Diversified Energy Share Discussion Threads

[asp5] 22/8/2022 02:43

Hi Scrwal

Thanks for the link to the references. I missed this initally and it helps to rationalize things.

We should really start on the basis that DEC is focused on operational excellence rather than being experts in drilling new wells. This makes it stand out from a business model perspective vs most (all?) other E&P players. This operational excellence can be seen in:

1) The decline rates where DEC achieves an average 8,5% compared to a peer average 27%, a x3 improvement. This rate is not a one-off but a consistent level (5%-9%) achieved over several years. In Appalachia the decline rate is below 7% (see DEC Aug report p21, p22). This will by default extend the life of wells vs peers.

2) ARO costs where good progress has been made progress. The average cost to plug a well has been reduced by 16% since 2020 and by 30% if only inhouse staff are used. Further gains/improvements are expected as scale and expertise are built up.

As an example, DEC have reduced the time to plug a well from 8 days to 4 days (see DEC ARO report p 6) a significant productivity gain. They are also exploring how to optimize materials used to plug wells etc.

They now have 15 rigs/teams giving them the capacity to plug ~600 wells a year. In H1 2022, they recieved $2,8M in income selling excess pluggin capacity (likely more in H2). This income alone covers the cost of plugging the 200+ wells targeted by DEC this year. So DEC have demonstrated a scalable model that can presently plug wells at net zero cost.

I have not seen any report where a state has comlained about the quality of the plugging work and refused to sign-off - so expected quality levels are being met at these costs. I expect scale and revenue to grow consistently with the potential this could be a net revenue generation topic.

3) ESG. Significant efforts to accurately monitor and plug leaks are underway including with thousands of miles of midstream assets. Any leaks plugged increases volume of gas sold and hence revenue. So ultimately enhances the bottom line with costs already accounted for. DEC have set a goal of being best in class. Again striving for operational excellence. Reportingon this topic has improved significantly over the last couple of years and I expect similar progress going forward given all the work currently in porgress.

Based on above I will write a follow-up post with my thoughts on how they impact the River Valley analysis.

[scrwal] 21/8/2022 20:46

These are the appendices referred to in the report


asp5 - the auditors were referring to the non impairment of assets not the ARO and the report does state such matters are subjective but DEC looked like being on its own not doing so and by implication doing something that only goes in its favour.

Bloomberg were going on about methane issues on a very small sample and tacked on a bit about underfunding. Ohio Valley has put more meat on the bones in their report and have come at things from the DEC does things differently to other producers and aren't saying methane emissions are out of control - they are alluding to the fact that DEC has a history of revising items in its favour eg extending the economic life of its wells.

Yes the report bangs on about the ARO but Ohio River Valley are Appalachian based so it is important to them and the community they serve. There will be some bias but you would expect that from a local organisation.

[asp5] 21/8/2022 17:58

Hi Scrwal - looks like a repeat of all the topics that bloomerberg raised a while back. Had an initial review and could not see a single new issue.

The good thing is DEC have already addressed these points. This includes engaging ISOS group to independently validate the accuracy and completeness of their emissions reporting. Really not sure what more DEC can do to show the validity of their data.

On the ARO concerns, I find it funny that the report states that the auditor finds the assumptions that DEC are making re ARO are reasonable yet provide no detail on what they specifically find unreasonable. How dare DEC focus on their operational expertise and reducing cost of AROs !!

I will take a closer look but at first glance this is not a fair analytical analysis rather the usual agenda driven reporting as per bloomberg. It may frighten new retail investors - but I seriously doubt it will impact the professionals.

[scrwal] 21/8/2022 13:25

This report issued in April by the Ohio River Valley Institute makes for interesting reading. Given its stance the lack of impact on DECs share price is surprising but that may be because of the lack of exposure maybe.

Obviously investors would be aware of some of the observations made from their own research into the company but although it is contentious its does bring together a lot of points about DEC into a single article.

I wouldn't say it is biased as there is a lot of data that is tied to DEC reporting and financial accounting/statements. Obviously assumptions made can always be disputed but essentially we have to make our own minds up about the comments made. People won't agree with it but it gives food for thought and focusses the mind. It could also give a reason for the perceived apparent undervaluation of DEC.



I found it in the comments section on the excellent Seeking Alpha article 3 August which was posted earlier on this board

[fordtin] 19/8/2022 15:01

May be wishful thinking, but I thought it might be interesting to have a look at what effect a continued rise in share price might have on the div yield;




 
dividend
 
 
 
 




SP
 
Gross
 
-15.00%
 
-30.00%


 
 
 
 
 
 
 


140
 
10.25%
 
8.71%
 
7.18%


150
 
9.57%
 
8.13%
 
6.70%


160
 
8.97%
 
7.62%
 
6.28%


170
 
8.44%
 
7.18%
 
5.91%


180
 
7.97%
 
6.78%
 
5.58%


190
 
7.55%
 
6.42%
 
5.29%


200
 
7.18%
 
6.10%
 
5.02%


210
 
6.83%
 
5.81%
 
4.78%


220
 
6.52%
 
5.55%
 
4.57%



( N.B. at 1.1845 USD = 1 GBP )

[tom111] 19/8/2022 13:43

Sorry my fingers got tangled up

[scottishfield] 19/8/2022 13:09

Assume you mean SEPL?

