementary and operationally compatible assets in the Appalachian Basin from Alliance and CNX was compelling.  Building on DGO's enhanced experience of completing the acquisition of Titan the previous year, our team quickly set about integrating and optimising these newly acquired assets.

The focus throughout the integration process has been to further realise the financial and operating benefits of enlarged scale - elements central to DGO's investment strategy.  The integration of these assets, acquired in March 2018, was facilitated by the high-quality teams that came with the respective acquisitions, particularly the Alliance team that included a number of talented corporate support personnel including accounting, treasury and land personnel.  By taking on a combination of experienced senior management and highly skilled field workers with in-depth knowledge of the assets, DGO has been able to identify and prioritise the areas of integration that maximise synergies and optimise production.

In addition to maintaining and increasing production from existing wells through workover initiatives, the operations team has successfully returned wells into production, many of which came within the Alliance and CNX packages. Returning these previously unproductive wells to production has the dual benefit of partially offsetting overall natural decline rates, whilst also removing the wells from decommissioning. Over the last 18 months, DGO has brought over 500 wells back into production across its expanded acreage, resulting in prolonged production and deferred Plugging & Abandonment ("P&A") liabilities.

Decommissioning

The topic of decommissioning has always been a key consideration for DGO given the mature asset focus of the business. The issue has increased in relevance as the Company has expanded its acreage and therefore the scale of future liabilities. The State regulatory bodies typically establish the requirements around P&A liabilities, and DGO maintains constructive dialogue with those relevant authorities to ensure compliance and to agree on mutually beneficial long-term plugging programmes over the life of DGO's diverse portfolio.

The cost of plugging activities varies according to the depth of a well. Over 98% of DGO's well portfolio will be at the lower end of the range at around $25k per well. The Company continually reviews ways in which plugging costs can be reduced further and is likely to expand its internal P&A capabilities to minimise the role of third party vendors whose work inherently carries its own profit margins, an action that is expected to further reduce the average plugging costs.

In line with DGO's approach to risk mitigation and visibility on key financial metrics, DGO is actively pursuing agreements with state authorities in the states in which it operates.  In this regard, the Company can budget accordingly for the long-term costs and logistical efforts associated with plugging wells, with costs representing a fraction of the annual earnings generated by the portfolio. Of the more than 50,000 wells in the current portfolio, we expect to plug fewer than 2,000 wells over the next 15 years, with the vast majority producing for many decades based on the low natural decline profile of the wells comprising our portfolio.

A transformational acquisition

The completion of the acquisition of assets from EQT Corporation in July represented a material step change in DGO's operating footprint and financial profile. This transaction gives DGO unparalleled scale in the conventional gas space in the Appalachian Basin, an enhanced exposure to liquids, and an expansive wholly owned midstream infrastructure.

The upstream assets are consistent with the wider portfolio profile in terms of long well-life (average 50 years) and low decline rates of around 4% to 7% per annum. The midstream assets provide DGO with its initial ownership of gathering systems that span a significant portion of its Kentucky acreage position and eliminate a meaningful portion of third party gathering expenses. Importantly, they also provide DGO with significant takeaway capacity to multiple end markets and processing capacity to support both existing and future potential development across the portfolio. For example, the ability to move a significant portion of its Kentucky natural gas production to a local liquids processing plant allows the Company to realize the economics of its natural gas liquids, providing an estimated net 56% uplift in the realized price it receives for this production. It is this type of value-creating element of the acquisition that is driving DGO's adjusted EBITDA margins from approximately 40% to approximately 60%. As with previous acquisitions, DGO has assumed related operating personnel to expedite integration of these assets to realize these higher margins.

The EQT acquisition represented a continuation of DGO's track record to source, progress and complete value accretive acquisitions. The Company's purchase price for the assets represents an attractive valuation multiple of just 3.5x annual operating cash flow, which is consistent with DGO's recent track record for acquisitions and is particularly impressive for an acquisition of this size and including midstream assets.  As DGO successfully integrates the assets, the Company expects to demonstrate a further reduction in its operating costs, which will further enhance its EBITDA margins.

Outlook

DGO continues to progress from one position of strength to another, and is already unrecognisable from the company that floated on AIM just over 18 months ago.  The Company has achieved a significant level of growth, surpassing market forecasts through a series of high quality, earnings accretive acquisitions.

The window for further M&A opportunities in the Appalachian Basin remains open, and the Company continues to review value accretive acquisitions in line with its proven growth strategy.  With its growing list of successfully completed, sizeable acquisitions in the region, DGO has access to an increasingly robust pipeline of growth opportunities to consider. The Board remains steadfast in its focus to only consider new opportunities that complement and enhance the existing business and often passes on growth opportunities not suited to the Company's current asset portfolio. Importantly, DGO benefits from a strong balance sheet, liquidity and the demonstrated ability to move quickly on large packages of exceptional assets should it identify compelling opportunities.

The long-term outlook for natural gas prices in the region remains stable with investments being made in expanded take-away capacity coming online in the region providing a catalyst for higher realized prices as basin basis differential begins to decline. Consistent with its commitment to always protect its cash flow and the underlying dividend funded by its stable production base, DGO will continue to implement its hedging strategy, whilst also retaining upside exposure on a portion of its production to realise pricing increases.

Presently, DGO is intensely focused on the complete and efficient integration of assets acquired from EQT, and expects the addition of these assets and the achieved operating synergies to enhance revenue, cashflow and EBITDA margins whilst reducing operating costs.

Overall, DGO has created long-term value for shareholders by stewarding its capital to enlarge a strong platform of stable, cashflow producing assets, and is well positioned to deliver a materially stronger second half as it realises the benefits of the transformative acquisitions completed in the first seven months of 2018.

 

Financial Review

 

(Amounts other than per unit are reported in thousands)

 

Six months to

 

 

 

 

 

 

30 June 2018

 

30 June 2017

 

 $ Change

 

% Change

Net production

 

 

 

 

 

 

 

 

Natural gas (MMcf)

 

19,982

 

 

3,168

 

 

16,814

 

 

530.7

%

Oil (MBbls)

 

116

 

 

53

 

 

63

 

 

120.5

%

NGL (MBbls)

 

53

 

 

-

 

 

53

 

 

100

%

Total (MBOE)

 

3,499

 

 

581

 

 

2,918

 

 

502.2

%

Average daily production (BOE/d)

 

19,331

 

 

3,210

 

 

16,121

 

 

502.2

%

% gas (BOE basis)

 

95

%

 

91

%

 

 

 

 

Average realised sales price

 

 

 

 

 

 

 

 

(excluding impact of cash settled derivatives)

 

 

 

 

 

 

 

 

Natural gas (Mcf)

 

$

2.40

 

 

$

2.46

 

 

$

(0.06

)

 

(2.4

)%

Oil (Bbl)

 

64.59

 

 

45.59

 

 

19.00

 

 

41.7

%

Total (BOE)

 

$

16.20

 

 

$

17.55

 

 

$

(1.35

)

 

(7.7

)%

Average realised sales price

 

 

 

 

 

 

 

 

(including impact of cash settled derivatives)

 

 

 

 

 

 

 

 

Natural gas (Mcf)

 

$

2.44

 

 

$

2.49

 

 

$

(0.05

)

 

(2.0

)%

Oil (Bbl)

 

53.83

 

 

46.33

 

 

7.50

 

 

16.2

%

Total (BOE)

 

$

16.07

 

 

$

17.80

 

 

$

(1.73

)

 

(9.7

)%

Natural gas and oil revenue

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

Natural gas

 

$

48,027

 

 

$

7,795

 

 

$

40,232

 

 

516.1

%

Oil

 

7,492

 

 

2,399

 

 

5,093

 

 

212.3

%

NGL

 

1,154

 

 

-

 

 

1,154

 

 

100

%

     Total natural gas, oil and NGL revenue

 

56,673

 

 

10,194

 

 

46,479

 

 

455.9

%

Other revenue

 

1,360

 

 

706

 

 

654

 

 

92.6

%

    Total revenue

 

$

58,033

 

 

$

10,900

 

 

$

47,133

 

 

432.4

%

Gains (losses) on derivative settlements

 

 

 

 

 

 

 

 

Natural gas

 

$

825

 

 

$

108

 

 

$

698

 

 

646.3

%

Oil

 

(1,248

)

 

39

 

 

(1,287

)

 

(3,300.0

)%

Net gains on derivative settlements

 

$

(423

)

 

$

147

 

 

$

(589

)

 

(400.7

)%

Per BOE metrics

 

 

 

 

 

 

 

 

Realised price (including impact of cash settled derivatives)

 

$

16.08

 

 

17.80

 

 

$

(1.73

)

 

(9.7

)%

Other revenue

 

0.39

 

 

1.22

 

 

(0.83

)

 

(68.0

)%

Lease operating expenses (a)

 

7.01

 

 

8.13

 

 

(1.12

)

 

(13.8

)%

Recurring administrative expenses

 

1.51

 

 

2.64

 

 

(1.13

)

 

(42.8

)%

Production taxes

 

0.20

 

 

1.25

 

 

(1.05

)

 

(84.0

)%

Gathering, processing and transportation

 

1.21

 

 

-

 

 

1.21

 

 

100

%

Operating margin

 

$

6.53

 

 

7.00

 

 

$

(0.47

)

 

(6.7

)%

% Operating margin

 

39.7

%

 

36.8

%

 

 

 

 

 

Production, Revenue and Hedging

 

Total revenue in 1H18 of $58.0m increased 432.4% from $10.9m reported for 1H17 primarily due to a 502.2% increase in barrel of oil equivalent sales partially offset by a 7.7% decrease in the average realised sales price. DGO ended 1H18 with net MBOE sales of approximately 3,499 vs. the prior year sales of approximately 581. The increase in production was driven by the increase in producing wells from our acquisitions of assets from Titan Energy, EnerVest Energy, Alliance Petroleum Company, and CNX Resources LLC in 2H17 and 1H18. See Note 9 tor additional information regarding DGO's acquisitions.

 

The following table is intended to reconcile the change in oil and natural gas revenue for 1H18 by reflecting the effect of changes in volume and in the underlying prices.

