PDP Asset-Backed Securitization for Acquisitions

Acquisition finance does not always need to be structured as a conventional corporate term loan.

Where the target owns a large portfolio of producing oil and gas assets with identifiable reserves, mature production histories and recurring commodity cash flow, the assets themselves can support a structured debt solution.

Diversified Energy provided a significant example on September 2, 2026 when it announced an agreement to acquire Birch Permian Holdings and affiliated companies for approximately $1.8 billion.

Rather than funding the purchase primarily through ordinary corporate acquisition debt, Diversified expects approximately $1.5 billion of the transaction financing to come from a privately rated asset-backed securitization originated and structured through Carlyle's Asset-Backed Finance and Capital Markets teams.

The securitization will be supported by the acquired proved developed producing, or PDP, assets. Existing liquidity under Diversified's revolving credit facility and other customary financing sources are expected to provide additional transaction funding.

What Is PDP Asset-Backed Securitization?

PDP asset-backed securitization converts cash flow from proved developed producing oil and gas assets into collateral for institutional debt.

Proved developed producing reserves are reserves expected to be recovered from wells that have already been drilled, completed and placed into production.

That distinction is fundamental to the credit.

The financing is not primarily dependent on capital being deployed successfully into an unproven drilling program. The lender or note investor is underwriting an existing portfolio of producing wells with observable production, decline rates, operating costs and historical cash flow.

These characteristics can make mature PDP portfolios suitable for asset-backed financing where production proceeds are captured into a controlled structure and used to service secured debt.

Why Use ABS to Finance an Acquisition?

A conventional acquisition loan underwrites the borrower and target through their consolidated cash flow, leverage, asset base and enterprise value.

An asset-backed securitization can move the financing analysis closer to the acquired assets themselves.

For Diversified, the underlying Birch portfolio includes approximately 480 net wells producing around 68,000 barrels of oil equivalent per day. The assets are expected to contribute approximately $548 million of annualized Adjusted EBITDA.

The portfolio also contains substantial gathering, processing and water infrastructure. Diversified reports approximately 60 miles of gathering pipeline, 12 primary central production facilities, nine well gathering facilities and five water disposal facilities.

That creates an identifiable operating asset pool around which a financing can be structured rather than asking debt investors to lend solely against Diversified's general corporate credit.

The Headline ABS Covers Most of the Purchase Price

Diversified expects to fund approximately $1.5 billion of a roughly $1.8 billion gross purchase price through the privately rated ABS.

At headline values, that securitization amount equals approximately 83% of the announced gross acquisition price.

That should not be interpreted as a final 83% loan-to-value ratio. The net purchase consideration will reflect customary adjustments and effective-date cash flows, and Diversified has said other financing sources will also form part of the overall transaction.

The important structuring point is that the securitization is expected to provide the dominant acquisition financing layer.

The Acquisition Price Is Supported by Producing Asset Value

Asset-backed acquisition lenders need to know what sits underneath the purchase price.

Diversified reports approximately $2.0 billion of PDP PV-10 for the Birch reserves. The purchase price is described as approximately PV-14 of the PDP reserves and about 3.3 times expected annualized Adjusted EBITDA.

These valuation metrics give structured-credit investors several reference points.

They can evaluate:

• purchase price relative to reserve value;
• debt relative to reserve value;
• purchase multiple relative to cash flow;
• production decline assumptions;
• commodity-price sensitivity;
• operating-cost assumptions; and
• expected cash available for debt service.

Why PDP Is Easier to Finance Than Undeveloped Reserves

Proven reserves are not all economically equivalent from a lender's perspective.

A producing well already generates observable volumes. Historical decline can be measured. Operating expenses are known with greater precision. Commodity realizations can be reconciled against actual sales.

Undeveloped reserves require future drilling capital before they begin generating cash.

That introduces additional risks around drilling cost, completion performance, infrastructure, timing and geological execution.