[tom111] 19/8/2022 13:06

Sold yesterday had a good run switched over to SEPT awaiting news.The divi is about the same now since the rise in the share price here.I know this is a brilliant co just that the share price has spiked a bit,always difficult to know when to sell,easier to buy.

[asp5] 19/8/2022 08:40

Large investors / funds who are invested or are interested to invest will understand this effect and will not be impacted. The noise (if any) will come from new retail investors. Hopefully they will scrawl through this discussion board first but probably wishfull thinking.

Taking a bigger picture view capital spending for almost all extractive industries from 2010-2020 has been severely curtailed. For example, in the energy industries, capital spending in the S&P 500 has fallen from $320 bn per year to less than $100 bn today.

After years of underinvestment, the cost of every energy source has gone from record lows to record highs. This is a result of ESG pressures, recent geo political shocks and execution of flawed energy strategies. It will take many years to correct/fix.

In 2020, energy and materials made up less than 2% of the S&P 500 compared with 20% in 2008. This % has increased more recently but in my view I see considerably more rebalancing to come.

DEC still looks a bargain to me at these levels with plenty of share price growth ahead and of course a nice divi while we wait to see how the share price develops.

[asp5] 19/8/2022 07:23

US gas prices bottomed in late June at ~$5.40 per mmcf and have rallied back to ~$9.10. Even with the recent rally, US gas prices remain multiples below international prices.

With US gas inventoty levels below average, Freeport LNG facility due to resume exporting in October and US gas supply growth limited as shale producers focus on returns for their investors, I do not see gas prices coming down any time soon.

In fact there is a good chance US gas prices could go significantly higher and normalize to international prices over coming months which would be another significant boost to DEC (on top of the US listing).

DEC is well positioned for sustained share price growth not only short term but also the longer term.

[woodhawk] 19/8/2022 01:47

What good is cash when it's being eroded at 10%+ a year?

[dovey21] 19/8/2022 01:33

Because it was near its highs and the global economy looks set for turbulence and/or crash. I'm all cash at present and intend to be so for sometime.

[owenski] 18/8/2022 21:52

The question is why did you sell?

In three years you haven't made much capital gain but you've had a super income yield.

If the object was to hold an income stock of this quality of payout and nothing in that investment case story has altered then why sell.

[1knocker] 18/8/2022 21:25

Don't fret Dove, and don't chase. In this market, if you miss one bus (or hop off at the wrong stop) you can be sure that another will be along fairly soon. Wait for the market to come to you.

[woodhawk] 18/8/2022 21:22

We've all done it! Works both ways - sometimes you luckily sell up just before a big retrace. Swings and roundabouts.

[renewed1] 18/8/2022 21:09

Oh dear....Dovey!!!!

[dovey21] 18/8/2022 20:33

Kicking myself for selling last week. Held for 3 years.

[asp5] 18/8/2022 18:45

Over 9M shares traded today - typical daily range is 1M to 2M. In the last 3 or 4 weeks we have seen daily volumes of 12M, 7M, 6.5M etc. way higher than normal.

Given DEC are preparing the ground for a listing then they will have been pitching to funds/investors ahead of any listing. In an earlier post I mentioned that supply/demand dynamics would help support the share price. I believe this is what is playing out.

I also think the timing of the rise is related to the ex-div date of Sept 1st. If a fund/investor is going to take a position then doing so just before a divi is paid maximises returns.

The good thing is returns would still be 6+% even if share price reached NAV of $2.82 - which would put DEC into the top bracket of divi paying shares in the US.

[1knocker] 18/8/2022 15:59

There are plenty of people drooling over companies like i3 on account of its dividend though it is only a fraction of the DEC dividend, and nothing like so secure.

I have said many times on this board that DEC's double digit div might actually deter purchasers. Certainly when I started buying several years ago I was sceptical, and wondered if it was in the 'too good to be true' category, and a value trap.

The accounts are pretty impenetrable as the accounting conventions lead to some rather bizarre figures. It have had a stack of dividends, and my confidence has risen to the point that this is now my largest single holding.

It may be, paradoxically, that if the share price rises to the point where the dividend looks more 'normal', that will fuel further buying interest and a further share price rise. Even if that proves to be wishful thinking, I am more than happy with a price 42% over my average purchase price, and a stonking dividend rolling in 4 times a year.

Fingers crossed of course, but I think we can congratulate ourselves for investing in DEC, and riding out the scare stories which seem to come around once or twice a year, or using them to top up cheaply.

[cassini] 18/8/2022 15:57

The energy sector is on the move today.

BP up 2.6% as well, only a little less than DEC.

[aleman] 18/8/2022 15:50

Sept 2022


free stock charts from uk.advfn.com


Sept 2024


free stock charts from uk.advfn.com


Sept 2026


free stock charts from uk.advfn.com


Sept 2028


free stock charts from uk.advfn.com

[smidge21] 18/8/2022 14:59

Quite; you don't get forward secure yields of 10.5%; yield is either (much) less secure that I think or (way) too high

[my retirement fund] 18/8/2022 14:05

It does feel a bit like a re-rating is underway