(Reported in thousands)

 

Natural gas

 

Oil

 

 

 

 

 

Revenue for the six months to 30 June 2017

 

$

7,795

 

 

2,399

 

Volume increase

 

41,362

 

 

2,890

 

Price (decrease)/increase

 

(1,130

)

 

2,203

 

Net increase

 

40,232

 

 

5,093

 

Revenue for the six months to 30 June 2018

 

$

48,027

 

 

$

7,492

 

                 

 

To manage its cash flows in a volatile commodity price environment, DGO uses a combination of physical and financial derivative instruments. As required by its Senior Secured Credit Facility, DGO executed a combination of fixed price physical contracts, price swap financial contracts and two-way collar financial contracts to hedge between 75% and 90% of the Company's forecasted production volumes for a 36-month rolling period. Refer to Note 13 for additional information regarding DGO's hedge portfolio.

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts other than per unit are reported in thousands)

 

Six months to

 

Total Change

 

BOE Change

 

 

30 June 2018

 

Per BOE

 

30 June 2017

 

Per BOE

 

$

 

%

 

$

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses (a)

 

$

24,520

 

 

$

7.01

 

 

$

4,722

 

 

$

8.13

 

 

$

19,798

 

 

419

%

 

$

(1.12

)

 

(14

)%

 

Production taxes

 

700

 

 

0.20

 

 

725

 

 

1.25

 

 

(25

)

 

(3

)%

 

(1.05

)

 

(84

)%

 

Gathering, processing and transportation

 

4,225

 

 

1.21

 

 

-

 

 

-

 

 

4,225

 

 

100

%

 

1.21

 

 

100

%

 

Total cost of sales

 

$29,445

 

 

$

8.41

 

 

$5,447

 

 

$9.38

 

 

$23,998

 

 

441

%

 

$

(0.97

)

 

(10

)%

 

Depreciation and depletion

 

8,354

 

 

2.39

 

 

2,242

 

 

3.86

 

 

6,112

 

 

273

%

 

(1.47

)

 

(38

)%

 

Administrative expenses (b)

 

7,494

 

 

2.14

 

 

3,304

 

 

5.69

 

 

4,190

 

 

127

%

 

(3.55

)

 

(62

)%

 

Total expenses

 

$

45,293

 

 

$

12.94

 

 

$

10,993

 

 

18.93

 

 

$

34,300

 

 

312

%

 

(5.98

)

 

(32

)%

 

                                                                   

 

a)

 

b)

 

Lease operating expenses are daily costs incurred to extract oil and natural gas and maintain our producing properties. Such costs include maintenance, repairs, insurance, employee and benefits and automobile expenses.

Includes non-recurring costs related to acquisitions of $2.1m in 1H18 and $1.8m in 1H17.

 

 

 

As a result of DGO's significant, value-focused growth, unit operating expenses decreased 32% or $5.98 per BOE. These reductions include:

•       Lower per BOE lease operating expenses, which declined 14% or $1.12 per BOE through a mixture of disciplined cost reductions and through achieving an enlarged scale in the region whereby fixed operating costs were spread across a larger base of producing assets.

•       Lower per BOE production taxes, which declines 84% or $1.05 per BOE.

•       Lower per BOE depreciation and depletion, which declined 38% or $1.47 per BOE due to the acquisition of reserves at attractive valuations resulting in a lower unit depletion charge for each unit produced.

•       Lower per BOE administrative expenses, which decreased 62% or $3.55 per BOE due to the significant growth in our production base.

Partially offsetting these significant per BOE declines were increases in non-controllable costs related to gathering and transportation costs to deliver our production to market.

 

Refer to Note 9 for additional information regarding DGO's acquisitions.

 

Finance costs

(Reported in thousands)

 

Six months to

 

 

 

 

30 June 2018

 

30 June 2017

 

 $ Change

 

% Change

 

 

 

 

 

 

 

 

 

Interest

 

$

3,415

 

 

$

437

 

 

$

2,978

 

 

681.5

%

Finance charge

 

5

 

 

130

 

 

(125

)

 

(96.2

)%

Bond financing costs

 

613

 

 

174

 

 

439

 

 

252.3

%

Loan standby fee

 

204

 

 

4

 

 

200

 

 

5,000.0

%

Loan management fee

 

38

 

 

-

 

 

38

 

 

100

%

Total finance costs

 

$

4,275

 

 

$

745

 

 

$

3,530

 

 

473.8

%

 

 

 

 

 

 

 

 

 

Loss (gain) on early retirement of debt

 

$

8,359

 

 

$

4,468

 

 

$

3,891

 

 

(87.1

)%

 

DGO's finance costs include interest expense on borrowings and non-cash amortization of deferred financing costs. In March 2018, the Company closed a new $500 million five-year senior secured revolving credit facility with an initial base borrowing base of $140 million increasing to $200 million with the closing of the CNX acquisition. The facility has an initial interest rate of 2.50% plus LIBOR and is subject to a grid that fluctuates based upon utilisation with a pricing of 2.25% - 3.25% plus LIBOR.

 

In 1H18 and using the proceeds from the March 2018 credit facility, DGO repaid its previous outstanding debt. Accordingly, DGO incurred a non-recurring loss on the early extinguishment of debt of $8.36 million. In 1H17 using the proceeds from our successful AIM IPO, DGO repaid its publicly traded bonds and other outstanding debt. Accordingly, DGO incurred a non-recurring loss on the early extinguishment of debt, which primarily included a $3.8m charge for the accelerated amortization of the remaining deferred financing costs and $0.6m in premiums paid to redeem convertible bonds prior to DGO's admission to AIM.

 

For more information on DGO's acquisitions, secondary offering and borrowings, refer to Notes 9, 8 and 16, respectively

 

Income before taxation, EPS and Adjusted EBITDA

 

DGO reported income before taxation of $21.4m in 1H18 compared to $29.4m in 1H17, a decrease of 27%, and reported statutory earnings for 1H18 per diluted ordinary share of $0.09 compared to $0.24 per diluted ordinary share in 1H17. However, when adjusted for certain non-cash items such as gains on bargain purchases and similar items, DGO reported adjusted EBITDA per diluted ordinary share of $0.09 per diluted ordinary share, a 125.0% increase over the prior year's $0.04 adjusted EBITDA per diluted ordinary share. DGO's adjusted EBITDA for 1H18 was $22.9m, a 462.2% increase over $4.1m in 1H17. Refer to Note 6 for additional information regarding DGO's adjusted EBITDA.

 

 

Conclusion

 

We have already enjoyed an eventful and successful 2018, and we look forward to continued progress as we focus our attention towards 2019. I would like to thank the growing Diversified family for its commitment to safe and efficient operations, the Board for its diligent oversight and guidance, and our shareholders and stakeholders who entrust to us the capital to fuel our growth. I will look forward to reporting back to you with our full-year results.

 

 

Rusty Hutson Jr.

Chief Executive Officer

 

 

AUDITORS' REVIEW REPORT

 

Introduction

We have been engaged by the company to review the condensed set of financial statements in the interim financial report for the 6 months ended 30 June 2018 which comprises the Condensed Interim Consolidated Statement of Profit or Loss and Other Comprehensive Income, the Condensed Interim Consolidated Statement of Financial Position, the Condensed Interim Consolidated Statement of Changes in Equity, the Condensed Interim Consolidated Statement of Cash Flow and the related explanatory notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company, in accordance with our instructions. Our review has been undertaken so that we might state to the company those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the opinions we have reached.

 

Directors' Responsibilities

The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the AIM Rules of the London Stock Exchange.

 

As disclosed in note 3, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

 

Our Responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

 

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the 6 months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.

 

 

Crowe U.K. LLP

Statutory Auditor

 

 

 

 

 

 

DIVERSIFIED GAS & OIL PLC

Interim Consolidated Statements of Profit or Loss and Other Comprehensive Income

                                                                     (Amounts in thousands, except per-share amounts)                       

 

 

 

 

 

 

 

(Restated)

 

(Restated)

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

Note

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

 

 

Revenue

 

4

 

$

58,033

 

 

$

10,900

 

 

$

41,777

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

5

 

(29,445

)

 

(5,447

)

 

(20,908

)

Depreciation and depletion

 

5

 

(8,354

)

 

(2,242

)

 

(7,536

)

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

$

20,234

 

 

$

3,211

 

 

$

13,333

 

 

 

 

 

 

 

 

 

 

Administrative expenses

 

5

 

(7,494

)

 

(3,304

)

 

(8,919

)

(Loss) gain on disposal of property and equipment

 

 

 

(137

)

 

4

 

 

95

 

Loss on derivative financial instruments

 

13

 

(18,447

)

 

(540

)

 

(441

)

Gain on sale of oil and gas properties

 

 

 

4,200

 

 

-

 

 

-

 

Gain on bargain purchase

 

9

 

37,823

 

 

35,841

 

 

37,093

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

$

36,179

 

 

$

35,212

 

 

$

41,161

 

 

 

 

 

 

 

 

 

 

Finance costs

 

16

 

(4,275

)

 

(745

)

 

(5,225

)

(Loss) on early retirement of debt

 

16

 

(8,359

)

 

(4,468

)

 

(4,468

)

Accretion of decommissioning provision

 

15

 

(2,158

)

 

(585

)

 

(1,764

)

 

 

 

 

 

 

 

 

 

Income before taxation

 

 

 

$

21,387

 

 

$

29,414

 

 

$

29,704

 

 

 

 

 

 

 

 

 

 

Taxation on income

 

 

 

2,159

 

 

(6,780

)

 

(2,250

)

 

 

 

 

 

 

 

 

 

Income after taxation available to ordinary shareholders

 

 

 

$

23,546

 

 

$

22,634

 

 

$

27,454

 

 

 

 

 

 

 

 

 

 

Other comprehensive income - gain on foreign currency conversion

 

 

 

6

 

 

202

 

 

355

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

 

 

 

$

23,552

 

 

$

22,836

 

 

$

27,809

 

 

 

 

 

 

 

 

 

 

Earnings per ordinary share - basic & diluted

 

7

 

$

0.09

 

 

$

0.24

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

Weighted average ordinary shares outstanding - basic

 

7

 

265,509

 

 

94,971

 

 

120,136

 

 

 

 

 

 

 

 

 

 

Weighted average ordinary shares outstanding - diluted

 

7

 

266,483

 

 

94,971

 

 

120,269

 

 

The notes are an integral part of these consolidated financial statements.

