Diversified Energy Share Discussion Threads

[sunbed44] 09/4/2022 15:25

Good post mate. I think we all know forecasting in this industry is very difficult with so much volatility and global macro changes. So any forecast should come with a huge +/- contingency factor.

[aleman] 09/4/2022 14:02

Just been reading a report about global demand increasing by 635mtpa by 2035, which is only 13 years away, bearing in mind it can take 10 years to design and build a gas liquefaction facilty. (Also, Russia provides Europe with around 10mtpa.) It's expected that the US will provide over half the global increase with most through LNG export which is generally more efficient than long pipelines. (50mtpa LNG export is already coming onstream from the US in the next 4 years, with more being planned.) The clearing price to meet global demand in 2035 is expected to be around $7 per million btu, compared to current futures prices approaching $4. Inflationary effects will probably be nudging that $7 target a little higher. It strikes me DEC are very well placed at the moment as prices look unlikely to fall back to anywhere near where they were unless there is an enormous increase in fracking, though that should not be ruled out. Disagreement about DEC's hedging policy now looks almost irrelevant to this longer term strategic position as it suggests expanding demand for US exports will continue to drive futures contract prices up to levels that match and then exceed recent spot prices.

So how close will the forecast turn out?

[aleman] 07/4/2022 16:33

Jefferies raised their target from 160p to 170p for those that might not have noticed.

[greygeorge] 07/4/2022 15:20

Thanks scrwal, already done and posted by me a few minutes before you replied.

Hope it adds to your understanding of the company you're invetsed in.

[scrwal] 07/4/2022 15:16

greygeorge

I told you that the taxes issue was referenced in the First Berlin Reports.

I referred you to redtom1's post about hedging as he had pointed out that DEC may close its hedges and sell at market giving rise to taxes paid on the market value even though profits and cash flows were already fixed by the earlier hedges.

I have not got any impressions from red about the taxes but was providing a possible reason as to why First Berlin referenced it using his simplified figures. You may wish to google the matter yourself but there is a shed load of stuff with different rates etc depending on where any transaction takes place.

[greygeorge] 07/4/2022 15:09

Gary1966, thanks for that. I think scrwal and redtom1 are confused byt what 'production taxes' are. From that article :

'...Meanwhile production taxes are linked to unhedged commodity prices...'

This is what 'prodction taxes' are :

'...Definition. Other taxes on production (D29) consist all taxes that enterprises incur as a result of engaging in production, independent of the quantity or value of the goods and services produced or sold...'

These taxes have NOTHING TO DO with taxation of profits / loss on hedged or spot market prices of oil and gas in the US.

Many thanks again for pointing me to the article they've been mis-quoting

[gary1966] 07/4/2022 14:40

greygeorge,

Page 2 of First Boston report and probably is mentioned somewhere in the company accounts if you wish to trawl through those. The production taxes are one of the reasons the margins fell.

[greygeorge] 07/4/2022 14:21

redtom1, I have a question for you. Scwral has posted a number of times about the tax situation regarding hedged prices and tax liability. I asked him about it yesterday, and he was very vague but said you had posted about it. Could you explain to me the situation, it seem she has gotten the impression from you that DEC pays tax at 'market price' of gas sold, regardless of ACTUAL price it sold that gas at. So, my question is, can you point me to the US tax law that says US oil and gas companies MUST pay tax at 'market price' rather then the actual price realised, be it hedged or spot ? Thanks.

[scrwal] 07/4/2022 13:07

My moaning is based on the fact that the long term plan and its necessary hedging means that there is very limited ability to make hay when the sun shines with extremely high prices. Yes when prices fall the company benefits at the tail end of the current hedging but there should be more flexibility.

Yes I will continue to hold and pick up the nice yield with the expectation of minor capital growth - just irked that the company can't boost its cash flow even more with the current prices. I wouldn't want the extra paid as divs but used to build the ARO fund quicker or pay down more debt.

[johnhemming] 07/4/2022 12:37

As I see it companies like this and Wentworth give a reasonably good and secure return without being volatile. Wentworth have prices linked to CPI so are a bit more like an inflation linked bond.

If your investment strategy prefers more volatility then this is not a stock to invest in.

[gary1966] 07/4/2022 12:11

lab, securitised debt has all been sub 5% that I am aware of. RCF is being used short term to get acquisitions done but then shortly after securitised debt replaces at fixed and lower rates.

Everyone else, BB are for discussion and so let's keep it civil. Lab isn't advocating no hedging just the quantum of it. If debt repayments, dividends, CAPEX etc were covered at 75% hedging, which they probably were, then why increase to 90% when there are strong tail winds to the gas price?

[redtom1] 07/4/2022 08:55

Message removed

[lab305] 07/4/2022 01:03

Antero
31.98 USD +22.51 (237.70%)past year
Chevron Corp.
164.81 USD +60.62 (58.18%)past year
Exxon Mobil
83.65 USD +27.06 (47.82%)past year
Conoco Phillips
97.51 USD +45.05 (85.87%)past year
EQT Corp
37.37 USD +19.39 (107.84%)past year
Diversified energy
120.00 GBX +6.20 (5.45%)past year
Great. The net result of aggressive hedging. Oh the dividend 16.25c = 10.23p after tax and exchange so not a bad 14.5% return. Now compare the others. Dam right sunbed44 the strategy is wrong. Asset prices are exploding and we are not earning the cash to keep up. Cash should be pouring in enabling the company to pay down debt or/and go on a shopping spree. What is likely is acquisitions will happen funded by even more debt at the high rates of 6%+ with odious hedging contracts attached so the company will virtually never realise the true value of the assets. I also question if the company is so safe and solid why are the interest rates it pays on loans so high?
I am still a very large holder here and have been so for years and believe it or not have the greatest respect for many of the contributors and their comments but the overwhelming complacency is breathtaking. I await Rusty walking on water at the next investor presentation.

