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Edison Investment Research Limited London, UK, 1 October 2018 Edison issues initiation on Diversified Gas & Oil (DGOC) Diversified Gas & Oil (AIM:DGOC) has grown exponentially since listing on AIM in February 2017. The company's acquisition-led strategy has enabled it to amass over 6.5m net acres in the US Appalachian Basin, taking net production to 32.5kboed in FY18, underpinned by a 1P PDP 393mmboe net reserve base. We see potential for further inorganic growth, diligent management of existing well stock and infill drilling in the event of a gas price recovery to provide a platform for further growth. DGO trades below our base case valuation of 138.1p per share, which excludes asset consolidation and the infill drilling option value. A 2019 6.6% dividend yield supports the current share price and investment risk/reward is skewed to the upside given the potential for further value accretive M&A. Key sensitivities include gas price realisations and cash operating costs. We provide a base valuation of DGO at 138.1p/share based on a long-term Henry Hub price of $3.10/mcf (2022). We see potential downside to 100.4p/share based on a 15% decrease in gas pricing and equivalent increase in costs. Risk/reward remains skewed to the upside with a valuation of 176.2p/share based on a 15% increase in gas price, and materially higher on inclusion of option value for further M&A and infill. It is not possible to quantify this option value without further data; however, we attempt to qualify prospective value in this note. All reports published by Edison are available to download free of charge from its website About Edison: Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the . Edison is not an adviser or broker-dealer and does not provide investment advice. Edison's reports are not solicitations to buy or sell any securities. For more information please contact Edison: Sanjeev Bahl, +44 (0)20 3077 5742 Learn more at and connect with Edison on:
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