Diversified Energy Share Discussion Threads

[2wild] 20/11/2024 21:24

Close the New York at USD 16.11 being 1273p.

[2wild] 20/11/2024 19:46

At least the average is a fair bit higher than current share price. Nice fat juicy yield paid every three months. Low price earnings multiple and lots of free cash flow. Rising share price, closing today 53% higher than the 12 month low . Let the trend be your friend.

[putinaire] 20/11/2024 19:29

Massive dump out on DEC [US]

Not share price trauma but duly noted re 'in the grey'

[putinaire] 20/11/2024 19:27

Still a long way to go to last winters prices whilst costs and inflation take their toll 12 months later

[bountyhunter] 20/11/2024 19:08

.......................

[putinaire] 20/11/2024 18:44

Palone baby - Palone

[putinaire] 20/11/2024 18:36

Fitch Places Diversified ABS Phase II LLC's Notes on Rating Watch Negative
Fri 01 Nov, 2024 - 16:47 ET

Fitch Ratings - New York - 01 Nov 2024: Fitch Ratings has placed Diversified ABS Phase II LLC's class A notes on Rating Watch Negative.

Transaction Summary
Diversified Energy Company (DEC), through its wholly owned subsidiary Diversified Production LLC, conveyed a 29.4% non-operating working interest in approximately 50,000 wellbores in the Appalachian basin to Diversified ABS Phase II LLC. The notes are backed by oil and gas proved, developed and producing (PDP) assets with a current IE full-life PV-10 value of approximately $200.5 million (transaction life PV-10 value of $165.3 million). The current valuation is based on strip pricing for oil and gas as of Oct. 17, 2024. Fitch's rating addresses the likelihood of timely payment of interest and ultimate payment of principal by the legal final maturity in 2037 for the notes.

The Negative Watch reflects Fitch's forward-looking analysis, which considers certain expenses, current projected hedge structure, and structural aspects of the transaction. The issuer has been subsidizing a portion of marketing and gathering costs to support ongoing cashflows (DEC owns a substantial portion of midstream assets servicing the ABS wells). Fitch's forward-looking analysis does not credit this in its scenarios. Fully loaded expense and negative movements in gas differentials affect the transaction's potential cash flows. The primary factor negatively impacting future transaction cash flows is the low strike price on the current hedges.

The issuer is exploring a restructuring of the hedge profile to significantly strengthen the future cashflows supporting the transaction. Fitch will monitor the execution of this strategy and other factors over the next three to six months to determine if further action is necessary.


KEY RATING DRIVERS
PDP Production In Line with GC1 (Positive): Fitch considers PDP assets to be very stable and views PDP production as consistent with a 'GC1' and rating levels up to the 'A' category. In this transaction, the underlying collateral is a slice of a diversified portfolio of approximately 50,000 wells, with the majority of production coming from about 20% of the wells. The wells have a weighted average life/seasoning of over 17 years. The decline profile has historically been stable, and Fitch expects it to remain so over the transaction's life.

Limited Future Generation Risk (Positive): Future cash flows are expected to continue with limited disruption in the event of an operator bankruptcy. Therefore, Fitch has not directly linked the transaction rating to the credit quality of DEC. However, exposure to operational risks in PDP transactions limits the notes' rating to the 'A' category.

Base Case and Stressed Case Production Levels (Neutral): Fitch's base case production levels are derived from third-party independent engineer (IE) reports, which determine reserve estimates and production levels based on the existing PDP reserves and historical performance. Fitch's base case aligns with IE projections due to the historical stability of production, the diversified portfolio, and the average life of the wells. Fitch applied various stresses to the IE production levels, including a two-year shock off Fitch's base case with a 10% reduction during the stress period.

Additionally, Fitch ran a flat breakeven production stress of 8.5% in its base case to simulate potential future volatility and overall volumetric risk. Fitch also modeled a prolonged stress scenario with a 1.5% production stress for the transaction's remaining life.

Majority of Price Risk Hedged (Positive): The transaction mitigates most price risk through hedges covering approximately 80% of gas production until February 2032 and 85% of oil production until March 2026. Additionally, basis risk for natural gas is hedged for 75%-90% of projected gas production until December 2026. However, the current hedge book's strike prices are lower than current strip pricing, limiting the transaction's future cash flows. Furthermore, the basis differential environment has worsened since closing, reducing revenues per unit of production.

Fitch stresses the unhedged portion of the portfolio per its "Future Flow Securitization Criteria." In Fitch's base case, Fitch uses the latest Fitch Corporate Price Deck, applying $64 for WTI and $3.00 for Henry Hub after half-cycle. For a two-year shock scenario, Fitch uses $35 for WTI and $1.80 for Henry Hub during the stress period. In a prolonged stress scenario, Fitch applies $55 for WTI and $2.67 for Henry Hub. Hedges mitigate some commodity price risk, but unhedged exposure and the rolling nature of hedges limit the transaction to the 'BBB' category.

Net Cash Flows Subject to Operating Expenses (Negative): The securitized revenue stream relies on net cash flows (NCFs) from each well, which depend on production levels and wellhead prices minus all expenses, including gathering and transportation (G&T). While individual wells may face some cost volatility, overall portfolio costs remain stable. DEC currently partially subsidizes G&T expenses, as permitted under the documentation. Fitch does not credit this subsidy in future expense projections, and is using approximate market rates instead. Fitch stressed market rate expenses by 3% in Fitch's base case, and 10% during the stress period in the two-year shock scenario. Fitch also stressed expenses 4% in a prolonged stress scenario.