[1knocker] 06/4/2022 23:08

spot on redtom. No doubt the low risk strategy has enabled the company to borrow more to invest and on better terms than would otherwise have been possible (or prudent).

Some of the people on this board will presumably soon be complaining that DEC owns no wind farms, or whatever. If you want unhedged exposure to gas prices why invest in DEC? Sell ad reinvest in an unhedged supplier if that is what you want.

[redtom1] 06/4/2022 21:07

Whether hedging was part of the strategy 4/5 years ago is pretty irrelevant today.
We know that hedging is a huge part of their strategy (and has been for a few years) and they would not have been able to grow the business without it.
If you don't like their strategy, fine, please move on to shares that you feel comfortable with. Otherwise please can we drop the 'they hedge too much' narrative as they do hedge a lot nd they will continue to hedge a lot. That is not going to change.
Let's all talk about the great future prospects for this company and enjoy the fat, juicy, stable, consistent & lowish risk dividend for many years to come.

[lab305] 06/4/2022 20:23

Lord Gnome I too have been here , invested and on the DGO board since that time. There was no hedging then or in 2018. Your implication that hedging was part of the company then is wrong. An early snippet from IC.

Diversified Gas & Oil (DGOC) is executing its strategy. Half year results for the group, which do not include the impact of the Titan acquisition, show a 51 per cent increase in revenue to $11.5m, and net income of $3.7m. Costs – already cheap by the standards of US onshore producers - fell 6.4 per cent in the period, while output now stands at a whopping 11,000 barrels of oil equivalent per day. We remain buyers.

A real increase in profit and no hedging plus the share price rising strongly.
Easy to understand accounts with no leap of faith required to believe or indeed understand that a three or four million dollar loss is really a profit ! Added to this the share price rose strongly and returns were far far higher than 10%. Times and policies have changed markedly and not for the better.

[lord gnome] 06/4/2022 16:55

I'm with you 100% on that one, Aleman. I have been here since just after IPO and hedging has helped the company deliver steady and increasing income every year. This year, because of very unusual circumstances, we've missed out on bumper returns, but the company is still churning out one of the highest dividend yields on the stock market, paid quarterly. All the debt is covered by hedging to protect lenders and our dividends, and as hedges mature and are renewed, they will be renewed at the higher prices prevailing, thus locking in higher revenue and profits - and dividends.
The financial structure of this company does take a bit of understanding, but it certainly suits my needs and apart from the odd problem with wannabe analysts and trouble stirrers it has been a solid investment. My running yield on my initial investment is now somewhere in the region of 15-16%.

[aleman] 06/4/2022 16:10

I understand lab's beef but it is with the directors. There's a fundamental difference in attitude between investors that bought to ride the gas price and those that bought for a fat "steady" income after all the hedging to protect the debt incurred for some big acquisitions. From the latter's point of view, the higher price on the current small amount of unhedged production, and on future production now being hedged, is a bonus on the steady income already being drawn. To the former, it must feel a very disappointingly lowered capital gain, and aggravated by the satisfaction the latter are taking.

Arguing with each other achieves nothing. I have sympathy for those holding longer who might be disappointed but, if anyone is unhappy with company policy, they should tell the directors or move on. I've sold and moved on many times in the past after being annoyed by directors' changes. At the end of the day, it's about risk tolerance. We all have different tolerances and it's very annoying when you buy companies with risks profiles you are looking for and they then change them. Lab might get his capital gain if gas prices are sustained but it will take time to feed through. Meanwhile, I'm sorry, lab, but I'm happy with the hedging and the current policy as I understand it, even if the gas price gains are slow to come through. Policy might change again, though!

[gary1966] 06/4/2022 14:51

Aleman,

Not sure this will make lab305 feel any better, in fact it re-enforces his point further, especially the last bit.

Most of that was done at previous weaker prices. It's worth remembering that they said at the results that they had recently increased hedging for 2022 at $4.55 and 2023 at $3.71. Prices have jumped since then and they are now likely to be achieving something like $1+ and 50 cents+ higher respectively for them.

[shanklin] 06/4/2022 14:09

Would you lend to a business that deliberately went out of its way to make sure it could not service a loan to them? That way lies madness

[1knocker] 06/4/2022 14:07

No scrawl. I like a company to stick to its plan in this uncertain world. There are plenty of plays if you want to gamble on the gas price. When I buy a share (or beans)I like to be able to put it on the shelf confident that the contents will be as per the label on the tin.

[aleman] 06/4/2022 13:16

lab305
6 Apr '22 - 10:51 - 2487 of 2493
0 3 1
From Spangle93's post.....
Updated our commodity derivatives portfolio as per Diversified’s update as at 17 March 2022.
 2022: 90% of natural gas production hedged at a floor price of US$3.19/Mcf.
 2023: 70% of natural gas production hedged at a floor price of US$3.06/Mcf.
 2024: 50% of natural gas production hedges at a floor price of US$2.85/Mcf.

Most of that was done at previous weaker prices. It's worth remembering that they said at the results that they had recently increased hedging for 2022 at $4.55 and 2023 at $3.71. Prices have jumped since then and they are now likely to be achieving something like $1+ and 50 cents+ higher respectively for them.