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In a daring move amidst volatile market conditions, U.S. oil producer Diversified Energy has announced its intention to acquire natural gas assets worth a staggering $410 million from investment heavyweight Oaktree Capital. This strategic move, unveiled on Tuesday, includes provisions for hedging, providing a safety net against potential dips in gas prices.

Diversified Energy $410m gas acquisition : Sealing the Deal

Diversified Energy Co. PLC, a prominent player listed on both the London Stock Exchange and the New York Stock Exchange, revealed that it has inked a conditional agreement with Oaktree Capital Management LP. The deal is set to encompass natural gas wells located in the central region of the United States, marking a significant expansion for Diversified Energy.

Legal guidance for Diversified Energy was provided by Latham & Watkins LLP, though specific counsel information for Oaktree remains undisclosed at the time of reporting.

Understanding the Terms

The hefty $410 million price tag includes a blend of financial instruments. Among these are $120 million in debt and $70 million worth of hedging contracts. Notably, the hedging agreements are poised to shield Diversified Energy from the recent turbulence in gas markets, offering a buffer against price fluctuations.

According to Rusty Hutson Jr., the chief executive of Diversified Energy, the move underscores the company's readiness to navigate the evolving market dynamics. "The gas market is sending a clear signal today: there is too much supply in the marketplace," Hutson emphasized. "We believe Diversified is one of the best-positioned operators to take advantage of this lower commodity price marketplace. We are highly hedged in 2024."

Further enriching the deal is an additional $90 million allocated for deferred cash payments to Oaktree. Diversified Energy has outlined plans to finance the acquisition through a combination of cash reserves and potential divestment of non-core assets or the issuance of new shares.

Navigating Regulatory Waters

As per the U.K.'s listing rules, this acquisition constitutes a Class 1 transaction for Diversified Energy. Consequently, the deal's finalization hinges on securing approval from 75% of the company's shareholders at an impending general meeting. Such transactions are triggered when a premium listed company acquires assets exceeding 25% of its own value.

Although specifics regarding the date of the general meeting remain undisclosed, Diversified Energy is pushing forward with confidence. Regulatory hurdles also stand in the way, with the deal awaiting clearance from relevant authorities. Anticipating a green light, both parties expect the transaction to conclude by December.

Diversified Energy $410m gas acquisition : Market Response

The announcement has triggered ripples in the market, evident in the trading activity of Diversified Energy's shares. Despite a midday downturn on Tuesday, with shares trading at 837 pence, down 9.37% from Monday's closing figure of 923.50 pence, investor sentiment remains buoyant.