Diversified Energy Share Discussion Threads

[owenski] 07/9/2022 17:03

Interview with Dowgate, they comment on DEC.

[mwj1959] 07/9/2022 14:24

A perfect PI stock!

[owenski] 07/9/2022 13:25

And thus, one can buy an income stock returning well above average market rates from what is essentially an income fund based on gas assets run by a top tier financial management team.

Lucky us.

[mwj1959] 07/9/2022 13:11

A stock that is caught between a rock and a hard place in terms of how many fund managers will look at it in my opinion. If they think the gas price is going to go up / remain at elevated levels they'll invest in companies that are most leveraged to this (and simpler to understand), so not DEC, while if they think that the gas price is going to go down they might consider DEC, but I suspect more often than not will just avoid the sector.

[bluemango] 07/9/2022 11:30

Well-argued and useful post, owenski.

Thank you.

[owenski] 07/9/2022 10:58

It helps to understand the background of the CEO, R.H. I believe he comes from an investment banking family but went into O&G, I also think his banking roots absolutely shape the nature of the business here.

As a business model it seems obvious to view this as a straight gas sales outfit, but I'd say that is not correct - the underlying asset is certainly gas, and on that score, market dynamics will feature naturally so.

But, there has been a lot of critique on the hedging here at lower than current market pricing, however, it must be remembered as positions mature they will hedge again at upward - though not at full elevated market pricing - so there will definitely be increased financial positives to appear on medium term time horizons.

The business model here is not based on straightforward gas selling, it should be viewed as an financial asset management model, they lock in pricing to ensure cash flow so as to fund the model which is asset management, running an efficient asset portfolio with known and predictable cash flows so as to fund further asset aquisitions via cash, debt and or equity, and then run the new assets within the portfolio for predictable financial returns.

This is a financial asset business model, R.H's background makes perfect sense in this regard as indeed does the hedging, the hedging is essential and should not be viewed in a negative fashion regarding disparity with open market spot prices.

Whilst the managed asset is gas sales and there is a forward future fillip wrt upward pricing power, hedging is key to this model and should be viewed as such. Returns can be planned and known as opposed to naked exposure to market spot pricing, although one can argue - just sell the stuff in open market - that is not how this model is run.

There is a disparity in the share price relative to the Yield, which is why the yield is so high. I don't think the market understands the business model and likely fixates on future asset retirement costs - such costs have been modelled and covered by management and are accomodated amply within the model's financial projections.

I believe the share price represents an anomaly - Market drivers for this particular asset merely reduce any risk factors here and are an operating bonus, maybe in the short to medium term the market will focus on the value here more accurately.

Just my thoughts here, happy to be corrected, but I reckon I'm on the money evaluating DEC, just to add, they are very shrewd financially savvy operators and know how to accurately manage assets, asset purchasing, financial modelling and importantly, how to manage portfolio risk.

There is another company I came across, TMIP, pretty much exactly the same business modelling, understood it pretty much straight away.

[aleman] 07/9/2022 10:24

10 years to design and build a new liquifaction plant and under 3 years to build an LNG tanker suggests ships will not be the problem. Is there a limited number of LNG ships? 61 tankers were delivered last year. That seems quite a lot to me. If there are already 700 and ships are a little bigger on average these days, that's about a 10% capacity increase. The LNG market has actually been expanding quickly in recent years. One would assume that is going to happen even more quickly with prices 10 times higher. A liquifaction capacity increase of 25% is already planned for 2023 and 2024 combined.

[apollocreed1] 07/9/2022 10:17

@mrnumpty - Using the FT stock screener about a year ago I came upon a lowly valued French company with a ROCE of around 80% called GazTransport & Technigaz (GTT). The company is an engineering organization specializing in membrane containment systems dedicated to the transport and storage of liquefied gas worldwide.

They have a similar business model to ARM holdings, where they design the technology for ships to load, store and unload LNG but they don't invest in the manufacture - very capital light. Instead, they licence this tech to shipbuilders that build LNG storage tankers. The largest shipbuilder is Hyundai in South Korea.

I regret not investing at the time when it was around 75 Euros, and the share price now is around 122 Euros. My reason for holding back was that they relied on 5 major shipbuilding customers and one of Terry Smith's rules for investing is that a business should have many customers rather than rely on a few.

I was also surprised that the company was so unknown and the few analysts that covered it had pretty low price targets of around 85-90 Euros (which just shows again how analysts know very little).

But I was aware that NG was experiencing growing demand so should have taken a punt.

