Diversified Energy Share Discussion Threads

[1knocker] 26/4/2023 12:45

Are we going to slip under 90 again?

I wonder if there will be a spate of buying as Ex d date approaches, or indeed a spate of selling afterwards?

This tries one's patience. Probably good for the soul! Even those of us who are long term holders for the income like to see a bit of blue rather than red once in a while though.

[meanreverter] 26/4/2023 09:58

Normal printing is black on white because the contrast makes it easy to read.

[aleman] 26/4/2023 09:54

That's little to do with the point being made. It was in answer to the question why DEC shares are moving so much like other gas companies despite the hedging. The majority of longer term cashflow is not protected by hedging, and other companies often have some hedging, so the price swings with only a slightly lower beta than other gas shares. People should not really expect otherwise.

[johnhemming] 26/4/2023 09:50

@aleman AIUI there is sufficient production hedged to pay the debts. Production is also quite predictable although the recent Tanos purchase will drop off quickly to start out with. It will then calm down.

[aleman] 26/4/2023 08:19

They've gone up a bit since the last illustration I saw but it makes little difference to my point. Look at the light grey area in the illustration of 50 year portfolio retirement. The hedges only cover a small portion of the cashflow projection in the longer term, leaving it to swing with market prices like other gas companies, which also have only modest contract or hedging cover when considering the longer term. My point is a general one. I'm not going to argue about a few months here or there. The amount of that projected cashflow in the light grey area is a snapshot. It swings with market prices. DEC's value will swing up and down as 5 or 10 year futures swing up and down. Such time frames are not hedged. We only have reasonable assurance of enough cashflow to cover the current dividend for a couple of years. After that, it's older well profile could bring more volatility in well retirement costs projections than some other gas companies. More stability short term but possibly a bit less long term. I'd still expect DEC's share price to swing quite a lot like other gas companies. The hedges will only moderate beta a little.

[gary1966] 26/4/2023 07:44

Aleman,

Hedging drops away quite quickly after 12 months, really?

Take a look at page 38 of the March presentation, link below.



2023 85% hedged $3.83
2024 80% hedged $3.32
2025 70% hedged $3.23

Remember Rusty said DEC make a lot of money at $3. ABS all covered by hedging to be repaid in the next 7 years.

[gisjob2] 26/4/2023 02:45

I was interested in investing in Diversified a little while back but I stumbled across this video and was particularly interested in how the company accounts for it's well leakage. I posted here hoping someone could explain this. watch the video here from 33 minutes.

[lab305] 26/4/2023 00:54

Well reading those posts I may as well go and slit my wrists now ! Hang on a minute though every analyst report that I have seen , and there have been several , rate the stock much more highly than this. As far as I can see with detailed analysis and universal approval .

[marksp2011] 25/4/2023 19:02

Aleman

I agree. It was the 140p that was the aberration.

This is high risk, high yield

The bigger it gets, the harder it is to keep the scheme going and the longer the well capping chains become but, while the music is playing.....

As a 1% holding it is fine - I have a reasonably sized SIPP to use that has 10% in high yielding stuff that feeds the growth side. That 10% is spread over 12 different holdings

[aleman] 25/4/2023 17:31

Is 100% of future production hedged? No. Are other companies all selling just into the spot market? No. They will have contracts and some hedging, too. Shares are supposed to reflect 10 years or more of future cashflows. Hedging drops away quite quickly after 12 months so most future income is unhedged - even if it is a bit front loaded. Do other the other companies carry as much debt as DEC? I'm guessing mostly not. When looked at over 10 or 20 years, DEC probably have a bit more hedging and a bit more debt and not terribly high quality assets (though new drilling might make things a bit more interesting). In practice, the difference in hedging probably makes DEC slightly less volatile while old wells that would need more capping and sooner at low gas prices and not at high prices probably makes it more volatile. Overall, is that more or less?

I think the protection from hedging here is overestimated. It is mostly there to allow the company to acquire more assets so the company can replace shrivelling existing ones and grow as an entity to squeeze out economies of scale. The benefits to shareholders of growth are moderated and still not guaranteed more than a couple of years out as they are dependent on an ongoing deal flow, with high political risk and substantial well-capping liabilities to consider, hence the low rating and high yield that might need capping itself in time, even if it does not seem at risk for now. Anyone who thinks the shares could race ahead and the yield drop into lowish single figures is deluded. It's just not that type of stock. It is what it is - a high yield for a year or two and then subject to all sorts of risks despite some short-term hedging that's just there to get the debt paid down a little faster than the assets waste, with hopefully enough spare cash to replace the assets. It's a fingers-crossed, yield investment and I would not advocate high portfolio exposure but it is an interesting bit of yield diversification for those that like that sort of thing.

[cassini] 25/4/2023 12:51

I think we're forgetting about the lightning share placement and capital raise.

Hedging isn't going to deal with that.

We can't compare share price performance on an 'All things being equal basis' because they're not...

