Kentucky Agreement

RNS Number : 4149Q

Diversified Gas & Oil PLC

19 February 2019

 

19 February 2019

DIVERSIFIED GAS & OIL PLC

("DGO" or the "Company")

DGO completes five-year agreement with
Kentucky Department for Natural Resources, Division of Oil and Gas

Diversified Gas & Oil PLC (AIM: DGOC), the U.S. based owner and operator of natural gas, natural gas liquids, and oil producing assets, is pleased to announce that it has entered into a five-year, definitive agreement with the Kentucky Department for Natural Resources, Division of Oil and Gas setting out the Company's well asset retirement obligations in Kentucky (the "Agreement").  

Following the acquisition of Core Appalachia Holding Co LLC announced on 11 October 2018, the Company owns and operates approximately 60,000 gas and oil wells throughout the Appalachian region, of which approximately 7,500 wells are located in the Commonwealth of Kentucky.

Key terms of the Agreement include:

·     DGO will complete an assessment of the Company's gas and oil wells in Kentucky by 30 June 2019, with primary analysis of non-producing wells across the state. 

·     DGO will plug 25 non-producing gas and oil wells by 31 December 2019 and a minimum of 20 non-productive gas and oil wells per annum for the calendar years 2020-2023.

·     During calendar years ended 31 December 2020 to 31 December 2023, DGO will plug or return to production at least 50 gas and oil wells per annum, of which up to 30 wells per annum can be previously non-productive wells that DGO places back into production.

·     If in any calendar year, DGO returns more than the required number of wells to production, DGO may carry that activity forward into future periods.

·     No later than 30 days following the date of the Agreement, DGO will post a $1.5 million bond to the benefit of the Commonwealth of Kentucky, which the state will release following DGO's fulfillment of the Agreement's terms. 

Commenting on the Agreement, Chief Executive, Rusty Hutson said: "This is another positive agreement that underlines our commitment to responsibly managing the wells within the states in which we operate.  The Agreement provides clear visibility for both the Commonwealth of Kentucky and the Company on asset retirement activities across our operated wells in the Commonwealth, and we sincerely thank the regulators for their pragmatic approach during these discussions. We intend to continue our commitment to bringing wells back into sustainable production whilst responsibly and safely plugging wells as appropriate. We continue to move towards our objective of having the wells in our main states of operation covered by long-term agreements with the state regulators."

Asset Retirement Activities Update

DGO remains committed to being a good steward of the environment within the states in which it operates as reflected in this Agreement and in the previously signed multi-year agreements for plugging of non-producing wells in the states of Ohio and West Virginia.  Collectively, these agreements cover approximately 60% of the Company's operated wells. In addition, DGO is in the final stages of completing a long-term agreement with the state of Pennsylvania.

As announced previously, DGO recognizes that the cost of plugging activities can vary over time with variables such as the type and total depth of a well among those that can affect its cost to retire. In turn, DGO is actively developing its plugging programmes to manage the work in a timely and cost-effective manner while ensuring it and its third-party contractors perform quality work. The average well depth of DGO's current portfolio of ~60,000 wells is approximately 4,200 feet, and is made up of over 99% conventional assets.

DGO budgets annually for the number of wells it expects to plug and continues to improve cost and operational efficiencies as the Company builds a growing body of asset retirement work. Similar to the efficiencies and cost synergies it realizes within its upstream operations, DGO expects further value realisations overtime within its plugging programmes.

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 & Finance Director Eric Williams, Chief Financial Officer www.dgoc.com [e-mail]	+ 1 [phone]
Cenkos Securities plc (Nominated Adviser) Russell Cook Katy Birkin Ben Jeynes	[phone]
Mirabaud Securities Limited (Joint Broker) Peter Krens Edward Haig-Thomas	[phone]
Stifel Nicolaus Europe Limited (Joint Broker) Callum Stewart Nicholas Rhodes Ashton Clanfield	[phone]
Buchanan (Financial Public Relations) Ben Romney Chris Judd Henry Wilson [e-mail]	[phone]

 

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