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Acquisition a solid demonstration of deal-driven model

New AIM oil and gas outfit Diversified Gas & Oil (DGOC:AIM) is wasting no time executing on its buy-and-build strategy onshore the US.

A mere three weeks since joining the UK junior stock market, the company has announced (24 Feb) the $1.75m acquisition of mature conventional wells in the Appalachian basin.

Although modest in financial terms, the deal lifts output by 15% to 5,600 barrels of oil equivalent per day. It further underlines the credibility of the company’s approach which involves buying conventional assets from larger shale-focused peers at an attractive price.

The company says the asset will pay for itself through operating cash flow in less than two years. The deal will be funded from internal resources, with the company sitting on $7m of net cash post its IPO (initial public offering).

The additional cash flow helps underpin Mirabaud’s dividend expectations which imply a prospective yield of 5.6%. Investors should expect further deals from Diversified Gas & Oil through the course of 2017.

We feel the market will like this story and continuing M&A should help support a rising share price. Mirabaud has a price target of 105p versus a 63.25p trading price at the time of writing.

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