 

DIVERSIFIED GAS & OIL PLC

Interim Consolidated Statements of Financial Position

(Amounts in thousands)

         

 

 

 

 

 

 

(Restated)

 

(Restated)

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

Note

 

30 June 2018

 

30 June 2017

 

31 December 2017

ASSETS

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

Oil and gas properties, net

 

11

 

$

483,530

 

 

$

202,010

 

 

$

215,325

 

Property and equipment, net

 

12

 

10,090

 

 

5,668

 

 

6,947

 

Other non-current assets

 

 

 

57,769

 

 

1,011

 

 

1,036

 

Restricted cash

 

 

 

2,672

 

 

117

 

 

744

 

Indemnification receivable

 

9

 

2,133

 

 

$

-

 

 

$

-

 

Total non-current assets

 

 

 

$

556,194

 

 

$

208,806

 

 

$

224,052

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Trade receivables

 

 

 

34,967

 

 

5,085

 

 

13,917

 

Other current assets

 

 

 

2,530

 

 

417

 

 

513

 

Equity placing receivable

 

 

 

-

 

 

24,864

 

 

-

 

Cash and cash equivalents

 

 

 

9,537

 

 

4,574

 

 

15,168

 

Total current assets

 

 

 

$

47,034

 

 

$

34,940

 

 

$

29,598

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 

 

$

603,228

 

 

$

243,746

 

 

$

253,650

 

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Share capital

 

14

 

$

4,299

 

 

$

1,940

 

 

$

1,940

 

Share premium

 

 

 

254,327

 

 

76,015

 

 

76,026

 

Merger reserve

 

 

 

(478

)

 

(478

)

 

(478

)

Share based payment reserve

 

 

 

-

 

 

-

 

 

59

 

Retained earnings

 

 

 

43,497

 

 

28,607

 

 

30,691

 

Total Equity

 

 

 

$

301,645

 

 

$

106,084

 

 

$

108,238

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

Decommissioning liability

 

15

 

$

72,390

 

 

$

31,630

 

 

$

35,448

 

Capital lease

 

 

 

1,465

 

 

440

 

 

836

 

Borrowings

 

16

 

139,688

 

 

61,316

 

 

70,619

 

Deferred tax liability

 

 

 

35,092

 

 

21,926

 

 

17,399

 

Other non-current liabilities

 

10

 

9,780

 

 

5,038

 

 

5,764

 

Uncertain tax position

 

9

 

2,133

 

 

-

 

 

-

 

Total non-current liabilities

 

 

 

$

260,548

 

 

$

120,350

 

 

$

130,066

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Trade and other payables

 

 

 

$

6,323

 

 

$

3,032

 

 

$

2,132

 

Borrowings

 

16

 

107

 

 

305

 

 

373

 

Capital lease

 

 

 

579

 

 

250

 

 

324

 

Dividends payable

 

 

 

-

 

 

2,887

 

 

-

 

Other current liabilities

 

10

 

34,026

 

 

10,838

 

 

12,517

 

Total current liabilities

 

 

 

$

41,035

 

 

$

17,312

 

 

$

15,346

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

 

$

301,583

 

 

$

137,662

 

 

$

145,412

 

 

 

 

 

 

 

 

 

 

Total Equity and Liabilities

 

 

 

$

603,228

 

 

$

243,746

 

 

$

253,650

 

 

The notes are an integral part of these consolidated financial statements.

 

 

 

DIVERSIFIED GAS & OIL PLC

Interim Consolidated Statements of Changes in Equity

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Based

 

 

 

 

 

 

 

 

Share

 

Share

 

Merger

 

Payment

 

Retained

 

Total

 

 

Note

 

Capital

 

Premium

 

Reserve

 

Reserve

 

Earnings

 

Equity

Balance at 1 January 2018

 

 

 

$

1,940

 

 

$

76,026

 

 

$

(478

)

 

$

59

 

 

$

30,691

 

 

$

108,238

 

Income after taxation

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

23,546

 

 

23,546

 

Gain on foreign currency conversion

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

6

 

 

6

 

Total comprehensive income

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

23,552

 

 

23,552

 

Issuance of share capital, secondary offering

 

14

 

2,359

 

 

178,301

 

 

-

 

 

 

 

-

 

 

180,660

 

Equity compensation

 

 

 

-

 

 

-

 

 

-

 

 

(59

)

 

 

 

(59

)

Dividends authorized and declared

 

8

 

-

 

 

-

 

 

-

 

 

-

 

 

(10,746

)

 

(10,746

)

Transactions with shareholders

 

 

 

2,359

 

 

178,301

 

 

-

 

 

(59

)

 

(10,746

)

 

169,855

 

Balance at 30 June 2018

 

 

 

$

4,299

 

 

$

254,327

 

 

$

(478

)

 

$

-

 

 

$

43,497

 

 

$

301,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

 

 

 

 

 

 

 

(Restated)

 

(Restated)

 

(Restated)

 

Based

 

(Restated)

 

(Restated)

 

 

 

 

Share

 

Share

 

Merger

 

Payment

 

Retained

 

Total

 

 

 

 

Capital

 

Premium

 

Reserve

 

Reserve

 

Earnings

 

Equity

Balance at 1 January 2017

 

 

 

$

669

 

 

$

313

 

 

$

(478

)

 

$

-

 

 

$

8,658

 

 

$

9,162

 

Income after taxation

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

22,634

 

 

22,634

 

Gain on foreign currency conversion

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

202

 

 

202

 

Total comprehensive income

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

22,836

 

 

22,836

 

Issuance of share capital, initial offering

 

 

 

768

 

 

43,550

 

 

-

 

 

-

 

 

-

 

 

44,318

 

Issuance of share capital, secondary offering

 

 

 

503

 

 

32,152

 

 

-

 

 

-

 

 

-

 

 

32,655

 

Dividends authorized and declared

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(2,887

)

 

(2,887

)

Transactions with shareholders

 

 

 

1,271

 

 

75,702

 

 

-

 

 

-

 

 

(2,887

)

 

74,086

 

Balance at 30 June 2017

 

 

 

$

1,940

 

 

$

76,015

 

 

$

(478

)

 

$

-

 

 

$

28,607

 

 

$

106,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

 

 

 

 

 

 

 

(Restated)

 

(Restated)

 

(Restated)

 

Based

 

(Restated)

 

(Restated)

 

 

 

 

Share

 

Share

 

Merger

 

Payment

 

Retained

 

Total

 

 

 

 

Capital

 

Premium

 

Reserve

 

Reserve

 

Earnings

 

Equity

Balance at 1 January 2017

 

 

 

$

669

 

 

$

313

 

 

$

(478

)

 

$

-

 

 

$

8,658

 

 

$

9,162

 

Income after taxation

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

27,454

 

 

27,454

 

Gain on foreign currency conversion

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

355

 

 

355

 

Total comprehensive income

 

 

 

-

 

 

-

 

 

-

 

 

-

 

 

27,809

 

 

27,809

 

Issuance of share capital, initial offering

 

 

 

768

 

 

43,550

 

 

-

 

 

-

 

 

-

 

 

44,318

 

Issuance of share capital, secondary offering

 

 

 

503

 

 

32,163

 

 

-

 

 

-

 

 

-

 

 

32,666

 

Equity compensation

 

 

 

-

 

 

-

 

 

-

 

 

59

 

 

-

 

 

59

 

Dividends authorized and declared

 

8

 

-

 

 

-

 

 

-

 

 

-

 

 

(5,776

)

 

(5,776

)

Transactions with shareholders

 

 

 

1,271

 

 

75,713

 

 

-

 

 

59

 

 

(5,776

)

 

71,267

 

Balance at 31 December 2017

 

 

 

$

1,940

 

 

$

76,026

 

 

$

(478

)

 

$

59

 

 

$

30,691

 

 

$

108,238

 

 

The notes are an integral part of these consolidated financial statements.

 

 

DIVERSIFIED GAS & OIL PLC

Interim Consolidated Statements of Cash Flow

(Amounts in thousands)

 

 

 

 

 

 

(Restated)

 

(Restated)

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

Note

 

30 June 2018

 

30 June 2017

 

31 December 2017

Cash flows from operating activities

 

 

 

 

 

 

 

 

Income after taxation

 

 

 

$

23,546

 

 

$

22,634

 

 

$

27,454

 

Cash flow from operations reconciliation:

 

 

 

 

 

 

 

 

     Depreciation and depletion

 

 

 

8,354

 

 

2,242

 

 

7,536

 

     Accretion of decommissioning provision

 

15

 

2,158

 

 

585

 

 

1,764

 

     Deferred income taxes

 

 

 

(2,159

)

 

6,780

 

 

2,251

 

Provision for working interest owners receivable

 

 

 

-

 

 

-

 

 

632

 

     Loss on derivative financial instruments

 

13

 

18,447

 

 

687

 

 

1,965

 

     Gain on oil and gas properties

 

 

 

(4,200

)

 

(396

)

 

(396

)

     Gain on bargain purchase

 

9

 

(37,823

)

 

(35,841

)

 

(37,093

)

Deferred financing expense

 

 

 

195

 

 

4,045

 

 

4,510

 

     Loss on debt cancellation

 

 

 

8,164

 

 

-

 

 

-

 

     Loss (gain) on disposal of property and equipment

 

12

 

137

 

 

(4

)

 

95

 

     Non-cash equity compensation

 

 

 

-

 

 

-

 

 

59

 

Working capital adjustments:

 

 

 

 

 

 

 

 

     Change in trade receivables

 

 

 

(9,269

)

 

(2,002

)

 

(11,465

)

     Change in other current assets

 

 

 

(1,743)

 

 

138

 

 

798

 

     Change in other assets

 

