Alabama-based Diversified Gas & Oil plc has agreed to purchase a package of unconventional natural gas wells in Pennsylvania and West Virginia from HG Energy II Appalachia LLC for $400 million.

The deal includes 107 producing shale wells, along with another three unconventional nonproducing wells that Diversified said it intends to bring back online. The wells produced about 21,000 boe/d last year, all natural gas, Diversified said. The transaction would boost the company’s overall production to 90,000 boe/d. 

Over the last two years, since Diversified went public on the London Stock Exchange’s AIM market for small growing companies, it has completed seven acquisitions throughout the Appalachian Basin. The company has spent about $1 billion, cutting deals for conventional assets with low operating costs that it claims generate steady returns.

Diversified operates 60,000 wells across millions of acres in Kentucky, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia. Nearly all of its portfolio is legacy assets, but the shale wells being acquired from privately owned HG Energy are “synergistically compatible” with Diversified’s business and geography, CEO Rusty Hutson said.

“This package comprises significantly higher volumes per well than our previous acquisitions and achieve higher realized gas prices, resulting in a positive impact for the overall economics of the enlarged portfolio as we continue to reduce operating costs and drive higher margins,” Hutson said.

In an interview with NGI’s Shale Daily late last year, Hutson said Diversified would be likely to increasingly target older unconventional wells as they become less desirable to certain operators, noting that they too would fit nicely into the company’s strategy.

Although Diversified said in its announcement the HG Energy wells are relatively mature and beyond “the high decline initial phase of production,” they still produce significant volumes of gas. “Accordingly, the addition of the HG Energy assets will spread the fixed cost base of the company over an increased production base, driving down operating costs per boe,” the company said.

Diversified said it would fund the transaction with an equity offering and debt.

West Virginia-based HG Energy is a portfolio company of the private equity firm Quantum Energy Partners, which is active throughout the basin. The company’s last major publicly announced transaction came two years ago when it spent more than $1 billion to acquire 385,000 net acres from Noble Energy Inc. in the Marcellus Shale of West Virginia and Pennsylvania.