The head of Diversified Gas & Oil, one of the fastest-growing UK-listed energy companies, has said the company is looking for further acquisitions as it prepares to step up to the main London market.
Rusty Hutson, who co-founded the US-based gas producer that listed in London in 2017, said the sharp downturn in the sector played directly to the company’s expansion strategy, which will lead to it becoming the largest independent producer by volume when it is expected to join the FTSE 250 this year.
“All of this mess in the market has created a major opportunity for us, as people are having to sell assets they may not normally want to,” Mr Hutson told the Financial Times.
“We’ve seen some bankruptcies and we’re going to see a lot more. Buying assets has always been a better deal for us.”
The company has grown rapidly since listing on the Alternative Investment Market (Aim) almost three years ago, with production growing from about 4,000 barrels of oil equivalent a day to nearly 112,000 boepd, primarily through acquisitions. It will begin trading on the premium segment of the main market on Monday.
DGO’s strategy is to buy up small existing gas wells, primarily in the Appalachian area of the mid-Atlantic seaboard, then attempt to drive cost savings and economies of scale rather than doing its own exploration and production.
Mr Hutson, a former banker from a family of oil producers, said this allowed the company to focus on steady cash flows and dividends rather than chasing their own production growth.
He has sought to position DGO as an alternative to companies in the US shale sector, which have often been accused of prioritising production growth over shareholder returns.
“We’ve never been a drill bit company,” Mr Hutson said. “So many E&P companies had forgotten that if you take someone’s money you better give them something for it.”
DGO’s market capitalisation has increased since 2017 to about £650m. Last week it signed two new deals, to be financed by an equity raise and debt. Its dividend yield is close to 12 per cent.
“Its dividend is reliable,” said Gervais Williams of Premier Miton Investors, which holds a stake in the company.
“It’s proven even more reliable than Royal Dutch Shell,” he said, referring to the European energy major that recently cut its dividend for the first time since the second world war, after oil prices more than halved between January and April.
DGO is expected to be admitted to the FTSE 250 in September. Its market capitalisation has grown above other UK-listed independents such as Tullow Oil and Premier Oil, which have been hard hit by the crash in oil prices caused by coronavirus.
Mr Hutson said he was confident that focusing on gas over oil would pay off because of its lower carbon footprint at a time when environmental, social and governance (ESG) investing is on the rise, and as a contraction in US oil production leads to lower associated gas output.
“Shale companies have been outspending their cash flow and they’d created a major oversupply position, even before the coronavirus pandemic,” said Mr Hutson. “In many ways they’ve been their own worst enemy for a while.”
“If we’re going to go out and raise cash from investors then the one thing we’re going to make sure we do is get them a return.”
