Diversified Energy Share Discussion Threads

[woodhawk] 11/8/2022 23:41

Thanks for the synopsis, asp5, much appreciated!

Rusty Hutson interview here:

[asp5] 11/8/2022 23:02

Extremly bullish investor call from my perspective. Alot to digest & unpack - will relisten over the weekend and post my views but so many drivers for future share price growth including:

1) US listing
2) Changes to hedge strategy to capture higher prices ($4 floor referenced!!)
3) Current liquidity position of 400M and reading between the lines future ABS deals to drive liquidity higher
4) Pipeline of deals being actively worked on - so expect more acquisitions
5) Reduced ARO exposures and plugging costs (30% reduction with own staff)
6) Operational optimization materially reducing the multiples effectively paid for acquisitions
7) Confirmation of dividend increases as company grows (not keeping current div flat)

I think there are more topics but this is what immediately comes to mind. While there will no doubt be some ups and downs - I really do not see why the share price cannot move significantly closer to the $2.82 NAV over coming weeks & months.

[podgyted] 11/8/2022 20:13

Really wants to get to $9

[podgyted] 11/8/2022 18:17

US natural gas rising considerably at the moment.

[rhubarbcrumble] 11/8/2022 17:34

Potential US listing in prospect. Looks interesting.

[fordtin] 11/8/2022 17:11

Thanks to dan de lion for highlighting this on another thread;


Conceding to Manchin, U.S. climate bill exempts most oil industry from methane fees
August 10, 2022 EnergyNow Media

[mwj1959] 11/8/2022 16:26

A good update from management this afternoon on Investor Meets Company. All seems very sensible to me and a rare way of generating inflation eating income in the current environment with potential capital upside. I asked the question as to where they saw the main risks to their positive outlook, but they didn't answer it! Time was running out, but still it would have been nice to hear what (if anything!) kept them awake at night.

[cassini] 11/8/2022 16:00

wcarr post is spam.

[fred177] 11/8/2022 15:53

Looks fundamentally undervalued by a long way compared to peers and other sectors

[fred177] 11/8/2022 15:49

Wcarr, wrong forum i think

[janhar] 11/8/2022 15:09

Live presentation online right now on investormeetcompany

[mwj1959] 11/8/2022 12:08

A small stash mind you!

[nimbo1] 11/8/2022 10:02

hope so as am holding a position

[bluemango] 11/8/2022 09:16

Can this surpass its all time high?

[bluemango] 11/8/2022 09:10

Nice set of three different director buys, including the amusingly named Mrs Stash adding to her stash.

[asp5] 10/8/2022 06:13

DEC's Proved Developed Producing has increased by 36% to 823 MMBoe. Looking ahead 12M, I see no reason the acquisition rate slows based on historic performance - so we could comfortably add another 30% to reserves (liquidity is still at $260M).

In addition if prices between US and Europe normalize as some leading research firms suggest (meaning US prices rise higher towards EU prices due to excess capacity in the US being exported - so continued tight markets) we could easily add another 20-30% on PV10 (present value of reserves using a 10% discount).

Combining these 2 effects could easily push NAV to around the $4 mark rather than the current $2.82.

The point I am trying to make is that DEC has been viewed as a steady dividend payer with a stable share price that fluctuates between 100p - 130p. Equally it could be ready for a 200+% growth journey from here (like so many energy stocks in the US).

At current prices DEC has low downside risk and considerable upside potential. I continue to add to my portfolio as funds allow.

[greygeorge] 09/8/2022 20:19

aleman, I don't think there's anything particularly suspect about any hedging in DEC's accounts. They state that a fixed amount of anticipated production is hedged. They have some capacity left to sell st market rate, but more importantly, the production that isn't sold in advance can also act as a cushion in the event of loss of some production due to unforeseen outages or maintenance issues. This is quite the contrast to lord gnomes' action thriller account of the wheeling-dealing world of futures trading and desperate cash calls on contract expiry dates as he sees it.

[asp5] 09/8/2022 20:13

Aleman - I can understand your concerns. But to perhaps address your fears - DEC has completed over $900+M in ABS deals across I believe ~20 banks in a syndicate.

I do not believe these banks would touch DEC with a bargpole if they were financing some type of nat gas derivative trading desk. The due diligence hoops that you have to go through these days to get approvals for these structures is quite something and not everyone can do it.

Another factor is the Oaktree participation. Again I believe this partnership is a significant confidence boost as they would not get involved in such a relationship without appropriate due diligence.

It does look to me like DEC are trying to hedge their books so that optimal financing rates can be achieved. however it is an inherently tricky exercise and something that firstly a CEO would need to be comfortable with (alot are pure old school oil industry people). Rusty has an oil background but importantly he had a career in finance/banking before he started DEC. An excellent (but rare) combo in my view.

Now the hedging exercise is tricky - every year you have old hedges that roll off and new ones that need to be placed. In addition you have to manage a production decline rate and an acquisition landscape where you are not sure upfront how many deals you will be doing and what proportion (if any) is hedged and at what prices. The above is just handling volume issues. DEC also need to take account of pricing and market dynamics etc. So fundamentally this is a complicated area to get right.

I think DEC are trying to make something which is inherently complex as transparent as possible. However there is always a risk that the banks, oaktree, auditors and investors are being taken for a ride. I just do not see based on the data available that their hedging is a concern.

[aleman] 09/8/2022 16:31

LG - I think most here understood the theory of mark to market gains and losses. I think the problem was your assertion

"DEC has however, had to make margin calls in real cash,..."

I think some did not agree that cash due on (some) hedges had to be paid before delivery but clearly DEC are trading contracts like some of the oil majors do and as such will probably have to pay or receive cash up front at times. The risk and magnitude of such payments could be important when markets are volatile and/or when the economics of the industry change. It puts some investors off. Revenue might not all be gas sales less hedge payments on delivery. There could be cash revenues enhanced or diminished by "derivatives trading" payments that might distort the underlying revenue trend of the business. Although I have no reason to think so at the moment, and without a detailed breakdown to reasonably assess, SOME might think DEC could be flattering current revenues of their (lower quality?) wells with certain derivative positions in a sort of ponzi scheme that draws revenues forward and needs more deals and more derivatives in future to keep it hidden. I am certainly NOT suggesting that this is the case but it's hard to refute without a clearer picture of the complex derivatives. Do they have to be so complicated? This might explain the low rating of the shares and the surprising ability to buy up unwanted assets at what seem very cheap prices. Why aren't others entering this market and pushing asset prices up, with asset financing or just cash? I'm not suggesting shenanigans but I would not go overweight in DEC with revenues so determined by such a large range of complex derivatives that I do not understand. I can see why some might be put off altogether. Perhaps there is a clearer explanation of DEC's derivatives and their effects somewhere where a more season derivatives trader can assess the risks properly and explain? For now, I will remain invested and cautious and invite critiques of the derivatives portfolio from anyone that understands them. I get the basics you describe, but there's clearly a lot more complexity than that going on here that warrants deeper investigation.

[lord gnome] 09/8/2022 15:28

Aleman, you are correct in that DEC employs a mix of strategies. I was not trying to explain the DEC process in detail, merely trying to give an oversight into how hedging works and how mark to market gains and losses arise. Some people are beyond education, however.