Diversified Energy Share Discussion Threads

[lab305] 25/10/2023 08:19

asp5. The first question I would ask is why at the interims there was a substantial increase in RCF debt leaving them more exposed to higher rates.
Hedging works great until prices rise far above what you are receiving. In that case your competitors benefit greatly and acquiring assets becomes very expensive.
Finally if hedging gives certainty of income and protection against shocks why has the share price collapsed ?

[johnhemming] 25/10/2023 07:38

I monitor the tame brokers forecasts on decline. TanosII will increase the decline overall temporarily as TanosII is at an earlier stage of production. The early decline percentages are higher than the later ones.

[asp5] 25/10/2023 05:52

Hi cassini the August 2021 ARO supplement, slide 9 shows that 75% of the estate at that time had a decline rate of less than 6%.

The report is based on work from reserve auditor Wright & Company in 2018 which sampled 20K wells.

DEC should really publish an updated chart based on more recent sampling given all the acquisitions it has made over the past years. I believe this would help to allay alot of fears re the decline rate.

[asp5] 25/10/2023 05:42

If you look at the financial information full year presentation (on the DEC website) for the year they IPO'd (2017). Slide 17 is titled "HEDGED TO PROTECT CASH FLOW & DIVIDEND" in which DEC show their hedges stretching out to 2021 i.e. 4 years. On slide 23 & 24 they show the breakdown of the hedges from gas & oil. Oil hedges remain around 80% of production for 2 years before dropping lower, while gas hedges remain around 80% for 18 months before dropping lower.

In my view the strategy and approach to hedge has been made clear by management from the start and has not deviated over time. What I believe has changed/been improved is that DEC has moved from using RCF facilities (short term revolving financing e.g. review bi-annually etc.) to fund acquisitions which is inherently more risky to long dated amortizing ABF structures which are inherently less risky for shareholders as the rate is fixed in for the tenor and debt repaid at end of term.

However this change in financing requires longer term hedges to be put into place. Hence why DEC now has a rolling 3 year hedge strategy combined with long term hedges in order to secure the lower cost, less risky financing. In my view this is extremely positive and not a negative.

[cassini] 25/10/2023 00:49

Some mention of this 10% decline rate has been made on LSE and one poster noted that some of the wells in the new aquisition are still in their hyperbolic phase and have not reached a stable exponential decline rate yet.

I know that sounds like it comes from the 'trust me bro' school of speculation but I wonder if DEC have published any breakdown of the distribution of decline rates in their wells?

[lab305] 24/10/2023 20:55

fordtin I don't recognize the number but I just checked the totals. I sold all of them over 3 different platforms and the total was just shy of 630k shares.You will appreciate things were fairly hectic this morning! That's all mine gone but I would still buy some back if some of those concerns are addressed. I originally bought into a long life low decline neglected wells better husbandry company. That's changed now and the mouse is running on the wheel trying to keep up.
I honestly think that the increase in hedging has been the main problem. Last year when gas prices went through the roof DEC could not capitalize on that whilst others made hay. Those others put cash away from the bonanza and in more recent lean times they still have reserves. There are therefore no distressed assets about that Rusty would normally pounce on. Hence no deals , a big problem if decline rate is 10%.
That's my take anyway but my criticism of the very high hedging levels over the years has not won me many friends on here !

[fordtin] 24/10/2023 19:04

Lab305 – I guess you’ve got no reason to follow the thread anymore, but if you are still here, I guess the rapid fire string of 50k’s were your sells, do you think the uncrossing trade of 546,086 had any connection to your volley of trades?
It'll be interesting to see if they feature in a buyback rns tomorrow.

[cassini] 24/10/2023 17:44

Disappointing close after an encouraging start.

Note the US appears to have taken us down after 14:30 which was also the case when this started to tumble hard about October 1st. What's that about, it's an up-day in the US markets today.

The downtrend remains intact for now.

I wonder if we're setting up for double bottom?

