Diversified Energy Share Discussion Threads

[1knocker] 01/9/2023 17:50

Well, an 88 close was not what I was expecting.

If this goes on I shall have to exercise a lot of restraint not to reinvest the dividend, though I am already marginally over my 5% limit, as well as being overweight O and G.

[lab305] 01/9/2023 17:29

Well today was a damp squib. I think they avoided any concrete answers after the presentation. The buybacks question was first forgotten and then avoided with misleading answers such as the closed period stopping them. Rubbish.

[drk1] 01/9/2023 17:00

You'd be barking mad to judge DEC on one day's trading - ask me in approx. 2 years time when my 4 year plan materialses. ;-)

"Diversified Energy headlined their webcast presentation with the banner ‘Right Company Right Time’ a moniker it has justified by time and time again in the six plus years that it has been here in London.

Today’s figures were excellent, belying the industry cost inflation, lower gas prices and fewer potential acquisitions as DEC came in with a first class set of interims. Record production of 142 Mboepd which was 144 Mboepd at the quarter end and lower unit costs, by 10%, led to revenue that thrashed the whisper and EBITDA a top of the range $283m.

This strong operational performance was born in the Smarter Asset Management team where core efficiencies delivered 1H23 Adjusted EBITDA Margin of 52% beating this time last year by 4 basis points and the company describe as being ‘robust’. Indeed some gas wells were shut in to come back to at higher prices.

And as I mentioned earlier, this performance was achieved on the back of lower gas prices but still achieved Net Income of $631 million, which includes $761 million (pre-tax) of non-cash hedge valuation gain, yet again proving that hedging has proved further added value, this time 15% higher than the strip.

Finally the company also announced the interim dividend with today’s figures, at 4.375 cents per share for 2Q 2023 that is an increase of 3% over this time last year and for a company I have yielding C.15% for this year and 17% for next.

DEC has continued to deliver excellent figures year after year, whatever the background whilst all the time backed by a strong balance sheet and aggressive dividend payments. A while ago I worked out with the company that they could pay the dividends for many years and still the company would not lose any value, quite some tribute to the management and the model they have established.

For the future there will be more acquisitions, the company has been waiting for deals to come to them as the market has been a bit toppy as vendors are yet to come to terms with the higher costs and expectations are maybe a bit too high, DEC don’t want to overpay, nor will they.

DEC are extraordinarily cheap, whilst they are off the bottom, at 91p they carry a substantial, 15 yield, directors have been buying stock and I can’t think of any companies better placed to take advantage of current market conditions, they are indeed resilient and consistently execute the model which has worked very well for them. ”

[marksp2011] 01/9/2023 16:50

Was there any explanation of why it looks like underlying net income was negative?

[johnhemming] 01/9/2023 16:36

A good question to which I think the answer is working capital.

[stevensupertrader] 01/9/2023 16:19

Now finally DEC come to roost and falling fast - if anyone took my advice in the morning , they are laughing all the way to their banks .

[asp5] 01/9/2023 16:13

my retirement fund - I would not say that. Actually I think DEC is well run and it should have more than sufficient cash generation to pay a good divi, perform ARO, repay debt & replace declines - however the accounts need patience & time to disect which I have not yet had the time to do and probably will not in the near term.

If you look at the notes the outstanding ABS debt went down by ~150M, which is more than the planned so I really would like to get my head around things first .... hence my request to the wise owls on this board ......

[asp5] 01/9/2023 15:59

From my point of view a few quick notes on the results.

The positives:
- Total Cash Costs per Unit down 10% to $1.66/Mcfe
- Average Realised Price of $3.56 /Mcfe (locking in a ~1.9 /Mcfe gain for 2023)
- H1 Adj EBITDA of $283M which is ~$566M FY23 vs $505M for 2022 a 12% increase
- Production at all time highs of 142Mboepd
- Good progress on both ESG & ARO
- Dividend confirmed and looks secure for 2024 & 2025 based on current hedges in place

The negatives:
- I do not understood the net debt dynamics.
- Net debt at end of 2022 was $1435M, then:
- $250M Acquisition of Tanos II, via $160M equity & $90M draw from RCF
- Planned $135M reduction in ABS debt due to amortization effects
- $40M cash recieved for sale of non strategic assets
- Net FCF of ~$130M derived from $283M (EDITDA) - $27M (Depreciation & Amort) - $41M (Interest) - $85M (H1 divis)

I would expect net debt to be around 1435 + 90 - 135 - 40 - 130 = ~$1220M, however net debt is $1509, a ~$290M delta.