A securitization built around PDP reserves therefore starts with operating assets rather than relying heavily on future development assumptions.

Commodity Hedging Can Stabilize the Securitized Cash Flow

Producing reserves create recurring volumes, but commodity prices remain volatile.

That price exposure matters directly to debt investors.

A field producing the same quantity of natural gas can generate substantially different debt-service cash flow at $2.50/MMBtu and $4.00/MMBtu.

PDP financing structures therefore commonly rely on commodity hedging to establish greater cash-flow visibility over at least part of the debt period.

Diversified's published transaction metrics are calculated using strip pricing and include hedges in the company's Adjusted EBITDA assumptions. Final ABS hedging requirements have not been publicly disclosed, but commodity-price protection is a central issue in any producing-asset securitization.

A Producing-Asset ABS Needs a Cash Waterfall

Asset-backed debt works because cash generated by the collateral follows a defined payment structure.

Final terms of the Birch securitization have not yet been disclosed. In a typical producing-asset financing, however, transaction documents can establish controlled accounts and a payment waterfall governing how production revenue is allocated.

The waterfall may address:

• royalties and production taxes;
• lease operating expenditure;
• gathering and transportation costs;
• required operating reserves;
• hedging settlements;
• interest;
• scheduled principal;
• debt-service reserve requirements;
• cash sweeps; and
• permitted distributions to equity.

The purpose is to ensure that collateral cash flow reaches debt service before unrestricted distributions leave the financing structure.

What Does Privately Rated ABS Mean?

Diversified describes the proposed approximately $1.5 billion issuance as a privately rated asset-backed securitization.

A private rating can be obtained for securities sold to institutional investors without the rating necessarily being published broadly in the same way as a public capital-markets issue.

The rating process can still require detailed analysis of collateral quality, expected cash flow, stress scenarios, legal isolation, hedging, structural protections and debt-service coverage.

The final ratings, tranching, coupons, amortization and investor allocation for the Birch financing have not yet been publicly announced.

Why Securitization Can Compete With Private Credit

Private credit could also finance an asset-heavy acquisition.

A direct lender might provide a senior secured acquisition facility, unitranche loan or other privately negotiated structure against the target's assets and cash flow.

Securitization creates another route by transforming a pool of contractual or asset-generated cash flows into notes placed with institutional investors.

Financely's private credit placement work covers senior, unitranche, mezzanine and preferred-capital structures where securitization is unavailable, unnecessary or unsuitable for the transaction.

ABS and Reserve-Based Lending Solve Different Problems

Reserve-based lending is already widely used to finance upstream producers.

Under an RBL, banks calculate a borrowing base against eligible reserves and periodically redetermine the amount of credit available.

The borrower usually receives revolving liquidity that can support acquisitions, development or general upstream working capital.

A securitization is generally more term-oriented. Defined cash flows are structured to support issued notes with contractual amortization and investor protections.

Financely's production-linked financing work includes reserve-based lending, prepayment finance, pre-export finance and other structures where reserves, future production or contracted commodity proceeds support debt repayment.

The Revolving Facility Still Matters at Closing

Large acquisitions rarely close with a single financing instrument operating in isolation.

Diversified has said the approximately $1.5 billion ABS will be supplemented with customary financing sources, including existing liquidity under its revolving credit facility.

This illustrates an important acquisition-finance principle.

Term debt or securitization may provide the core financing, while a revolving facility deals with purchase-price adjustments, working capital, transaction expenses, timing differences and post-close liquidity.

Sponsors should therefore distinguish permanent acquisition financing from liquidity needed to execute and operate through closing.

Acquisition Finance Should Follow the Target's Assets

Buyers often begin with a generic question: how much acquisition debt can we raise?

The better question is what capital structure best fits the target.

A recurring-revenue software company may support unitranche financing against EBITDA. A distributor may support a combination of cash-flow debt and asset-based working capital. A real estate operating company may support mortgage debt. A producing energy business can support reserve-based debt or securitization tied directly to producing assets.

