Diversified Energy Share Discussion Threads

[aleman] 03/8/2023 14:06

KS - Capital Markets Day Presentations page 92 shows reinvestment at around 20% of cashflow, with dividend at 40% and debt repayment at 35% approximately. The balance goes on ESG/well retirement. Again, these numbers will change regularly with gas prices and interest rates.

[lab305] 03/8/2023 14:00

Without more acquisitions they will be debt free in less than 6 years.

[king suarez] 03/8/2023 13:50

Thanks - that is very interesting/useful, so there is quite a large reduction in outgoing debt repayments in the next 2 years, which would offset the gas price weakness.

I only bought a small position here, just below 120p many months ago, so hadn't got around to doing much analysis yet - but was considering topping up this morning - hence my posting and calculations!

[aleman] 03/8/2023 13:37

King Suarez - free cashflow is budgeted for debt reduction, dividend and replacement of shrinking production assets. There as a good graphic of it in one of the presentations last year. Of course, as forward prices change, the graphic changes, so who knows what the balance is now until we get the next presentation? There might be an updated one that has come out this year somewhere that I have missed.

[laurence llewelyn binliner] 03/8/2023 13:16

#KS from the May presentation debt principle reductions are slated at:

USD270M for 2023
USD200M for 2024
USD178M for 2025

Page 26 - USD8.0BN FCF provide ~USD4.8BN in dividend potential while also repaying all debt outstanding and generating sufficient FCF to retire all wells without the use of a sinking fund (but with some pricing assumptions), the next presentation may contain some changes..

[bluemango] 03/8/2023 13:11

For those wondering where that quote was from in #5226, it was from Malcy's blog, posted just a couple of weeks ago.

[lab305] 03/8/2023 12:52

"It should be remembered as you look at the phenomenal embedded value within DEC with their huge yield and potential for buy-backs which add to the massive total return. Also if they stopped doing deals now they would be able to pay an unchanged dividend for many years without affecting the ability to pay out these significant amounts. Ive never seen protection like it."

Well that's a completely opposite point of view. Results in a very few days which should be interesting.

[king suarez] 03/8/2023 12:29

fordtin - yes I see they raised some cash from selling non-op assets - is this a sustainable path to covering any cash flow shortfalls though? Here is some rough analysis of what I am seeing:

2022 production 811Mmcf/d
2022 revenue $1bn net of hedging
2022 ebitda margin 50% @ $503m
2022 FCF $219m
2022 average price = $3.38/Mmcf
2022 implies $284m combined interest, tax, debt repayments, sustaining capex?
2022 dividend cost $143m, so surplus of $76m

2023 production 872Mmcf/d currently
2023 revenue 85% @3.79 = $1,025m + 15% @ strip say $2.5 = $120m -> total $1,145m
2023 ebitda margin 54%? suggests opex of $527m
2023 say $300m debt, interest, tax, sustaining capex?
2023 FCF $318m
2023 dividend cost $170m, so surplus of $148m

2024 production 872Mmcf/d currently
2024 hedging @$3.30 for 80% + rest at strip say $2.5 = avg $3.14
2024 revenue drops to $1bn
2024 opex say $550m given some inflation
2024 debt, int, tax, capex say $300m again (inflation offset by debt int reduction)
2024 FCF $150m
2024 dividend cost $170m = no longer covered?

[fordtin] 03/8/2023 12:01

K S

you missed out this source of funding;

17 July 2023
“the sale of certain undeveloped acreage within Diversified's Central Region (the "Assets") for net consideration of $16 million”



26 June 2023
“the sale of certain non-core, non-operated assets within Diversified's Central Region (the "Assets") for gross consideration of $40 million”

[king suarez] 03/8/2023 11:39

Sure - and they make pick up assets cheaper in a low price environment, but financed by what? More placings? Or is there a budget for organic growth from existing assets?

[bluemango] 03/8/2023 11:36

Presumably production increases are part of the plan to maintain dividend sustainability.

[king suarez] 03/8/2023 11:17

Given the lower hedging for 2024 and 2025 what are people's thoughts on the current dividend sustainability?

I worked out at the current production rate, the change in hedging from 2023 to 2024 leaves DEC around $100m lower on net operating income and the dividend is currently costing around £135m annually? ($3.79 hedge on 85% production of 872Mmcf/d v $3.30 hedge on 80% production).

Hedges are then lower still for 2025... have the company openly addressed the long-term dividend plan and sustainability?

[tom111] 02/8/2023 08:46

Yes but 6 weeks old

[lab305] 01/8/2023 08:01

Gas prices will move up if US can export more. Good news today.

[lomand01] 30/7/2023 06:13

Can't complain regarding DEC operating performance (gross/net margins,ROE,ROA,ESG,etc). Just a unique business model operating in a cyclical industry almost totally out of favour with investors. Most investors cant or don't want to understand it. Fortunately patient investors bring well compensated with market leading div until sanity (if ever) returns. Should prob trade off a 10% yield all things considered.

[marksp2011] 30/7/2023 05:32

Not sure it is even legal for a company to take action with the intent to move the share price They all do it. High share price = Happy life.In the longer run price and value do come togetherThere is a small Internet media company that ramped the price, QPP ramped the price - it doesn't end well

[meanreverter] 29/7/2023 16:51

Lab305 : “It is indeed the company's job to look after [its] shareholders”. I agree. However, I do not agree that it should “look after” the share price. Management should do its best, according to its judgement, in the interest of shareholders; it is up to the market to judge (rightly or wrongly) how successful it has been, what the company is worth, and thus what the share price should be. It is not the company's job to pull stunts in the hope of temporarily fooling the market into awarding it a higher share price to please day traders.

[marksp2011] 29/7/2023 07:34

Looks to me that the share price has stabilised. I am in profit and the buyback announcement will have discouraged instis and big traders from selling intending to buy backGiven the hedging you would expect the share price to be fairly stable As you can get a 5.5% risk free return and given the risks around this one I think a 10 to 12% yield is reasonably fairI only have 0.75% allocation so it is a diversion for me but I run a my own pension so I am very careful what I am doing.

[laurence llewelyn binliner] 29/7/2023 07:33

I would much prefer the company focused on value accretive deals, building revenues and maintaining a progressive dividend policy..4* 0.044* 0.04254* 0.04375..?The next but 1 should be a raise to 0.045..? The board should get on with building the business, generating strong results, and maintaining the dividend policy then the share price will take care of itself.. (IMO)

[meanreverter] 28/7/2023 20:05

I don't agree that it is the company's job to support the share price. Unlike individual shareholders, it is in a position to do large-scale deals with corporate or private vendors. If it can get better value by such a deal than by buying its own shares, then the deal should get priority; otherwise, consider a buyback. But the company should bear in mind that many shareholders would prefer a raised or special dividend to a buyback. While I think that shares in DEC now offer great value, I have enough for the present, and I would rather have the cash to invest in other great opportunities. Even if I thought that DEC was the cheapest share on AIM, I would still not go all-in on it: diversification is very important for me.

[laurence llewelyn binliner] 28/7/2023 14:08

#Cassini, same thoughts here, 2 recent divestments for USD16M and USD40M would suggest they could be gearing up for another asset purchase, given that it does not appear to be getting spent on the BB.. ;o)