9

 

767

 

 

(15

)

 

(38

)

     Change in trade and other payables

 

 

 

4,191

 

 

(1,595

)

 

(2,495

)

     Change in other liabilities

 

 

 

(2,817

)

 

9,733

 

 

11,345

 

Net cash provided by operating activities

 

 

 

$

7,948

 

 

$

6,991

 

 

$

6,922

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Acquisition costs

 

9

 

$

(72,105

)

 

$

-

 

 

$

-

 

Acquisition deposit

 

9

 

(57,500

)

 

-

 

 

-

 

Expenditures on oil and gas properties

 

 

 

(90,393

)

 

(73,585

)

 

(88,267

)

Expenditures on property and equipment from acquisitions

 

 

 

-

 

 

-

 

 

(2,500

)

Expenditures on property and equipment

 

 

 

(1,927

)

 

(2,652

)

 

(1,953

)

Plugging and abandonment

 

 

 

(128

)

 

-

 

 

(78

)

Increase in restricted cash

 

 

 

(1,928

)

 

-

 

 

(627

)

Proceeds on disposal of oil and gas properties

 

 

 

4,219

 

 

-

 

 

334

 

Net cash used in investing activities

 

 

 

$

(219,762

)

 

$

(76,237

)

 

$

(93,091

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

 

$

145,600

 

 

$

64,000

 

 

$

75,000

 

Repayment of borrowings

 

 

 

(104,016

)

 

(40,521

)

 

(42,514

)

Financing expense

 

 

 

(6,140

)

 

(2,994

)

 

(3,298

)

Proceeds from equity issuance, net

 

 

 

180,601

 

 

52,864

 

 

76,984

 

Proceeds from capital lease

 

 

 

884

 

 

319

 

 

1,246

 

Repayment of capital lease

 

 

 

-

 

 

(72

)

 

(529

)

Dividends to shareholders

 

8

 

(10,746

)

 

-

 

 

(5,776

)

Net cash provided by financing activities

 

 

 

$

206,183

 

 

$

73,596

 

 

$

101,113

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

 

(5,631

)

 

4,350

 

 

14,944

 

Cash and cash equivalents - beginning of the period

 

 

 

15,168

 

 

224

 

 

224

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - end of the period

 

 

 

$

9,537

 

$

4,574

 

$

15,168

 

The notes are an integral part of these consolidated financial statements.

 

 

DIVERSIFIED GAS & OIL PLC

Notes to the Interim Consolidated Financial Statements

(Amounts in thousands, except per share and per unit data)

 

 

Note 1 - General Information

 

Diversified Gas & Oil PLC ("DGO" or the "Company") is a natural gas and crude oil producer that is focused on acquiring and operating mature producing wells with long lives and slow decline profiles. The Company's assets are exclusively located within the Appalachian Basin of the United States. The Company is headquartered in Birmingham, Alabama, USA with field offices located in the states of Pennsylvania, Ohio, West Virginia and Tennessee. DGO was incorporated on 31 July 2014 in England and Wales as a private limited company under company number 09156132. DGO's registered office is located at 27/28 Eastcastle Street, London W1W 8DH, United Kingdom. In February 2017, the Company's ordinary shares were admitted to trading on AIM under the ticker "DGOC."

 

Note 2 - Basis of Consolidation

 

The interim consolidated financial statements reflect the following corporate structure of DGO:

 

•       Diversified Gas & Oil PLC ("PLC"), and its wholly owned subsidiary,

•       Alliance Petroleum Corporation

•       Diversified Gas & Oil Corporation ("DGOC'') as well as its, direct and indirect, wholly owned subsidiaries,

•       Diversified Resources, Inc.;

•       M & R Investments, LLC;

•       M & R Investments Ohio, LLC;

•       Marshall Gas and Oil Corporation;

•       R&K Oil and Gas, Inc.;

•       Fund 1 DR, LLC;

•       Diversified Oil & Gas, LLC;

•       Diversified Appalachian Group, LLC;

•       Diversified Energy, LLC;

•       Diversified Partnership Holdings, LLC

•       Diversified Partnership Holdings II, LLC

•       Atlas Energy Tennessee, LLC

Atlas Pipeline Tennessee, LLC

 

Note 3 - Basis of Preparation

 

Basis of Preparation and Measurement

 

The interim consolidated financial statements are unaudited and do not represent statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information for the six month period ended 30 June 2018 is based on the statutory accounts for the year ended 31 December 2017. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies and did not contain statements under section 498(2) or (3) of the Companies Act.

 

The interim consolidated financial information has been prepared on the basis of the accounting policies set out in the Company's 2017 statutory accounts in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. The interim consolidated financial statements do not include all of the information required for a full annual financial report and should be read in conjunction with the Company's financial statements for the year ended 31 December 2017, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU).

Unless otherwise stated, the interim consolidated financial statements are presented in US Dollars, which is the currency of the primary economic environment in which DGO operates, and all values are rounded to the nearest thousand dollars except per unit amounts and where otherwise indicated. Transactions in foreign currencies are translated into US Dollars at the rate of exchange on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange ruling at the balance sheet date. The resulting gain or loss is reflected in the Interim Consolidated Statements of Profit or Loss and Other Comprehensive Income within Other comprehensive income - gain on foreign currency conversion.

 

 Certain prior period amounts within the Revenue and Expense accounts have been reclassified to conform with current presentation as follows:

 

•       Operator revenue of $641 has been reclassified as reductions in operator expenses included in Cost of sales for the six months to 30 June 2017. This represents operator expenses recharged to and recovered from holders of working interests.    

•       Salaries and benefits of $137 have been reclassified from Cost of sales to Administrative expenses for the six months to 30 June 2017. This represents salaries and benefits for certain corporate employees that were recorded in cost of sales.

 

During the period ended 30 June 2018, DGO finalized the fair value measurement related to the previously reported EnerVest and Titan acquisitions discussed in Note 9. As a result, DGO retrospectively adjusted previously reported provisional amounts related to the EnerVest and Titan Energy acquisitions in accordance with IFRS - 3. The following tables summarize the impact of these adjustments for the year ended 31 December 2017 and the period ended as at 30 June 2017:

 

(Amounts reported in thousands)

 

 Year ended 31 December 2017 (Reported)

Revisions

Year ended 31 December 2017 (Restated)

Balance sheet accounts impacted

 

 

 

Oil and gas properties, net

190,358

 

24,967

 

215,325

 

Deferred tax liability

11,011

 

6,388

 

17,399

 

Retained earnings

12,112

 

18,579

 

30,691

 

 

 

 

 

Income statement accounts impacted

 

 

 

Depreciation and depletion

(7,013

)

(523

)

(7,536

)

Gain on bargain purchase

11,603

 

25,490

 

37,093

 

Income tax benefit (expense)

4,138

 

(6,388

)

(2,250

)

 

For the year ended 31 December 2017 the cumulative impact of these adjustments resulted in an $18,579 increase to the Consolidated Statements of Changes in Equity through retained earnings and did not impact net cash provided by operating activities on the Consolidated Statements of Cash Flow.

 

(Amounts reported in thousands)

 

Unaudited Six Months to 30 June 2017 (Reported)

Revisions

Unaudited Six Months to 30 June 2017 (Restated)

Balance sheet accounts impacted

 

 

 

Oil and gas properties, net

176,536

 

25,474

 

202,010

 

Deferred tax liability

15,408

 

6,518

 

21,926

 

Retained earnings

9,651

 

18,956

 

28,607

 

 

 

 

 

Income statements impacted

 

 

 

Depreciation and depletion

(2,226

)

(16

)

(2,242

)

Gain on bargain purchase

10,351

 

25,490

 

35,841

 

Income tax benefit (expense)

(262

)

(6,518

)

(6,780

)

 

 

For the unaudited six months to 30 June 2017 the cumulative impact of these adjustments resulted in a $18,956 increase to the Statements of Changes in Equity through an increase to retained earnings and did not impact the net cash provided by operating activities on the Consolidated Statements of Cash Flow.

 

The interim consolidated financial statements have been prepared under the historical cost convention, except for acquisitions and derivative financial instruments that have been measured at fair value through profit and loss.

 

The interim consolidated financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realization of assets and the settlement of liabilities in the normal course of business. The Directors have reviewed DGO's overall position and outlook and are of the opinion that DGO is sufficiently well funded to be able to operate as a going concern for at least the next twelve months from the date of approval of these interim consolidated financial statements.

 

New Standards and Interpretations

 

IFRS 9 Financial Instruments

 

In July 2014, the IASB issued IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 incorporates the three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. Except for hedge accounting, the standard should be applied using the retrospective application. The Company adopted this standard on 1 January 2018. The adoption of this standard did not have a material impact on the Company's financial statements.

 

IFRS 15 Revenue from Contracts with Customers

 

In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. The standard requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard will supersede all current revenue recognition requirements under IFRS when it becomes effective. The standard can be applied using either the full retrospective approach or a modified retrospective approach at the date of adoptions. The Company adopted this standard on 1 January 2018 using the modified retrospective method. The adoption of this standard did not have a material impact on the Company's financial statements.

 

 

Not Yet Adopted

 

IFRS 16 Leases

 

In January 2016, the IASB issued IFRS 16 Leases. The standard establishes the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and lessor. The standard requires the present value of future minimum lease payments for all lease transactions (with terms in excess of 12 months) to be recognized on the balance sheet as lease assets and lease liabilities, and to depreciate lease assets separately from interest on lease liabilities in the income statement.  IFRS 16 replaces the previous lease standard, IAS 17 Leases, and related interpretations. This standard will be effective on 1 January 2019. Early adoption is permitted only if the Company also applies IFRS 15 Revenue from Contracts with Customers. The standard can be applied using either the full retrospective approach or a modified retrospective approach at the date of adoption. To date, the Company has not yet concluded on the impact of this standard.