We'll see about the hedging efficacy when the bottom line comes in - it'll need some set of results at the new low gas price to see how that goes.

[lab305] 25/4/2023 11:57

No purely on share price We have had two dividends in that time but other companies pay as well . Include dividend and we are still down about 23% near the bottom . This to me who has long been against the very aggressive hedging is unfathomable. Is this not the hour when we are protected ?

[fordtin] 25/4/2023 11:45

lab - are those percentages based purely on share price, or are they adjusted for dividends paid in the last six months?

p.s. I did email the company about share buybacks. The response was a bit non-committal. Something like playing a balancing act by carefully evaluating all uses of capital including paying down debt, dividends, buybacks and accretive acquisitions.

[lab305] 25/4/2023 11:39

EQT. 32.91 USD -6.50 (-16.49%)past 6 months
Antero. 22.94 USD -12.43 (-35.14%)past 6 months (hedge nothing )
Southwestern Energy. 5.11 USD -1.71 (-25.07%)past 6 months
Chesapeake Energy. 82.47 USD -16.42 (-16.60%)past 6 months
Range Resources. 25.69 USD -2.91 (-10.17%)past 6 months
CNX Resources. 15.68 USD -2.58 (-14.13%)past 6 months
And finally.....
Diversified Energy 92.30 GBX -36.10 (-28.12%)past 6 months

So the company that protects us by hedging has the second worse performance , beaten only by Antero who don't hedge at all. Surely we should be around the best .If we can divert ourselves from withholding tax for a minute can any of you knowledgeable posters please explain how we are in this dire situation and suggest what the company can do to rectify it. My suggestion of further buybacks saving paying out 14% doesn't seem to have many backers !

[marksp2011] 24/4/2023 19:35

The question is whether you are claiming to be resident for tax purposes in another country. My discussions with HMRC were quite plain when I was in Florida I still had too many ties with UK and so needed to r claim double taxation. That isn't the same as using a UK tax treaty to avoid US taxesTrying to get HMRC to recognise you as being non resident for tax purposes is quite a bind. I failed even though I had a us tpin and was paying tax in FloridaStill it keeps accountants fat and happy

[meanreverter] 24/4/2023 08:16

Thanks, Cassini. The relevant part is Section 10:

[garycook] 24/4/2023 07:52

marksp2011,Thank you. My Residency tax status appears on my HL SIPP account details as:Rest of UK rate taxpayer.So you are 100% correct.When HL replies to my email.I will post it.

[marksp2011] 24/4/2023 06:18

The answer to this is really simpleThere is a bilateral tax treaty between tax jurisdictionsIF Garycook has UK tax residency the country he happens to be sitting in is irrelevant. I am not physically in the UK either. Physical location isn't even a question on the W8-BEN form.If he is UK Tax resident and the dividend is in a SIPP recognised by UK Tax Authorities as a recognised pension scheme the witholding tax rate is zeroIf his tax residency Is not UK then he can't be covered under a UK tax agreement I doubt standard SIPP providers will bother with other tax rules and will apply UK rules to every SIPP as SIPP is a UK tax structure

[cassini] 24/4/2023 02:16

The answer might be in this govt tax document somewhere but it would require some study.

hXXps://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability/guidance-note-for-residence-domicile-and-the-remittance-basis-rdr1

[garycook] 24/4/2023 01:27

I have a Hargreaves Lansdown SIPP but now reside in the Philippines. HL are deducting the DEC 30% Witholding tax, because of my overseas residence. If my SIPP is a UK regulated Pension scheme, which it is, then it should not attract the 30% Witholding Tax ? Anyone else holding DEC overseas have this problem with their UK broker. I have this morning secure messaged HL on this matter,and will post here there reply.

[marksp2011] 23/4/2023 13:38

Guys

The W8-BEN is a statement for beneficial Ownership. ALL accounts have a beneficial owner and you need a W8 Ben for any account if you want to avoid paying full tax

SIPPs are different as they are a recognised Pension Scheme under the bilateral tax agreement. The W8-BEN gives a withholding tax rate of zero for regulated pension schemes

[cassini] 23/4/2023 12:56

I believe SIPPs, in contrast to ISAs, do not need an individual to submit a W8-BEN to receive WHT relief so at least they are treated in a blanket 'nominee' fashion.

[meanreverter] 23/4/2023 08:04

LLB — I fear that you may be right!

[laurence llewelyn binliner] 23/4/2023 07:25

#meanreverter, banks most likely do put in their nominee W8-BEN for their full position but only pass on the ISA 15% WHT to individuals that do the same, they would keep the rest for themselves from the unclaimed amounts, I did not get any reminders or comms from my provider and only through trawling their website for tax docs found and submitted their W8-BEN option..

Easy pickings for them and from holders pockets who are not on the ball, my last dividend got withdrawn and re-credited at an even worse FX, it is a shame we cannot build dollars in an ISA, but they are generally a brilliant tax shield tool for us all to exploit and maximise..