Diversified Energy Share Discussion Threads

[wolstencroft] 25/9/2023 16:32

kaos:

"if DEC hedges 50 % it means in their case it outsourced hedging to a specialist which buys OR sells gas for a future delivery at a known price and quantity.... this arms lenght hedging is important imho and unusual after being so long in the business.It could be structures like collars etc"

Not really. They are selling gas forward to guarantee a price to guarantee as far as is possible a profit on gas produced in order to minimise the chance that they won't be able to pay back debt.

"One just assumes [naturaly] just selling gas that they produce"

yes

"If DEC signes a selling long term contract with a formula - it is not hedging, despite the crux of it is simmilar to hedging with almost the same consequences."

It is hedging. That's the very definition.

[scrwal] 25/9/2023 13:28

The ARO plan produced by the company is based on a 50 year life span when all wells are retired so therefore over that time frame dividends will fall. Currently they are rising but once the loans are paid off significant cash flow will be used to pre fund the ARO and dividends cash account - this is shown more clearly in the June 2021 supplement.
The June 2022 supplement uses 17c as the base dividend for 5 years and then reverts to 40% of FCF plus a variable element based on net residual flows.
The plan does not assume continuing significant acquisitions only minor ones to partially mitigate declining production.

If an argument is put forward that there is an expectation that there will be ongoing significant acquisitions then that will basically invalidate the ARO model being produced by the company.

[stevensupertrader] 25/9/2023 13:24

DEC Management is wasting the Company funds and cash flow to buy back shares at an average price of 81p where now one can get DEC share at under 80p !!
IMO - Just throwing good money away . Management thinking such a good price to do again buyback but each time , management embarks on it , share price falls further - AMATEURS
MANAGEMENT imo

[fordtin] 25/9/2023 08:06

Some sloppy copy'n'paste in this morning's rns;

"the Company has purchased 250,000 ordinary shares" .... "Aggregate Number of Ordinary Shares Purchased: 120,000"

[laurence llewelyn binliner] 25/9/2023 08:05

If the progressive dividend policy is maintained, the next one should be a raise.. :o)

[johnhemming] 25/9/2023 07:47

I don't think the steady state dividend is expected to decline save as the wells stop producing. There is capacity for further payments to shareholders in the long term cash flow forecast.

[kaos3] 22/9/2023 16:28

As i am foreign in english, please let me understand the words

If DEC hedges 50 % it means in their case it outsourced hedging to a specialist which buys OR sells gas for a future delivery at a known price and quantity.... this arms lenght hedging is important imho and unusual after being so long in the business.It could be structures like collars etc

One just assumes [naturaly] just selling gas that they produce

If DEC signes a selling long term contract with a formula - it is not hedging, despite the crux of it is simmilar to hedging with almost the same consequences.

Eg - all they say is true but I am just assuming what it means or should mean but i have no idea what they are doing using those words.

Enron was mostly telling the truth all the time. Usage of words example that i remember. Liars are very careful about words. They just did not tell all of it - outsourcing, off BS entities etc

And i have full trust in DEC and do not think they are misusing words and their meanings. I trust them.

[scrwal] 22/9/2023 16:13

On the subject of buybacks ( which I don't really like) I have a holding in SBLK a US listed bulk carrier who today announced they had bought back 10% of the share capital which the market has reacted favourably to - so it shows that they can work.

Maybe DEC could get a move on with their buyback if they are really committed to it and aren't eyeing up an acquisition.

[lomand01] 22/9/2023 16:10

Scrawl. Not sure about your claim that dividends are expected to fall. That is on the basis that DEC made no acquisitions. You could say the same every O&G or mining co. The most recent presentation gives a summary of the divs Vs market cap if that was to happen. But DEC is like any other NAT resources co and the free cash after divs+ debt will be used for that purpose.if no compelling ops were found over 12-18 months I would expect special divs or BB if that made better sense.IMO Mr market is pricing DEC as a run down and applying a further discount what is the NPV of the divs for the next 10 years and how you value the remaining 25+ years of reserves and at what NG price? The market is a discounting mechanism and because DEC is unique, it's struggling with the maths

[1knocker] 22/9/2023 16:02

I think it a grave mistake to believe that BB comments (favourable or otherwise) move the market. We are a small number of small fish in a big pond.

Also, while I agree that a hostile reaction to any note of doubt or caution can be indicative of desperation, it is worth remembering that BB posters tend to be holders or at least prospective holders of the subject company shares, so they are by and large enthusiasts for the sector /share, or they would not be following let alone contributing to the board at all.

Personally, I follow BBs mainly for angles I may have missed, not as a barometer of sentiment.

[1knocker] 22/9/2023 14:19

gvg, if you are no longer convinced by the business model and believe that the risk of holding outweighs the prospects of reward, you are quite right to sell and bank your profits(on a total return if not a capital account basis - I doubt many of us are in the blue on our capital accounts at today's price). No one ever went broke taking a profit. The dividend will be a pleasant parting gift for you in a week's time. It is always rather satisfying to receive a dividend from a share one no longer holds!

[scrwal] 22/9/2023 13:19

The dividend is expected to fall in the longer term - this is part of the ARO plan and why a cash balance is to be built up once debt has been repaid.