Note 4 - Revenue

 

DGO extracts and sells natural gas, natural gas liquids and crude oil to various customers in addition to operating a majority of these oil and natural gas wells for customers and other working interest owners. The following table reconciles the Company's revenue for the periods presented:

 

(Amounts reported in thousands)

 

 

 

 

(Restated)

 

(Restated)

 

 

Unaudited

 

Unaudited

 

Audited

 

 

Six months to

 

Six months to

 

Year ended

 

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

Natural gas

 

$

48,027

 

 

$

7,795

 

 

$

30,463

 

Oil

 

7,492

 

 

2,399

 

 

8,047

 

NGL

 

1,154

 

 

-

 

 

1,043

 

     Total natural gas, oil and NGL

 

56,673

 

 

10,194

 

 

39,553

 

Operator

 

776

 

 

21

 

 

936

 

Oil and gas program

 

195

 

 

403

 

 

705

 

Water disposal

 

344

 

 

282

 

 

565

 

Other

 

45

 

 

-

 

 

18

 

     Total revenue

 

$

58,033

 

 

$

10,900

 

 

$

41,777

 

 

A significant portion of DGO's trade receivables represent receivables related to either sales of oil and natural gas or operational services. Oil and natural gas trade receivables are generally uncollateralised.

 

Certain prior period amounts of Operator revenue have been reclassified to conform with current presentation.  See Note 3 for additional information regarding reclassifications.

 

 

Note 5 - Expenses by Nature

 

The following table provides a detail of the Company's expenses:

 

(Amounts reported in thousands)

 

 

 

 

 

 

 

(Restated)

 

(Restated)

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

Explanation

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

 

 

Employees and benefits

 

 

 

$

8,209

 

 

$

2,217

 

 

$

8,539

 

 

Automobile

 

 

 

1,475

 

 

526

 

 

1,441

 

 

Insurance

 

 

 

2,095

 

 

117

 

 

491

 

 

Production taxes

 

 

 

700

 

 

725

 

 

1,345

 

 

Gathering, processing and transportation

 

 

 

4,225

 

 

-

 

 

2,712

 

 

Well operating expenses, net

 

 

 

12,741

 

 

1,862

 

 

6,380

 

 

     Total cost of sales

 

a

 

$

29,445

 

 

$

5,447

 

 

$

20,908

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

1,091

 

 

516

 

 

1,469

 

 

Depletion

 

 

 

7,263

 

 

1,726

 

 

6,067

 

 

      Total depreciation and depletion

 

 

 

$

8,354

 

 

$

2,242

 

 

$

7,536

 

 

 

 

 

 

 

 

 

 

 

Employees and benefits

 

 

 

3,921

 

 

1,102

 

 

2,655

 

 

Other administrative

 

 

 

213

 

 

136

 

 

1,525

 

 

Professional fees

 

 

 

302

 

 

165

 

 

360

 

 

Auditors' remuneration

 

 

 

 

 

 

 

 

Fees payable to the Company's auditor for the audit of the group and Company's annual accounts

 

 

 

73

 

 

11

 

 

55

 

 

Fees payable to the Company's auditor and its associates for other services:

 

 

 

 

 

 

 

 

Audit of the accounts of subsidiaries

 

 

 

238

 

 

75

 

 

125

 

 

Corporate finance services

 

 

 

116

 

 

4

 

 

73

 

 

Total auditors' remuneration

 

 

 

427

 

 

$

90

 

 

253

 

 

Rent

 

 

 

430

 

 

42

 

 

86

 

 

     Recurring administrative expenses

 

 

 

$

5,293

 

 

$

1,535

 

 

$

4,879

 

 

Non-recurring costs associated with acquisitions & contribution of assets

 

 

 

2,059

 

 

1,769

 

 

3,349

 

 

Provision for working interest owners receivable

 

 

 

-

 

 

-

 

 

632

 

 

Non-cash equity compensation

 

b

 

142

 

 

-

 

 

59

 

 

     Non-recurring administrative expenses

 

 

 

$

2,201

 

 

$

1,769

 

 

$

4,040

 

 

Total administrative expenses

 

a

 

$

7,494

 

 

$

3,304

 

 

$

8,919

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

a

 

$

45,293

 

 

$

10,993

 

 

$

37,363

 

 

 

 

 

 

a)

 

The increase in expenses is primarily related to the oil and gas properties acquired during 2018. See Note 9 for more information about the Company's acquisitions.

 

 

 

b)

 

Non-cash equity issuance reflects the expense recognition related to the issuance of restricted stock units to certain key managers.

Certain prior period amounts have been reclassified to conform with current presentation. See Note 3 for additional information regarding reclassifications.

 

Note 6 - Adjusted EBITDA

 

Adjusted EBITDA is a non-IFRS financial measure, which is of particular interest to the industry and Directors, as it is essentially the cash generated from operations that DGO has free for interest payments and capital investment. Adjusted EBITDA should not be considered as an alternative to operating profit (loss), comprehensive income, cash flow from operating activities or any other financial performance or liquidity measure presented in accordance with IFRS. Adjusted EBITDA is a non-IFRS financial measure that is defined as operating profit plus or minus items detailed below in the table below.

 

The Company believes Adjusted EBITDA is a useful measure because it enables a more effective way to evaluate operating performance and compare the results of operations from period-to-period and against its peers without regard to DGO's financing methods or capital structure. The Company excludes the items listed in the table below from operating profit in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. The following table reconciles operating profit to Adjusted EBITDA:

 

(Amounts other than per share are reported in thousands)

 

 

 

 

 

(Restated)

 

(Restated)

 

 

Unaudited

 

Unaudited

 

Audited

 

 

Six months to

 

Six months to

 

Year ended

 

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

Operating profit

 

$

36,179

 

 

$

35,212

 

 

$

41,161

 

 

 

 

 

 

 

 

Depreciation and depletion

 

8,354

 

 

2,242

 

 

7,536

 

Gain on bargain purchase

 

(37,823

)

 

(35,841

)

 

(37,093

)

(Loss) gain on disposal of property and equipment

 

137

 

 

(4

)

 

(95)

 

Loss on derivative financial instruments

 

18,024

 

 

687

 

 

1,965

 

Non-recurring costs associated with acquisitions & contribution of assets

 

2,059

 

 

1,769

 

 

3,349

 

Provision for working interest owners receivable

 

-

 

 

-

 

 

632

 

Gain on sale oil and gas properties

 

(4,200

)

 

-

 

 

-

 

Non-cash equity issuance included in administrative expense

 

142

 

 

-

 

 

59

 

   Total adjustments

 

(13,307

)

 

(31,147

)

 

(23,457

)

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

22,872

 

 

$

4,065

 

 

$

17,704

 

 

 

 

 

 

 

 

Weighted average ordinary shares outstanding - basic

 

265,509

 

 

94,971

 

 

120,136

 

Weighted average ordinary shares outstanding - diluted

 

266,483

 

 

94,971

 

 

120,269

 

 

 

 

 

 

 

 

Adjusted EBITDA per share - basic and diluted

 

$

0.09

 

 

$

0.04

 

 

$

0.15

 

 

Note 7 - Earnings Per Share

 

The calculation of basic income/(loss) per ordinary share is based on the income/(loss) after taxation available to ordinary shareholders and on the weighted average number of ordinary shares outstanding during the period. The calculation of diluted income/(loss) per ordinary share is based on the income/(loss) after taxation available to ordinary shareholders and the weighted average number of ordinary shares outstanding plus the weighted average number of shares that would be issued if dilutive options and warrants were converted into ordinary shares on the last day of the reporting period. Basic and diluted income/(loss) per ordinary share is calculated as follows:

 

(Amounts other than per share are reported in thousands)

 

 

 

 

 

 

 

(Restated)

 

(Restated)

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

Calculation

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

 

 

Income after taxation available to ordinary shareholders

 

A

 

$

23,546

 

 

$

22,634

 

 

$

27,454

 

 

 

 

 

 

 

 

 

 

Weighted average ordinary shares outstanding - basic

 

B

 

265,509

 

 

94,971

 

 

120,136

 

Weighted average ordinary shares outstanding - diluted

 

C

 

266,483

 

 

94,971

 

 

120,269

 

 

 

 

 

 

 

 

 

 

Earnings per ordinary share - basic

 

= A / B

 

$

0.09

 

 

$

0.24

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

Earnings per ordinary share - diluted

 

= A / C

 

$

0.09

 

 

$

0.24

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA per ordinary share - basic & diluted

 

Note 6

 

$

0.09

 

 

$

0.04

 

 

$

0.15

 

Note 8 - Dividends

 

The following table summarizes the Company's dividends paid and declared:

 

 

 

Dividends per Ordinary Share

 

 

 

 

 

 

 

 

 

 

USD $

 

GBP

 

Record Date

 

Pay Date

 

Shares Outstanding

 

Gross Dividends Paid $'000

Dividend declared 15 June 2017

 

0.0199

 

0.0155

 

07 July 2017

 

31 July 2017

 

145,076

 

 

2,887

 

Dividend declared 11 September 2017

 

0.0199

 

0.0149

 

17 November 2017

 

20 December 2017

 

145,076

 

 

2,889

 

Cumulative dividends declared as at for the year ended 31 December 2017

 

 

 

 

 

 

 

 

 

 

 

 

5,776

 

Dividend declared 30 April 2018

 

0.0345

 

0.0251

 

11 May 2018

 

25 May 2018

 

311,476

 

 

10,746

 

Cumulative dividends declared as at for the period ended 30 June 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$16,522

 

                               

 

Note 9 - Acquisitions

 

The assets acquired in all acquisitions include the necessary permits, rights to production, royalties, contracts and agreements that support the production from the wells. The Company accounts for business acquisitions under IFRS 3. The acquisitions gave rise to bargain purchases due to the prevailing market conditions in the Appalachian Basin, the context of global oil and gas prices, the financial condition of the sellers, and a change in the operational focus of the sellers compelling these sellers to divest of their conventional oil and gas assets.

 

1H 2018 Acquisitions

 

In February 2018, DGO placed 166,400 new ordinary shares at $1.13 per share with certain existing and new institutional investors to raise net proceeds of $180,000 to fund the following acquisitions (see Note 14 for more information on share issuances):

 

Acquisition of the stock of Alliance Petroleum Corporation

 

In March 2018, DGO acquired the entire share capital of Alliance Petroleum Corporation, including approximately 13,000 conventional natural gas and oil wells in the states of Pennsylvania, West Virginia and Ohio and all other property and equipment. The Company paid consideration of $80,743, excluding customary purchase price adjustments. The Company funded the cash consideration for the purchase with the $180,000 net proceeds from its equity placing of DGO's stock in February 2018.