Financely's acquisition financing work begins by sizing capital against the target's cash flows, asset base, leverage capacity, ownership structure and required closing timetable.

The Birch Assets Have Characteristics Securitization Investors Can Underwrite

Birch's production profile helps explain why the transaction lends itself to this financing route.

Approximately 75% of the wells have a 2022 vintage or earlier, meaning much of the portfolio has already moved beyond its initial high-decline production phase.

Diversified describes the assets as relatively low decline and expects approximately 80% Adjusted EBITDA margins from the integrated operating position.

The production mix is approximately 38% oil, 32% NGLs and 30% natural gas.

A diversified commodity mix does not remove price risk, but it gives debt investors a broader production base than a portfolio dependent entirely on one commodity stream.

Integrated Midstream Infrastructure Strengthens Asset Control

Production economics depend on more than reserves underground.

Oil and gas need gathering, processing, water handling and market access before production can be monetized efficiently.

Birch's integrated infrastructure includes central production facilities capable of processing up to approximately 345,000 barrels per day of oil and 310 MMcf per day of gas.

The assets also include more than 80 miles of water disposal and recycling pipelines.

Ownership and control of supporting infrastructure can reduce third-party dependency, protect margins and provide lenders with greater visibility over the operational chain supporting collateral cash flow.

Carlyle Is Providing More Than Acquisition Capital

The Birch financing sits inside a broader relationship between Diversified and Carlyle.

In June 2025, the two firms announced a strategic partnership targeting up to $2 billion of acquisitions involving PDP oil and gas assets.

Carlyle said at the time that it intended to pursue opportunities to securitize acquired PDP assets, combining Diversified's operating platform with Carlyle's asset-backed finance capabilities.

With the Birch announcement, that partnership is being expanded to a framework under which the parties may pursue up to $10 billion of potential PDP acquisition opportunities over time.

This turns securitization from a one-off financing technique into a repeat acquisition-capital strategy.

Repeatable Financing Capacity Changes M&A Strategy

An acquirer that has to rebuild its financing strategy for every transaction faces execution uncertainty.

A repeatable securitization platform can change that.

The acquirer can establish an investment thesis around assets with characteristics already understood by its financing partners: producing reserves, mature decline curves, strong operating margins and identifiable collateral cash flow.

Acquisition underwriting and financing underwriting can then be developed in parallel.

Diversified and Carlyle's proposed $10 billion expanded framework demonstrates how capital availability can become part of an acquisition platform rather than a financing process initiated only after a target has been signed.

What Can Be Securitized in an Acquisition?

Producing oil and gas assets are one example of a broader structured-finance principle.

Where an acquisition includes assets capable of generating identifiable and legally controlled cash flow, the buyer may be able to raise financing directly against those assets.

Depending on the sector, these can include:

• trade receivables;
• consumer receivables;
• equipment leases;
• royalty streams;
• aircraft leases;
• specialty finance loan portfolios;
• contractual infrastructure revenues;
• producing energy assets; and
• other diversified contractual payment streams.

Financely also works around asset-level financing and securitization concepts through its asset-backed securitization work for recurring pools of trade and working-capital assets.

Securitization Requires Better Asset Data Than Ordinary Acquisition Debt

Institutional investors need asset-level transparency.

A generic acquisition memorandum showing consolidated EBITDA is not enough.

A PDP securitization can require detailed information covering:

• well-by-well production;
• reserve classification;
• decline curves;
• lease ownership and net revenue interests;
• operating expenses;
• production taxes;
• gathering and transportation charges;
• commodity sales arrangements;
• hedging;
• environmental liabilities;
• asset retirement obligations;
• title and liens;
• historical downtime; and
• forecast production by reserve category.

Asset Retirement Obligations Cannot Be Ignored

Mature producing assets eventually require plugging, abandonment and site restoration.

Those future obligations affect collateral economics.

