Diversified Energy Share Discussion Threads

[riverman77] 28/3/2023 12:33

Where do you get the PV10 figure, and does this include the liabilities, eg debt and any losses on the hedging positions, or is it just the assets? I think this is the best way to value it, providing you can get an accurate figure that includes the liabilities as well as the assets.

[meanreverter] 28/3/2023 12:28

Three ways to value DEC (at 93p)…

(1) Asset value: 65.3% discount to PV10 (268p).
(2) Dividend yield (13% after 15% US WT): 69.7% discount on the 3.94% of FTSE O&G sector.
(3) Discount to share-price peak (140p on 14/08/22): 33.5%.

It's hard to calculate a meaningful PE ratio for DEC, because (1) the business model is buying, running down, and retiring depleted capital assets and (2) The US accounting treatment of hedging instruments obscures the reality of actual (hedged) revenue.

Looking at fundamentals (rather than accounting numbers), the main thing I would point out is that the US will soon be a major exporter of LNG. This will tend to align US gas prices with the (higher) international prices. International prices, in turn, will be supported for many years by the pariah status of Russian gas. Potentially, if Russia were an integrated member of the family of nations, with unlimited inward investment and exports in its gas sector, it could flood the global market with cheap gas from its world-class reserves. Unfortunately, though, Russia will be a non-player in that field for the foreseeable future.

Disclosure: I hold DEC. I would fill my boots at the present price, but my boots are already full; buying more would violate my investment safety limits. However attractive a share may seem, sometimes nasty things happen that you never contemplated. Then, portfolio diversification will help to soften the blow. I may be wrong about DEC, and I welcome comments pointing out nasty things that I didn't consider.

[oneillshaun] 27/3/2023 10:29

The divided this week is going to provide a nice average down.

[lomand01] 25/3/2023 09:17

Lab305. Well 50% gross margins, nearly 20⁰% free cash flow margins, conservative balance sheet and yet trading at a yield of around 15% then investors obviously don't understand the industry or business. As investors you and I do but the option is always there to sell and look for something else. For me I will continue to take the market leading dividends. Rusty has been consistent with his strategy since Day 1. I see no reason for him to change what to me is a sensible and sustainable model. BTW the hedging strategy has not been "loss making". DEC has swapped volatile excess profits for income sustainability allowing it access to funding which would otherwise would not be available. Usual caveats.

[lab305] 24/3/2023 15:24

Well he's not and it's friendless. There are a lot more shares issued now than there were a few weeks ago so as far as my holding is concerned it's diluted. The team have been in London this week doing the rounds of institutions drumming up business. The share price has certainly not responded positively. It is disingenuous to suggest that investors don't understand the " model"by now. I too have been here for six years and was expecting at least 150p by 2023. They were 132p in 2018 !!!
lomand01 FCF is the metric that we should concentrate on according to Rusty.. well it fell this year to 219million if you look at the accounts from 252million last.
At a time when finally the loss making hedging for years is at last paying off the share price has plummeted along with the gas price. This policy should show the company as very shrewd and stand alone winners.
Gas prices up today 2.195 +0.041 +1.90%

[lomand01] 24/3/2023 14:51

Lab305 Rusty is building a potential monster here over the next few years. I have been in since the IPO and so well ahead. The only real number which I focus on is the FCF yield which at approaching 20% would make 90% of listed companies green with envy. Unless they have experience in O&G most investors just don't understand the value (until it's too late). If DEC was bigger Buffet would be all over this company!!

[johnhemming] 24/3/2023 14:04

@lab305, if the acquisition and placing are accretive then they are not dilutive.

I assume this is calculated over a number of years as the early years will have a high level of depletion, but it has been stated to be accredtive.

[lab305] 24/3/2023 13:28

scrawl if you were borrowing money at 6% but paying out at 14% what would you do ? As for shareholders they are not happy at 91p , nor happy at a placing involving share dilution. You make it sound like a choice, dividend or buybacks , it isn't. Buying the shares back would make paying out the dividend cheaper for the company. They have cash on hand so use it and put a stop to this dreadful rout.

[scrwal] 24/3/2023 12:46

I am one who doesn't like share buybacks in general but will tolerate them if they add value. The problem is that buy backs are more relevant for a capital growth company such as a US quoted company where buy backs are the norm but they may not be the best option for an income bearing company such as DEC because the shareholders will be wanting income first with capital growth as a bonus.

The other major factor is the ARO model and the fact that it underpins the end game of the company which is to ensure all capping obligations are met ie DEC has a finite life and is not expected to exist next century whereas most quoted companies aim for some form of perpetual existence. Therefore surplus cash should be partially allocated to pre fund the ARO and not necessarily used on buy backs

[cassini] 24/3/2023 11:26

All energy being hit today.

[lomand01] 24/3/2023 11:20

Rusty's comments about activity in 2023 suggests to me that something is in the oven. Perhaps a RTO of a publicly listed US NG company? Would solve the listing problem and increase market cap. That would be my choice anyway....

[laurence llewelyn binliner] 24/3/2023 10:22

1Knocker, on another sell off red wash day any glimmer of month end bargains are most welcome, nearly new ISA time too..!

It is not just the reaction to a 0.25% base rate rise yesterday sinking in today surely..?, more wider banking liquidity and contagion jitters..?, DXY up, Gold up, FTSE -2%...

[1knocker] 24/3/2023 10:17

Down we go again!
The shareholders looking to reinvest the dividend next week must have lit a lot of candles and spent a lot of time on their knees!