 

Management determined the fair value of the reserves held in the assets acquired to be $129,125. The provisional estimated fair values of the assets and liabilities assumed were as follows:

 

(Amounts reported in thousands)

 

Total cash consideration

 

$

80,743

 

Less cash received

 

(8,638

)

Cash consideration, net of cash received

 

$72,105

 

 

 

 

Net Assets Acquired:

 

 

Current assets

 

$14,645

 

Oil and gas properties, net

 

129,125

 

Property and equipment, net

 

2,444

 

Other assets

 

2,133

 

Current liabilities

 

(7,576

)

Deferred tax liability

 

(19,852

)

Uncertain tax position

 

(2,133

)

Debt

 

(25,000

)

Other liabilities

 

(119

)

Decommissioning liability

 

(20,153

)

 

 

73,514

 

 

 

 

Gain on bargain purchase

 

(1,409

)

 

 

72,105

 

 

 

 

 

 (a) At the date of acquisition DGO determined the Alliance Petroleum Corporation had taken uncertain tax positions, and as a result, an indemnification agreement was executed. DGO recorded an indemnification receivable in the amount of $2,133. In accordance with IFRS 3, DGO assigned acquisition date fair value to the indemnification asset using the same valuation techniques used to determine the acquisition date fair value of the related liability.

 

(b) On the date of acquisition DGO repaid the debt in full using proceeds from the February 2018 equity placing.

 

Acquisition of assets from CNX Resources LLC

 

In March 2018, DGO acquired approximately 11,000 conventional natural gas and oil wells principally in the states of Pennsylvania and West Virginia and other equipment from CNX Resources LLC ("CNX"). The Company paid purchase consideration of $89,296, excluding customary purchase price adjustments. The Company funded the cash consideration for the purchase with the $180,000 net proceeds from its equity placing of DGO's stock in February 2018. Subsequent to the purchase of these assets, CNX agreed to retain a monthly tariff obligation applicable to the Appalachian assets that requires monthly cash payments to a pipeline transmission company through a portion of calendar year 2022. Tariff payments from the effective date of the purchase through their expiration in 2022 totaled $27,000. In exchange for CNX retaining this $27,000 pipeline tariff obligation, the Company paid CNX $17,000. This one-time payment allows DGO to retain complete and uninterrupted access to the applicable pipeline system and eliminates the $27,000 tariffs the Company would have paid over the remaining term.

 

Management determined the fair value of the reserves held in the assets acquired to be $130,500. The provisional estimated fair values of the assets and liabilities assumed were as follows:

 

(Amounts reported in thousands)

 

Oil and gas properties

 

$

130,500

 

Oil and gas properties (Decommissioning provision, asset portion)

 

14,332

 

Other PPE

 

 

Decommissioning liability

 

(14,332

)

Other liabilities

 

(4,790

)

Gain on bargain purchase

 

(36,414

)

     Purchase price

 

$

89,296

 

 

2017 Acquisitions (Restated)

 

EnerVest Acquisition

 

In April 2017, DGO acquired approximately 1,300 conventional natural gas and oil wells in Ohio and equipment from EnerVest. The Company paid in cash the consideration totaling $1,750. Management considered the fair value of the reserves held in the assets acquired to be $8,500. The fair values of the assets and liabilities assumed were as follows:

 

(Amounts reported in thousands)

 

Oil and gas properties

 

$

8,500

 

Oil and gas properties (Decommissioning provision, asset portion)

 

2,406

 

Decommissioning liability

 

(2,406

)

Gain on bargain purchase

 

(6,750

)

     Purchase price

 

$

1,750

 

 

Titan Energy Acquisition

 

In June 2017, DGO acquired approximately 8,380 producing conventional natural gas and oil wells in the states of Pennsylvania, Ohio, and Tennessee (including approximately 1,140 non-operated wells) and equipment from Titan Energy. The Company paid total consideration of $84,200, excluding customary purchase price adjustments. The cash consideration for the purchase was funded by a new $110,000 Senior Secured Loan Facility, of which, $64,000 was drawn at closing on 30 June 2017, and an equity placing of DGO's stock. DGO placed 39,300 new ordinary shares at $0.89 per share with certain existing and new institutional investors to raise $35,020. The equity placing occurred in two tranches of 11,400 shares which raised $10,158 and 27,900 shares were placed with the second tranche, which raised $24,862.

 

Management determined the fair value of the reserves held in the assets acquired on 30 June 2017 to be $108,011. The fair values of the assets and liabilities assumed were as follows:

 

(Amounts reported in thousands)

 

Oil and gas properties

 

$

108,011

 

Oil and gas properties (Decommissioning provision, asset portion)

 

16,366

 

Other PPE

 

1,752

 

Decommissioning liability

 

(16,366

)

Other liabilities

 

(2,279

)

Gain on bargain purchase

 

(30,141

)

Purchase price

 

$

77,343

 

 

 

NGO Acquisition

 

In November 2017, DGO acquired approximately 550 wells in Central Ohio from NGO Development Corporation, Inc. The Company paid cash consideration totaling $3,114. Management determined the fair value of the reserves held in the assets acquired to be $3,003. The provisional estimated fair values of the assets and liabilities assumed were as follows:

 

(Amounts reported in thousands)

 

Oil and gas properties

 

$

3,003

 

Oil and gas properties (Decommissioning provision, asset portion)

 

818

 

Other PPE

 

352

 

Decommissioning liability

 

(818

)

Other liabilities

 

(39

)

Gain on bargain purchase

 

(202

)

     Purchase price

 

$

3,114

 

 

Subsequent Events

 

In July 2018, DGO placed 195,330 new ordinary shares at $1.32 per share (97 pence) with certain existing and new institutional investors to raise net proceeds of $238,800 to partially fund the acquisition of approximately 11,250 conventional natural gas wells and a wholly-owned midstream gathering and compression system with approximately 6,400 miles of pipeline and 59 compressor stations in the states of Kentucky, West Virginia and Virginia and other equipment from EQT. The Company paid purchase consideration of $575,000, excluding customary purchase price adjustments.  The Company funded the cash consideration for the purchase with $238,800 from the net proceeds from its equity placing of stock in July 2018 and an initial draw of $336,200 from the new $1,000,000 debt facility as discussed in Note 16.  As at 30 June 2018 the Company has made a $57,500 deposit related to the acquisition, which is included in other non-current assets on the financial position.

 

Also in July, DGO purchased for $20,212 additional working interest in certain wells it already operated. These assets were previously held in seven limited partnerships with working interest ranges from 54% to 82% to which the Company served as the managing general partner. The Company funded the cash consideration for the purchase with a draw on its debt facility.

 

Note 10 - Other Liabilities

 

The following table includes a detail of other liabilities as at the periods presented:

 

(Amounts reported in thousands)

 

 

 

 

(Restated)

 

(Restated)

 

 

Unaudited

 

Unaudited

 

Audited

 

 

30 June 2018

 

30 June 2017

 

31 December 2017

Other non-current liabilities

 

 

 

 

 

 

   Customer deposits

 

$

-

 

 

$

55

 

 

$

52

 

   Revenue to be distributed

 

-

 

 

3,128

 

 

3,486

 

   Derivative financial instruments

 

5,971

 

 

1,855

 

 

1,943

 

Other

 

3,809

 

 

-

 

 

283

 

Total other non-current liabilities

 

$

9,780

 

 

$

5,038

 

 

$

5,764

 

 

 

 

 

 

 

 

Other current liabilities

 

 

 

 

 

 

   Accrued expenses

 

2,715

 

 

$

896

 

 

$

2,300

 

   Net revenue clearing

 

9,344

 

 

2,461

 

 

6,472

 

IPO related expenses

 

-

 

 

2,768

 

 

-

 

Acquisition related short term financing

 

-

 

 

3,500

 

 

-

 

   Derivative financial instruments

 

12,921

 

 

-

 

 

961

 

Other

 

9,046

 

 

1,213

 

 

2,784

 

Total other current liabilities

 

$

34,026

 

 

$

10,838

 

 

$

12,517

 

Note 11 - Oil and Gas Properties

 

The following table summarizes the Company's oil and gas properties for each of the periods presented:

 

(Amounts reported in thousands)

 

 

 

Costs

 

 

Depletion and Impairment

 

 

 

Period

 

Beginning Balance

 

Additions a

 

Disposals

 

Ending Balance

 

 

Beginning Balance

 

Period Charges

 

Disposals

 

Ending Balance

 

 

Net Book Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the six months to 30 June 2018

 

239,814

 

 

275,716

 

 

(19

)

 

515,511

 

 

 

(24,489

)

 

(7,492

)

 

-

 

 

(31,981

)

 

 

$

483,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the six months to 30 June 2017

 

94,608

 

 

127,135

 

 

(12

)

 

221,731

 

 

 

(17,815

)

 

(1,906

)

 

-

 

 

(19,721

)

 

 

202,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the year ended 31 December 2017

 

94,608

 

 

145,527

 

 

(321

)

 

239,814

 

 

 

(17,815

)

 

(6,674

)

 

-

 

 

(24,489

)

 

 

215,325

 

 

a)

 

See Note 9 for more information about the Company's acquisitions.