[mrnumpty] 07/9/2022 08:12

Juliet Samuel has been writing a column in the Telegraph for some time and , in my humble opinion , she is a very bright woman . Her piece today ( page 14 ) is titled “ An energy price freeze is a recipe for blackouts “ . Although I rate her very highly , the following quote is fairly obvious : “ With much of Europe adopting price freezes , there is not going to be enough gas to fill demand “ . Her rationale is quite obvious , as she points out that , if gas prices are subsidised by various governments in order to prevent widespread destitution and bankruptcies , the logical result is that there will be less of an incentive to reduce gas consumption . Yes , the European market is somewhat different to the US market but , as asp5 points out , there are moves to create greater integration of the US and European markets ( I remember that , just when the war started in February , Ambrose Evans-Pritchard , another very bright Telegraph columnist , pointed out that there is a very limited number of the highly specialised LNG ships . Presumably there are moves to build more of them , but construction of them is obviously not a quick business - does anyone here have any information on this ? ) .

[asp5] 05/9/2022 16:40

As of June:

- Peak US LNG export capacity is ~13 bcf/d. (assuming all facilites working - which is temporarily not the case)
- 4.9 bcf/d (~40% increase)of capacity was either preparing for startup or under construction and expected to come online by the end of 2024
- Approved new LNG projects expected to reach final investment decision (FID) by the end of 2023 total 16.5 bcf/d. I believe typically 4-5 years later facilities could be operational.

So US LNG export capacity is on a path to nearly triple from now to 2028 from ~13 bcf/d to ~35 bcf/d.

These type of investments have a payback over 20+ years, so would not be given the go-ahead if there was not a valid business case.

Just underlines for me the positive outlook for DEC not just short term, but also over the medium & long term.

[tom111] 04/9/2022 20:26

Turkey needs all the money it can get its on the brink Inflation at 80% and rising and the currency falling.

[1knocker] 04/9/2022 18:39

Or is it a tacit recognition that the world needs Russian Oil and gas, and an attempt to move back to an orderly market at pre-war prices? What wouldn't the Germans and Italians not give to go back to purchasing Russian gas at a price closer to what they were paying last year? Turkey et al might be less happy, as they are making a bomb out of the trade as middleman.

[tom111] 04/9/2022 18:10

Russia cannot afford to stop oil being supplied to China or India otherwise they wont have anyone to supply to lol Seriously if the oil wells start freezing up in Siberia which is certainty and they stop working it will cause massive damage to the pipes and infrastructure.The Russians are in a rock and hard place.

[fordtin] 04/9/2022 13:59

Re – BlackRock TR-1’s, I though this comment was interesting;


“ ... I worked at BlackRock in 2010 to 2015. ..... They used to have this massive trading floor with all these peoples. You know, that were there with their trading desks. Two years later, nobody’s there and it’s all black box ....”

[bluemango] 03/9/2022 00:24

EU price cap on Russian oil could well have the opposite effect to intended, given that Russians say they won't deal with any countries imposing the cap.

So the sources of supply will be further restricted. Market forces will do the rest.

[asp5] 02/9/2022 15:21

Based on current exchange rates, DEC is yielding 11,5%. The high yield provides good down side risk protection.

The current discount to NAV, the ~$10M debt reduction & higher hedges that roll-in every month, the on-going accretive acquisitions, the steadily reducing ARO costs, the planned US listing, the ABS based growth model etc. etc. all support further growth in the share price from todays levels.

Historic total shareholder returns of 250% since 2017 have been great, but I think the next 5 years will surpass this.

[woodhawk] 02/9/2022 13:54

I don't think a possible lawsuit has anything to do with it. DEC was clearly overbought and needed to let off some steam and revert to trend, imo. Trading around the ex-divi added to the volatility as some would have been tempted to take their divi "early" after the strong run up. Indeed, I sold a percentage of mine and have now bought them back (and more besides).

[redtom1] 02/9/2022 13:24

Good point Matty, I had not checked the dates close enough!!

[mattybuoy] 02/9/2022 13:20

redtom1,

Just had a Google. The greenies are really out to get this company aren't they?

The West Virginia land owners lawsuit was filed on July 8th. There is no downward movement in the DEC price chart around that time, quite the opposite in fact.

It is mostly just trading in line with the oil headlines IMO.

[fardels bear] 02/9/2022 12:57

Get your laughing gear round some GKP. 37% yield and only ever the threat of legal action by the unconstitutional and illegal Iraqi Federal Supreme Court.

[redtom1] 02/9/2022 12:53

I'm guessing the latest lawsuit is the reason for the recent drop?

[woodhawk] 01/9/2022 11:49

Another major positive of significantly raised prices is that it makes less economic extraction more viable, potentially increasing output from already existing assets.

I have no problem with patience, as while I wait (and even after 15% witholding tax) I'm getting circa 9.5% yield at current price - with a hefty divi payment every quarter. Being paid so handsomely to wait suits me just fine. With the £ continuing to sink, those $ divis are getting ever more valuable too.

[woodhawk] 01/9/2022 00:16

I just don't have any time for this juvenile drivel.

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