[johnhemming] 24/3/2023 10:09

Whilst I was looking at the reports I found that they issued a new report on 21st March. This includes the following text:

US Inflation Reduction Act’s Methane Emissions
Reduction Program (“MERP”) - At its core, the MERP
requires the EPA to impose a charge on oil and gas
companies for any GHG emissions those companies
report above a threshold. Diversified’s 2022 NGSI
intensity of 0.21% is fractionally above the proposed
threshold of 0.20% for production assets. However,
our GHG emissions reduction initiatives should bring
us below the threshold, thus avoiding any financial
penalties. At the same time, we are considering
whether we may be eligible for funding grants for
emissions reduction technologies under MERP.

That is a further reduction from the calculations I did I referred to above which had an annual Methane Fee of USD 8.2m. The figure from this is probably under USD1m although It could be just over that. There are different methane fee thresholds for different aspects of the infrastructure.

Tanos II may not have been included in the figures for the report on 21st March 2023 and it might be worse simply because DEC are better at handling this sort of thing. However, they know how to handle this and can probably bring it into control quite quickly.

[johnhemming] 24/3/2023 09:56

@carcosa I did do the detailed calculations on the Methane Fee having researched the issue on various US government websites. There is a threshold of methane emissions that are allowed before a fee is paid.

My estimate pre Tanos II is that the methane fee would cost USD8,222,142.86 per annum which is obviously too precise a figure. That is as a consequence of the work DEC have done on this issue. I have not done a recalculation in the last 6 months and have not recalculated following Tanos II.

They are, however, going in the right direction here and were doing that before the Methane fee was first mentioned.

I would tend to agree with you that regulatory risk is material. However, from an climate change perspective gas is better than oil which is better than coal. Hence although it is possible a government may try to shut down coal I cannot see a government trying to shut down gas.

The reports that matter (Competent Person's, Sustainability) on these sort of issues are available here:


One thing I do is to take the tame broker predictions at various dates and see how they relate to outcomes. I don't mind sharing my spreadsheets as long as people accept that I make mistakes from time to time and people cannot rely on their accuracy.

For businesses like Diversified cash really is king. Doing calculations on an accrued basis is not really sensible. What we need to see (and they provide) are forecasts of cashflow.

[lomand01] 24/3/2023 08:25

Carcosa.Agreed although these industry costs will be reflected in higher wholesale NG prices. Interesting that DEC were recently issued a license to drill (3?) wells. Nobody has better geo data to drill low cost infill wells. Even a small number of successful wells turbo charges production and lowers costs and increases CF. IMO a tougher regulatory environment leads to less competition and higher prices. Selective infill drilling becomes very attractive at $5-6 NG compared with $2-3. I can not see any scenario where NG is not a key component of US energy supply for the next 20-30 yrs+ Equally important much of the prime acreage has already been drilled. We are seeing a "land grab". NG strip prices are indicating to me that the market forsees gradually rising prices over the next few years whereas the stock market is focusing on current spot prices. As always DYOR caveat..

[lab305] 24/3/2023 08:10

johnhemming. The pound was around 1.08 when they did just 28 days of buybacks. It is now 1.23. That's a 13.9% increase. Fair enough. The share price however was around £1.29p when they made the announcement and started the process.
We now have a share price of .94 pence . That's a whopping 26.5% lower .It makes glaring financial sense to use some of the cash on hand for this purpose whilst supporting the shareholders.

[carcosa] 24/3/2023 07:57

JH I have been invested in DEC for 5 years so am very familiar with the story. Davidosh was asking about potential negatives which I outlined in my post.

There is a specific very long report issued a few years ago about declining rates that DEC issued by an employed independent consultant. I assume its still available somewhere on the website and I seem to remember a dedicated video about that was issued too.

Am not only referring to Tanos II but also many other companies including the likes of Chevron and others. Selling at a PV>30.. 40 seems somewhat extraordinary.

But I still think the primary risk is that from the EPA; Fines are set to rise to $1,500 per metric ton of methane, which marks the first time the federal government has directly imposed a fee, or tax, on greenhouse gas emissions. Other fines, more taxes, more regulation etc etc seems to be the primary threat IMO

[johnhemming] 24/3/2023 07:17

@carcosa - it is best to check the background reports which can be found on the website. The Methane charge was an issue which would have cost something around USD 30m per year, but until the recent Tanos purchase DEC had made enough progress to avoid the methane fee over time. I have not yet looked at the impact of Tanos II.

The maths is complex because of the hyperbolic depletion. Hence the most recent purchase initially declines at over 30% after 3 years it is declining at 23% and then goes into terminal decline at 9%.

It appears what happened with Tanos II is that the sellers dropped the price and then it became worth DEC buying it. (I have no inside information on this, but the fact that they did a placing at what was not a good time would imply an opportunity).

In the detailed reports there are a range of plugging costs for different types of wells.

The last time I looked at it there seemed to be something like USD2bn plus left after paying off the debt, paying for plugging and paying dividends.

It is complicated because of the declines in production, but I have been checking the reasonableness of the tame brokers predicted production figures and they seem OK. However, I have not done an audit per se so you would need to check the figures for yourself.

I would think the lenders apply constraints on the use of funds for buybacks depending upon where liquidity is. Hence I am not surprised that the buybacks have come to an end. USD-GBP has shifted as well.

[11_percent] 24/3/2023 07:17

Two directors buying in the market.....93.93p and 95.71p.

[davidosh] 24/3/2023 00:51

loafingchard....just doing my initial research as that dividend yield looks incredibly tempting.

Where is the catch and/or what can go wrong to prevent those payouts continuing?

The area ie. USA they are based in is relatively safe too

[2wild] 23/3/2023 17:51

Or higher gas and oil prices. . A weaker pound would also help.