Note 12 - Property and Equipment

 

The following table summarizes the Company's property and equipment for each of the periods presented:

 

(Amounts reported in thousands)

 

 

Plant, Property & Equipment

 

 

Accumulated Depreciation and Disposals

 

 

 

Period

 

Beginning Balance

 

Additions a

 

Disposals

 

Ending Balance

 

 

Beginning Balance

 

Period Charges

 

Disposals

 

Ending Balance

 

 

Net Book Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the six months to 30 June 2018

 

$

9,676

 

 

8,608

 

 

(465

)

 

17,819

 

 

 

(2,729

)

 

(5,000

)

 

-

 

 

$

(7,729

)

 

 

$

10,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the six months to 30 June 2017 (Restated)

 

5,223

 

 

2,657

 

 

(5

)

 

7,875

 

 

 

(1,875

)

 

(336

)

 

4

 

 

(2,207

)

 

 

5,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the year ended 31 December 2017 (Restated)

 

5,223

 

 

4,595

 

 

(142

)

 

9,676

 

 

 

(1,875

)

 

(862

)

 

8

 

 

(2,729

)

 

 

6,947

 

 

a)

 

Of the $8,575 in 2018 additions, $4,317 relates to equipment purchased through acquisitions. See Note 9 for more information about the Company's acquisitions.

Note 13 - Derivatives

 

The following table summarizes the Company's calculated fair value of derivative financial instruments:

 

(Amounts reported in thousands)

 

 

 

 

 

 

 

 

 

Unaudited

 

Unaudited

 

Audited

(Liabilities)/Assets

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

Natural gas

 

 

 

 

 

 

Swaps

 

$

(1,020

)

 

$

(747

)

 

$

28

 

Collars

 

(2,288

)

 

(57

)

 

311

 

Basis swaps

 

(872

)

 

(568

)

 

(965

)

Put options

 

-

 

 

$

-

 

 

$

-

 

Total natural gas financial derivative contracts

 

$

(4,180

)

 

$

(1,372

)

 

$

(626

)

 

 

 

 

 

 

 

Oil

 

 

 

 

 

 

Swaps

 

$

(992

)

 

$

-

 

 

$

(56

)

Collars

 

(4,349

)

 

(254

)

 

(2,222

)

Basis swaps

 

-

 

 

-

 

 

-

 

Put options

 

-

 

 

$

-

 

 

$

-

 

Total oil financial derivative contracts

 

$

(5,341

)

 

$

(254

)

 

$

(2,278

)

 

 

 

 

 

 

 

Natural gas liquids

 

 

 

 

 

 

Swaps

 

$

(9,371

)

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

Total financial derivative contracts

 

$

(18,892

)

 

$

(1,626

)

 

$

(2,904

)

 

 

The Company reports derivative financial instrument assets and liabilities net in its balance sheet. The following table reconciles the Company's derivative financial instrument gross assets and gross liabilities for the periods presented:

 

(Amounts reported in thousands)

 

 

 

 

 

 

(Restated)

 

(Restated)

Derivative Financial

 

Statement of

 

Unaudited

 

Unaudited

 

Audited

Instruments

 

Financial Position line item

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

$

13,791

 

 

$

1,585

 

 

$

1,348

 

Current assets

 

 

 

1,646

 

 

2,012

 

 

955

 

     Total assets

 

 

 

$

15,437

 

 

$

3,597

 

 

$

2,303

 

 

 

 

 

 

 

 

 

 

Non-current liability

 

 

 

$

(19,762

)

 

$

(3,440

)

 

$

(3,291

)

Current liabilities

 

 

 

(14,567

)

 

(1,783

)

 

(1,916

)

     Total liabilities

 

 

 

$

(34,329

)

 

$

(5,223

)

 

$

(5,207

)

 

 

 

 

 

 

 

 

 

Net liabilities - non-current

 

Other non-current liabilities

 

$

(5,971

)

 

$

(1,855

)

 

$

(1,943

)

Net liabilities - current

 

Other current liabilities

 

(12,921

)

 

229

 

 

(961

)

     Net (liabilities)/assets

 

 

 

$

(18,892

)

 

$

(1,626

)

 

$

(2,904

)

 

The Company recorded the following gain (loss) on derivative financial instruments in the Interim Consolidated Statements of Profit or Loss and Other Comprehensive Income for the periods presented:

(Amounts reported in thousands)

 

 

 

 

(Restated)

 

(Restated)

 

 

Unaudited

 

Unaudited

 

Audited

 

 

Six months to

 

Six months to

 

Year ended

 

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

Net (loss) gain on settlements

 

$

(423

)

 

$

147

 

 

$

1,524

 

Net loss on fair value adjustments on unsettled financial instruments

 

(18,024

)

 

(687

)

 

(1,965

)

   Total loss on derivative financial instruments

 

$

(18,447

)

 

$

(540

)

 

$

(441

)

 

 

The Company's natural gas and oil derivative financial instruments outstanding at 30 June 2018 are listed below:

 

Financial

 

Remaining

 

Ending

 

Swap

 

Floor

 

Short Put

 

Ceiling

 

Mark-to-Market

Instrument Type

 

Volumes

 

Month

 

Price

 

Price

 

Price

 

Price

 

30 June 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts reported in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

3,450,000 MMBTUs

 

Dec-18

 

$

2.88

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

(242

)

Swap

 

6,000,000 MMBTUs

 

Dec-19

 

2.83

 

 

-

 

 

-

 

 

-

 

 

137

 

Swap

 

6,207,000 MMBTUs

 

Dec-20

 

2.81

 

 

-

 

 

-

 

 

-

 

 

776

 

Swap

 

2,970,000 MMBTUs

 

Mar-21

 

2.91

 

 

-

 

 

-

 

 

-

 

 

247

 

Swap

 

9,063,000 MMBTUs

 

Mar-19

 

2.35

 

 

-

 

 

-

 

 

-

 

 

(1,245

)

Swap

 

4,250,000 MMBTUs

 

Mar-20

 

2.72

 

 

-

 

 

-

 

 

-

 

 

(345

)

Swap

 

4,250,000 MMBTUs

 

Mar-20

 

2.72

 

 

-

 

 

-

 

 

-

 

 

(348

)

Two-Way Collar

 

3,660,000 MMBTUs

 

Mar-20

 

-

 

 

2.55

 

 

-

 

 

2.85

 

 

(251

)

Two-Way Collar

 

3,660,000 MMBTUs

 

Mar-20

 

-

 

 

2.55

 

 

-

 

 

2.79

 

 

(346

)

Two-Way Collar

 

3,650,000 MMBTUs

 

Mar-21

 

-

 

 

2.55

 

 

-

 

 

2.74

 

 

(67

)

Two-Way Collar

 

3,650,000 MMBTUs

 

Mar-21

 

-

 

 

2.55

 

 

-

 

 

2.74

 

 

(60

)

Two-Way Collar

 

3,660,000 MMBTUs

 

Mar-21

 

-

 

 

2.55

 

 

-

 

 

2.79

 

 

(346

)

Two-Way Collar

 

3,660,000 MMBTUs

 

Mar-20

 

-

 

 

2.55

 

 

-

 

 

2.79

 

 

(338

)

Two-Way Collar

 

3,650,000 MMBTUs

 

Mar-21

 

-

 

 

2.55

 

 

-

 

 

2.73

 

 

(67

)

Two-Way Collar

 

1,825,000 MMBTUs

 

Mar-21

 

-

 

 

2.55

 

 

-

 

 

2.76

 

 

(20

)

Two-Way Collar

 

1,825,000 MMBTUs

 

Mar-21

 

-

 

 

2.55

 

 

-

 

 

2.75

 

 

(23

)

Two-Way Collar

 

3,360,000 MMBTUs

 

Mar-20

 

-

 

 

2.60

 

 

-

 

 

2.76

 

 

(313

)

Two-Way Collar

 

3,360,000 MMBTUs

 

Mar-20

 

-

 

 

2.60

 

 

-

 

 

2.74

 

 

(343

)

Two-Way Collar

 

3,365,000 MMBTUs

 

Mar-21

 

-

 

 

2.55

 

 

-

 

 

2.76

 

 

(40

)

Two-Way Collar

 

3,365,000 MMBTUs

 

Mar-21

 

-

 

 

2.55

 

 

-

 

 

2.76

 

 

(40

)

Two-Way Collar

 

3,365,000 MMBTUs

 

Mar-21

 

-

 

 

2.55

 

 

-

 

 

2.76

 

 

(34

)

Basis Swap: Dominion SP

 

3,005,000 MMBTUs

 

Dec-18

 

0.58

 

 

-

 

 

-

 

 

-

 

 

(123

)

Basis Swap: Dominion SP

 

6,180,000 MMBTUs

 

Dec-19

 

0.58

 

 

-

 

 

-

 

 

-

 

 

(468

)

Basis Swap: Dominion SP

 

4,197,000 MMBTUs

 

Dec-20

 

0.59

 

 

-

 

 

-

 

 

-

 

 

(272

)

Basis Swap: Dominion SP

 

1,770.000 MMBTUs

 

Mar-20

 

0.48

 

 

-

 

 

-

 

 

-

 

 

44

 

Basis Swap: TCO

 

320,000 MMBTUs

 

Oct-18

 

0.35

 

 

-

 

 

-

 

 

-

 

 

(46

)

Basis Swap: TCO

 

183,000 MMBTUs

 

Dec-18

 

0.35

 

 

-

 

 

-

 

 

-

 

 

(25

)

Basis Swap: TCO

 

1,160,000 MMBTUs

 

Dec-19

 

0.39

 

 

-

 

 

-

 

 

-

 

 

(44

)

Basis Swap: TCO

 

1,029,000 MMBTUs

 

Dec-20

 

0.40

 

 

-

 

 

-

 

 

-

 

 

45

 

Basis Swap: Tetco

 

810,000 MMBTUs

 

Mar-21

 

0.46

 

 

-

 

 

-

 

 

-

 

 

20

 

Basis Swap: Dominion SP

 

117,000 MMBTUs

 

Dec-18

 

0.58

 

 

-

 

 

-

 

 

-

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Amounts reported in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

33,000 BBLs

 

Mar-21

 

50.78

 

 

-

 

 

-

 

 

-

 

 

(252

)

Swap

 

15,000 MMBTUs

 

Dec-18

 

54.1

 

 

-

 

 

-

 

 

-

 

 

(247

)

Swap

 

72,000 MMBTUs

 

Dec-19

 

58.55

 

 

-

 

 

-

 

 

-

 

 

(493

)

Two-Way Collar

 

74,000 MMBTUs

 

Dec-18

 

-

 

 

41.50

 

 

-

 

 