There is nothing to stop a company selling for a future delivery and only buying much closer to the delivery date if it firmly believes prices will fall over that time frame. However this doesn't seem to be the DEC way as the company seems to hedge on an automatic basis rather than trying to second guess the market.

[1knocker] 22/9/2023 12:31

GG's analysis is correct, but there is less in it than meets the eye.

Anyone who sells for delivery some time in the future something he does not yet have on the shelf (eg a manufacturer of cement) runs the risk of having to pay contractual compensation if he can't fulfil the contract.

Suppliers address this in various ways. Exceptions from the obligation to deliver in specified contingencies, not forward selling the whole of their projected production, caps on compensation and so on. Any producer will have a variety of different contracts, at different prices according to their terms. So too purchasers, who will pay more for a right (but not an obligation) to take gas than for gas they contract to take whether they want it or not. Typically, they will agree to an obligation to take gas to the amount it is a racing certainty they will want, and will be happy to pay more for gas there is a real risk they will not want at all, but will need to access if demand THEY are obliged to satisfy exceeds their expectation. as a matter of common sense, the lower the contract price, the lower the risk to the supplier will be. Suppliers don't sell forward to minimoise profit and maximise risk!

The amount of gas bought and sold on the spot market for consumption (as distinct from speculation) is pretty small, so while the prices can be impressively high (or low - remember when oil went negative?)they don't make much odds to the overall average prices suppliers receive and purchasers pay. Think of it like that item you buy at the corner shop late at night because you forgot it when doing the weekly shop at the supermarket -£3.50 for haf a pound of butter is expensive, but it does not add much to the shopper's total bill, not make the corner shop more profitable than the supermarket because he is not selling much. Remember too that a lot of contracts to supply and take gas are sold on, or bought back. The buying and selling is not 'set and forget' it is a constant process, like currency hedging for business with costs in one currency and receipts in another.

It would be a pure gambler or a remarkably inept long term player which found itself on the hook to provide a lot of gas it could not supply and needing to acquire it at whatever the market demanded on the spot market the day delivery fell due.

The greater anxiety with DEC is that it may be too good to be true, and that the numbers are manipulated, That is something one should never rule out where a company dealing in a basic commodity is paying out far more than its peers. Remember, Enron had a credit rating until the very day it went under, and a certain cake maker was thought to be a wonderfully tight financial ship!until the day the black hole could no longer be concealed. So far as i can see (which is not very far!) DEC is kosher, but it would be stupid to assume that a company like DEC is more solid than the rock of Gibraltar and that a 17% dividend is baked in to eternity. Never bet the farm on ANYTHING.

[lab305] 22/9/2023 11:51

Well if you want them cheap to buy with your dividend in a week you have your wish. I certainly wouldn't buy any more untill they reverse this relentless decline. The more they dither and the lower it drops the harder it will be to reverse. Has anyone contacted investor relations with their concerns and received a reply. If so please post their response. I have received none. Thanks.

[cassini] 22/9/2023 10:46

I thought GG's story was extremely unlikely but I thought I'd mention it for completeness.

I never dismiss stories out of hand just because they don't suit me, but GG never points towards any evidence for his theories, they're just woven around the falling share price.

[11_percent] 22/9/2023 08:35

80.25 on the bid.

[11_percent] 22/9/2023 08:15

Usual hit on the open........bots doing their job.

[qvg] 22/9/2023 08:10

Surprised there does not seem to be any comment on sudden departure of CFO, and major reorganisation of management. I have concerns on sustainablity of business model in current debt environment. I sold

[drk1] 22/9/2023 07:47

Cassini - absolute garbage, end off!

[fordtin] 22/9/2023 07:44

Cassini - the first thoughts which came to mind while reading your GG quote were;

"It's time to put on makeup
It's time to dress up right
It's time to raise the curtain on the Muppet Show tonight"

[lab305] 22/9/2023 07:39

CASSINI the theory doesn't actually stand up to any scrutiny. You know that they have shut some wells down and they await better gas pricing. Are you seriously suggesting that they would halt some production whilst at the same time fail to deliver their contracted production obligations??? If you read any more from that nutcase you will need therapy !

[cassini] 22/9/2023 01:40

So 'GreyGeorge', who got the boot from here a while ago for being snarky, has washed up again on the LSE DEC forum with wild stories about chapter 11 bankruptcy blah-blah.

However he did outline a potential mechanism for trouble this time, albeit requiring malfeasance from DEC.

So here it is for discussion:

We all know DEC hedges its gas sales to get a guaranteed price looking ahead so it can plan to pay off its debt with certainty. They don't get a great price for the gas compared to spot therefore in a rising gas market. This shows up as a non-cash loss. No big deal.

GG suggested that, were DEC unable to actually deliver the gas it had promised to, it would then be obliged to buy gas for delivery on the spot market at much elevated rates compared to its hedged price (certainly this would be true for last year when the spot price was up to $8 at one point I think) to honour its contracts.

This would constitute an actual cash loss.

I have no background in reading company accounts so can't really comment on this except to say if it happened and has made its way into the latest company figures I'm pretty sure someone would have noticed this almost right away.

Of course, that's if it made it into the accounts in the first place. If one was to take this theory a bit further, the departure of the CFO might not be unrelated...

Any comments?