Leverage and Coverage Levels (Negative): Fitch uses the loan life coverage ratio (LLCR) to to assess coverage adequacy in different scenarios. Based on IE projections, the LLCR for class A notes is 1.96x. In Fitch's base case, the LLCR is 1.41x, and in the two-year shock scenario it is 1.18x. If considering the current subsidy supporting G&T expenses, the LLCR would be 2.79x, 2.27x and 2.03x in these scenarios, respectively.

DSCR levels are expected to breach triggers in both the IE and Fitch base cases as principal amortizations step up over the transaction's remaining life. This step-up in amortization occurred at the five-year anniversary of the notes and was due to an assumption in the initial projections that uneconomic wells would be shut-in after the initial five years. DEC has continued to keep in operation the overwhelming majority of its wells, which results in higher fixed costs compared to initial projections.

While the issuer has been reducing these higher projected expenses by covering G&T, Fitch does not include this reduction in its projected cashflows. More impactful to projected cashflows is the remaining hedge book, which has prices significantly below strip prices. Differentials have also become more negative within this region since the transaction's close. Fitch's base case full-life LTV for the class A notes is 78.2% (91.9% using transaction life PV-10).

Financial Structure (Positive): The transaction benefits from significant structural protections like backward-looking cash sweep mechanisms based on DSCR and production tracking levels. An LTV trigger offers a forward-looking view of overall leverage relative to expected value. Cash-sweep triggers allow accelerated de-levering if performance falls short of IE base case expectations, though they are not currently active due to subsidized midstream expenses. Additionally, the transaction benefits from a six-month liquidity reserve account to cover monthly interest payments and senior expenses.

Counterparty Risks (Neutral): Fitch analyzed the transaction's counterparty risk per its "Structured Finance and Covered Bonds Counterparty Rating Criteria." Eligibility thresholds are outlined as investment grade, aligning with Fitch's criteria for the 'BBB' category level. Fitch assessed payment disruption and co-mingling risk, finding the six-month reserve account sufficient to mitigate these risks. The swap counterparty and ISDA agreement were reviewed, and Fitch will evaluate if the downgrade of a swap counterparty below the transaction rating impacts the notes' rating.


RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The transaction's credit strength depends on asset production levels and expense fluctuations, which can reduce the securitized net cash flow. Significant decreases in production compared to projections will negatively impact the rating. Increases in expenses or the removal of DEC's current subsidy for G&T may affect margins and the rating.

While the transaction hedges the majority of natural gas price risk and natural gas basis price risk for portions of time during the life of the transaction, significant changes in basis or long-term commodity price reductions could have a negative impact. Revenue constraints given the current hedge book, combined with negative production or expense changes, may also affect the transaction's ability to absorb stress in a downside scenario. Additionally, the transaction cannot be de-linked from the hedge counterparties; thus, a downgrade of a hedge counterparty below the respective threshold of the note's rating will affect the transaction rating.

Fitch ran multiple stress scenarios changing different variables, with a majority resulting in at least one category downgrade without amending the current hedge book. If the company can execute on its expected hedge strategy, these scenarios would result in a reaffirmation of the rating.

Any changes in these variables will be analyzed in a rating committee to assess the possible impact on the transaction rating.


Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The class A notes are capped in line with the criteria and further limited to the 'BBB' category, given partial exposure to commodity prices. The transaction will continue to be capped unless there are changes to the current criteria.

[putinaire] 20/11/2024 18:32

Why has this thread not seen any mention of it?



I thought forums were about balance and 'all' info rather than 'selected' headlines?

[drk1] 20/11/2024 18:27

Yep, X3 hedgies reduced their positions yesterday, but one, good old Cube actually increased their's to 1.15%! Most likely to try and recoup some of the substantial losses they must have made from their last foray into DEC on the 15th. Oooops. ;-)

[putinaire] 20/11/2024 18:26

Il post it here when it is done. Don't worry. It is by some pro's. Not my chart squiggles

[oneillshaun] 20/11/2024 18:26

Hopefully these gains actually stick around the loss is getting smaller

[putinaire] 20/11/2024 18:22

It goes on @offical negative watch, and has its best 3 weeks ever

Be warned - Be veryyyy careful

[putinaire] 20/11/2024 18:21

Great for the traders

But you know what investors are like. Will be expecting 5000p next, and will be at 600p too

[putinaire] 20/11/2024 18:20

Manipulated SP

Actually, highlights the trauma to come really. They all want out at best price.

[putinaire] 20/11/2024 18:19

Fitch breakout a negative watch report November 1st

SP rises from them

Negative 'Watch' - even worse

[skinny] 20/11/2024 18:19

Just saying :-


free stock charts from uk.advfn.com

[putinaire] 20/11/2024 18:18

SO at least Bounty acknowledges the risk somewhat, even if thinks the possible is not possible

It's a start

[putinaire] 20/11/2024 18:17

Just a headline figure. Had this argument at Metro Bank around £30 per share, as short positions kept dropping, and dropping, and downtrending - to 30p

[bountyhunter] 20/11/2024 18:17

and black is white, I think you need another holiday

[putinaire] 20/11/2024 18:16

Bounty, if you want to deem Fitch's report as biased, im not surprised anything i say is classed so as well

Next up? 'Fitch are short' haha

[bountyhunter] 20/11/2024 18:16

Wow, shorting is down to less than 6% today at 5.96% after more reductions..

[bountyhunter] 20/11/2024 18:13

The rising US gas price affects the 20% of unhedged production but perhaps more importantly also the pricing of new hedging, as well as sentiment of course, unless you are short.