51.45

 

 

(1,413

)

Two-Way Collar

 

146,000 MMBTUs

 

Dec-19

 

-

 

 

43.50

 

 

-

 

 

52.40

 

 

(2,046

)

Two-Way Collar

 

6,000 MMBTUs

 

Feb-19

 

-

 

 

40.00

 

 

-

 

 

56.05

 

 

(70

)

Two-Way Collar

 

33,000 MMBTUs

 

Dec-20

 

-

 

 

42.5

 

 

-

 

 

57.40

 

 

(226

)

Two-Way Collar

 

36,000 MMBTUs

 

Dec-20

 

-

 

 

45

 

 

-

 

 

64

 

 

(145

)

Two-Way Collar

 

108,000 MMBTUs

 

Sep-20

 

-

 

 

45

 

 

-

 

 

64.6

 

 

(435

)

Two-Way Collar

 

9,000 MMBTUs

 

Mar-21

 

-

 

 

50

 

 

-

 

 

63.45

 

 

(14

)

Natural Gas Liquids

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

7,130,000 MMBTUs

 

Jul-21

 

0.81

 

 

-

 

 

-

 

 

-

 

 

41

 

Swap

 

509,000 MMBTUs

 

Jul-21

 

0.81

 

 

-

 

 

-

 

 

-

 

 

(62

)

Swap

 

1,630,000 MMBTUs

 

Jul-21

 

0.81

 

 

-

 

 

-

 

 

-

 

 

(170

)

Swap

 

917,000 MMBTUs

 

Jul-21

 

0.81

 

 

-

 

 

-

 

 

-

 

 

(558

)

Swap

 

75,514,000 MMBTUs

 

Jul-20

 

0.81

 

 

-

 

 

-

 

 

-

 

 

246

 

Swap

 

5,394,000 MMBTUs

 

Jul-20

 

0.81

 

 

-

 

 

-

 

 

-

 

 

(668

)

Swap

 

17,260,000 MMBTUs

 

Jul-20

 

0.81

 

 

-

 

 

-

 

 

-

 

 

(1,891

)

Swap

 

9,709,000 MMBTUs

 

Jul-21

 

0.81

 

 

-

 

 

-

 

 

-

 

 

(6,309

)

Total derivative financial instruments

 

 

 

 

 

 

 

 

 

 

 

$

(18,892

)

 

 

Subsequent Event

 

No significant natural gas, natural gas liquid or oil derivative financial instruments have been executed subsequent to 30 June 2018.

 

Note 14 - Share Capital

 

In February 2018, DGO placed 166,400 new ordinary shares at $1.13 per share (80 pence) to raise gross proceeds of $188,775 (approximately £133,120). DGO used the proceeds to fund the Alliance Petroleum and CNX Resources acquisition discussed in Note 9. The following table summarizes the Company's share capital for the periods presented:

 

(Amounts reported in thousands)

 

 

 

 

 

Number of Shares

 

Total Share Capital

 

Total Share Premium

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2018

 

 

 

 

145,076

 

 

$

1,940

 

 

$

76,026

 

 

 

 

 

 

 

 

 

 

 

Issuance of share capital, secondary offering

 

 

 

 

166,400

 

 

2,359

 

 

$

178,301

 

Balance at 30 June 2018

 

 

 

 

311,476

 

 

$

4,299

 

 

$

254,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Total Share Capital

 

Total Share Premium

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2017

 

 

 

 

44,210

 

 

$

669

 

 

$

313

 

 

 

 

 

 

 

 

 

 

 

Issuance of share capital, initial offering

 

 

 

 

61,381

 

 

768

 

 

43,550

 

Issuance of share capital, secondary offering

 

 

 

 

39,485

 

 

503

 

 

32,152

 

Balance at 30 June 2017 (Restated)

 

 

 

 

145,076

 

 

$

1,940

 

 

$

76,015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Total Share Capital

 

Total Share Premium

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2017

 

 

 

 

44,210

 

 

$

669

 

 

$

313

 

 

 

 

 

 

 

 

 

 

 

Issuance of share capital, initial offering

 

 

 

 

61,381

 

 

768

 

 

43,550

 

Issuance of share capital, secondary offering

 

 

 

 

39,485

 

 

503

 

 

32,163

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2017 (Restated)

 

 

 

 

145,076

 

 

$

1,940

 

 

$

76,026

 

 

 

 

Subsequent Event

 

In July 2018, DGO placed 195,330 new ordinary shares at $1.32 per share (97 pence) with certain existing and new institutional investors to raise net proceeds of $238,800 to partially fund the acquisition of assets from EQT as discussed in Note 9.

 

Note 15 - Decommissioning Liability

 

The Company records a liability for future cost of decommissioning production facilities and pipelines. The decommissioning liability represents the present value of decommissioning costs relating to oil and gas properties, which the Company expects to incur over the long producing life of its wells, presently estimated through to 2048 when the Company expects its producing oil and gas properties to reach the end of their economic lives.

 

As discussed more fully in Note 2, these liabilities represent the Directors' best estimates of the future obligation. Directors' assumptions are based on the current economic environment, and represent what they believe is a reasonable basis upon which to estimate the future liability. The Directors review these estimates regularly and adjust for any identified material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future market prices at the time the decommissioning services are performed. Furthermore, the timing of decommissioning will vary depending on when the fields ceases to produce economically, which makes the determination dependent upon future oil and gas prices, which are inherently uncertain.

 

The discount rate and the cost inflation rate used in the calculation of the decommissioning liability were 8.0% and 3.0%, respectively as at each of the periods presented. The table below summarizes the activity for the Company's decommissioning liability:

 

(Amounts reported in thousands)

 

 

 

 

(Restated)

 

(Restated)

 

 

Unaudited

 

Unaudited

 

Audited

 

 

Six months to

 

Six months to

 

Year ended

 

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

Balance at 1 January

 

$

35,448

 

 

$

12,265

 

 

$

12,265

 

Additions a

 

34,784

 

 

18,780

 

 

21,497

 

Accretion a

 

 

2,158

 

 

585

 

 

1,764

 

Disposals

 

-

 

 

-

 

 

(78

)

Balance at 30 June

 

$

72,390

 

 

$

31,630

 

 

$

35,448

 

 

a)

 

See Note 9 for more information about the Company's acquisitions.

 

Note 16 - Borrowings

 

DGO's borrowings consist of the following amounts for the periods presented:

 

(Amounts reported in thousands)

 

 

 

 

(Restated)

 

(Restated)

 

 

Unaudited

 

Unaudited

 

Audited

 

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

Financial institution, with interest rate of 2.25% plus LIBOR, maturing March 14, 2023, secured by oil and gas properties

 

$

145,600

 

 

$

-

 

 

$

-

 

Financial institution, interest rate of 8.25% plus LIBOR, secured by oil and gas properties (a)

 

-

 

 

64,000

 

 

73,249

 

Individuals and institutional investor bonds, interest rate of 8.50%, maturing June 2020, unsecured

 

89

 

 

118

 

 

81

 

Miscellaneous notes, primarily for equipment, real estate and operational cash flow

 

301

 

 

497

 

 

495

 

     Total borrowings

 

$

145,990

 

 

$

64,615

 

 

$

73,825

 

 

 

 

 

 

 

 

Less current portion of long-term debt

 

(107

)

 

(305

)

 

(373

)

Less deferred financing costs (b)

 

(6,195

)

 

(2,994

)

 

(2,833

)

     Total non-current borrowings, net

 

$

139,688

 

 

$

61,316

 

 

$

70,619

 

 

In March 2018, the Company closed a new $500,000 five-year senior secured revolving credit facility, initially subject to a borrowing limit of $140,000.  Following the closing of the acquisition of certain assets of CNX Resources LLC in March 2018, as discussed in Note 9, the borrowing limit increased to $200,000. The facility has an initial interest rate of 2.50% plus LIBOR and is subject to a grid that fluctuates based upon utilisation with a pricing of 2.25% - 3.25% plus LIBOR.

 

a)     In June 2017 the Company closed a new $110,000 senior secured credit facility, of which, $64,000 was drawn at closing on 30 June 2017. On 30 September 2017, an additional $11,000 was drawn to close on the remaining purchase of oil and gas assets discussed in Note 9.

 

b)     Deferred financing costs outstanding at 30 June 2018 were incurred with the financing of the senior secured term loan.

 

The following table provides a reconciliation of DGO's future maturities of its total borrowings for each of the periods presented:

 

(Amounts reported in thousands)

 

 

30 June 2018

 

30 June 2017

 

31 December 2017

 

 

 

 

 

 

 

Not later than one year

 

$

107

 

 

$

305

 

 

$

373

 

Later than one year and not later than five years

 

145,883

 

 

64,310

 

 

73,452

 

Later than five years

 

-

 

 

-

 

 

-

 

     Total borrowings

 

$

145,990

 

 

$

64,615

 

 

$

73,825

 

 

Reconciliation of borrowings arising from financing activities:

 

(Amounts reported in thousands)

 

 

31 December 2017

 

Net Cash Flows

 

30 June 2018

 

 

 

 

 

 

 

Total borrowings

 

$

73,825

 

 

$

(72,165

)

 

$

145,990

 

                         

 

Gain/Loss on Debt Extinguishment

 

As discussed above, when DGO entered into the new senior secured revolving credit facility in March 2018 it resulted in a non-recurring loss on the early extinguishment of debt of $8,359, which primarily included a $2,583 charge for the accelerated amortization of the remaining deferred financing costs and $5,776  related to an early payment fee.

 

Subsequent Event

 

In July 2018, the Company arranged an amended five year, senior secured credit facility up to $1,000,000 with an initial availability of $600,000 to fund the EQT acquisition as discussed in Note 9, to pay related costs and to refinance indebtedness under the existing credit facility.

 

Note 17 - Subsequent Events

 

The Directors determined the need to disclose the following material transactions that occurred subsequent to 30 June 2018, which have been described within each relevant footnote as follows:

Description

 

Footnote

 

 

 

Acquisitions

 

Note 9

Share Capital

 

Note 14

Borrowings

 

Note 16

 

 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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