A financing model that counts production revenue but ignores well-retirement costs overstates distributable cash.

Structured-finance investors therefore need a clear understanding of expected retirement timing, environmental liabilities, required reserves and responsibility for future abandonment costs.

Acquisition Finance Can Combine Several Capital Pools

The Birch transaction is a useful reminder that acquisition financing does not have to come from one lender or one product.

The core purchase financing is expected to come from securitization. Revolving-credit liquidity provides another source. Existing equity sits behind the debt. Future operating cash flow is expected to service the acquired-asset financing.

Other acquisitions can combine senior debt, mezzanine capital, preferred equity, seller financing, asset-backed facilities and sponsor equity.

The structuring objective is to place each risk into the capital layer best equipped to underwrite it rather than forcing the complete purchase price into one generic loan.

What Buyers Should Prepare Before Seeking Asset-Backed Acquisition Finance

Asset-backed acquisition financing requires the transaction file and collateral file to be prepared together.

A serious financing package can include:

• signed LOI or purchase agreement;
• purchase-price bridge;
• sources and uses;
• target historical financial statements;
• quality of earnings where appropriate;
• asset-level operating data;
• collateral valuations;
• existing liens and debt;
• financial model;
• downside sensitivities;
• proposed security structure;
• buyer equity contribution;
• post-closing liquidity requirement; and
• target closing timetable.

Financely structures and places acquisition mandates across senior debt, unitranche, mezzanine, private credit and asset-backed financing. The relevant structure depends on what the acquired company actually owns and how those assets generate cash.

Why the Diversified Transaction Matters

Diversified is not merely buying a larger oil and gas producer.

It is matching the acquisition financing to the economic characteristics of the assets being acquired.

Birch consists primarily of mature producing wells with a measurable reserve base, integrated infrastructure and recurring commodity cash flow.

Carlyle is structuring institutional asset-backed capital around those cash flows.

Diversified retains the operating platform required to manage and service the assets after closing.

That combination turns the target's production base into part of the acquisition financing solution itself.

PDP Asset-Backed Acquisition Finance FAQ

What is PDP financing?

PDP financing is debt or structured capital supported by proved developed producing oil and gas reserves. The financing relies heavily on existing production, reserve value and projected cash flow from wells already in operation.

Can oil and gas assets be securitized?

Yes. Mature producing oil and gas assets can support asset-backed securitization where collateral cash flows, reserve value, legal structure and investor requirements permit. Producing-asset securitizations have already been used in the institutional credit market.

How is PDP ABS different from reserve-based lending?

Reserve-based lending normally provides revolving bank credit sized through a periodically redetermined borrowing base. PDP securitization generally issues term notes supported by asset cash flows and structured payment protections.

Can securitization finance an acquisition?

Yes. Where the acquired assets generate identifiable cash flow and can support an institutional asset-backed structure, securitization proceeds can form part of the acquisition sources and uses.

Does the $1.5 billion Diversified ABS equal an 83% LTV?

Not necessarily. The announced ABS is approximately 83% of the $1.8 billion headline gross purchase price, but purchase-price adjustments, collateral valuation, transaction expenses and other financing sources mean that percentage should not be treated as the final securitization LTV.

Why are mature producing wells attractive collateral?

Mature producing wells have observable production histories, known operating costs and more measurable decline profiles than undeveloped reserves. This gives debt investors more data for forecasting future collateral cash flow.

Can private credit finance the same type of acquisition?

Potentially. Private lenders can provide senior secured, unitranche, bridge or other structured acquisition facilities. Whether private credit, securitization, bank debt or a combined structure is preferable depends on asset quality, transaction size, timing and required flexibility.

What information is needed for asset-backed acquisition financing?

Lenders typically require the acquisition agreement, sources and uses, target financials, detailed collateral data, asset valuations, existing liens, historical cash flow, operating assumptions, buyer equity, downside cases and the proposed legal and security structure.