What am I missing?? I would certainly appreciate any guidance / feedback whether there is a break in the logic above ....

[lab305] 01/9/2023 15:09

Investors Chronicle conclusion...
Despite a weaker year for energy prices, this remains a strong income stock. Buy.

[stevensupertrader] 01/9/2023 14:55

Nonsense . DEC doesn’t have enough cash flow to do BUYBACK, servicing its huge debt and paying a high dividend have drained its cash 💰 TEll me where to find extra cash unless DEC borrowed more and increased its debt mountain

[fred177] 01/9/2023 14:45

Any comment on the webcast talked about buy backs what low ball price are they waiting for ? Or are acquisitions a priority they say they are waiting for sellers to come to terms with higher interest rate environment i wil continue to hold

[johnhemming] 01/9/2023 12:07

The unwinding of a benefit from working capital, however, would result in a net cash outflow.

[lonrho] 01/9/2023 11:24

The unwinding of a build in working capital should result in a cash inflow not an outflow as receivables and stocks reduce. An outflow should only occur if payables reduce and in that event working capital should rise not fall.

[laurence llewelyn binliner] 01/9/2023 11:22

#Spangle93 ,indeed, as my previous post the past 4 years have consistently been 4 equal dividends then a raise, it is pretty strong at present but I would also be happy to accept more should the opportunity arise.. :o)

[aleman] 01/9/2023 10:29

Page 14 has net debt rising $74m. Page 26 has a working capital outflow of just over $100m. I take it debt would have reduced by a little under $30m had working capital been unchanged. It also gets a mention on page 19. I don't understand the second paragraph about offsetting items, though.

The decrease in net cash provided by operating activities was predominantly attributable to the
following:
• A turnover in our working capital position of $194 million. reflecting the impact of the rapid changes in commodity markets during the post-pandemic era. During the six months ended 30 June 2022 commodity pricing was rapidly accelerating allowing us to build a working capital benefit of $92 million. When prices cycled back down in 2023 the build up in working capital began to unwind generating cash outflows of $102 million;
• These outflows from working capital turnover were offset in part by a $59 million increase in Adjusted EBITDA as well as declines of $64 million in other adjusting costs during the six months ended 30 June 2023 when compared to the six months ended 30 June 2022. Additionally, our hedge modifications transitioned from an outflow of $7 million to an inflow of $17 million offsetting an additional $24 million in year-over-year working capital turnover.

[spangle93] 01/9/2023 10:11

Yes, they seem to put rate up at a mid-halfyear, so that they can show a consistent rise in dividends paid per half year in their presentation graphs

[laurence llewelyn binliner] 01/9/2023 10:03

#1Knocker, share purchase net costs are coming down fast with 4*.04375 (17.5) cents a year dividend, that was the 4th one at this rate and there is the potential for a hike next time..

[1knocker] 01/9/2023 09:33

I agree, Drk1. GAAP accounting principles lead to weird and uninformative, even downright misleading, figures for DEC. I think all you can do is to look at free cash flow and debt serviceability. Those, and of course the growing aggregate figure at the foot of your DEC income account! The closer that gets to the aggregate figure for my cost of purchase of DEC shares, the happier I am.

[stevensupertrader] 01/9/2023 09:16

Servicing the debt is one thing but unable to reduce its debt (year on year ) is a sign that DEC is trying hard to survive on cash flow to service it’s debt and pay a decent dividend otherwise DEC share price will fall off the cliff imo

[drk1] 01/9/2023 09:05

With DEC's model, it's nigh impossible to look only at the surface! In any case it is debt serviceablity I look for and DEC's hedged production more than covers this (and the divi). Each to their own.

[marksp2011] 01/9/2023 09:02

It all depends on whether they have run the acreage purchases and sales through the P&L. Increased debt isn't a shock given the net asset transactionsWith the numbers they have published I can't tell

[stevensupertrader] 01/9/2023 08:49

Drk1. - don’t look at the surface of this H1 result - Debt increases Ie not good news as it DEC unable to reduce its debt esp.. in this high interest environment - we will know who is correct ? share price will fall imo

[bubloo] 01/9/2023 08:47

I am also concerned about negative NOI. how is that possible.Is this the black sheep in the numbers. Help sought from more informed investors please.