[lomand01] 24/10/2023 16:03

Lab305. Understand your frustration. If you have not already read it this is some interesting analysis of the points you raised. Not saying he is correct but at least he is independent.
hxxps://open.substack.com/pub/theoakbloke/p/captain-on-dec?utm_source=share&utm_medium=android&r=19pp7m

[lab305] 24/10/2023 15:35

You may well be correct but my patience has snapped. A few weeks ago I sold another large chunk at 90p. I certainly don't regret that. I have been here since 2017 and quickly bought quite a large holding. I have made money on them over the period as much by trading as from the dividend. Obviously I was much wealthier even just a month ago but this level of wealth destruction is unpalatable and I have given them every chance. The main factors that concerned me are these.
1.Sporadic non existent buybacks. To me if the company doesn't show faith in itself then why should I ?
2 Yearly gas production drop from existing wells now compared with first few years.
3. My expectations of bumper interim profits this year due to hedging never materialized.
4. Apparent debt increase at same interims accompanied by interest rate rises.
5. Sudden Eric Williams departure. A person who appeared to be a company man through and through
6. The relentless collapsing share price.
7.The clamming up and quietness of the company. Communications have all but ceased and I know quite a few investors and brokers that have commented on this. Some may remember we used to have investor meetings in London.
8. The outlook for next year is not great as the hedged price they will receive is lower than this year.

[garycook] 24/10/2023 14:42

lab305, Think you may live to regret selling that amount of DEC at 72p. But best of luck.

[lab305] 24/10/2023 14:07

Thanks fordtin. Not one trade but several .

[fordtin] 24/10/2023 13:57

Lab305 - best of luck wherever you decide to invest next. I find it slightly comforting that there were sufficient buyers to absorb a 550k trade.

[cassini] 24/10/2023 13:27

550k shares is a monster position in one share, although I suppose it depends on the size of the rest of your portfolio!

I'm trying to get some kind of handle on where we go from here and the chart is all I've got.

It would be encouraging to close above 72.5p as that's the top of the DEC price channel from Oct 9th.

Although it has pulled back from 5.02% to 4.88%, the US 10 Year Treasury yield is also still within its rising channel, assuming it has something to do with the share price here.

Conclusion: not out of the woods yet.

[lab305] 24/10/2023 13:07

Sold out this morning 550k shares at 72p. No buybacks again yesterday was the last straw. I have lost faith in management both because of very poor communication and failure on just about everything Rusty said at the results presentation. My main regret was not selling at the placing . That really did make a mockery of the word accretive!

[scrwal] 24/10/2023 13:05

Any US quoted company doing a buyback having given the criteria for the buyback would now be going at full speed buying back the maximum they could in the position DEC finds its share price at. The revenue is hedged so they know the level of cash coming in and should have a good idea of the FCF and the share price is well below 100p being the average price per share of the £97.4M to be used. It's a complete no brainer based on their own parameters and even if they believe there may be further price weakness so what as you can't be certain and if they don't buy now then if the price does recover then logically they cannot spend any more on buybacks. It's a mess entirely of their own making at this point in time.

The market will be confused about the mess and may well be expecting another snap placing based on what happened when the previous buy back was scaled back and we all know how the market reacts to DECs snap placings.

[johnhemming] 24/10/2023 07:04

An increase from 1% to 12% exposure to interest rates still means the vast majority of debt is fixed interest. TANOS II should get paid off reasonably quickly and would have been bought with higher interest rates in place so the financial planning would not be an issue. Hence I don't think that is an issue.

I do think they are being careful and only doing buybacks when the stock is taking a downward turn.

[bluemango] 24/10/2023 04:43

Even if that was the perceived issue, the market should now be pricing in a combination of gradual easing of interest rates (having hopefully peaked), plus a possible rising again of energy prices.

[cassini] 24/10/2023 00:35

Fixed the above link from mondex's post:



Also, over on LSE, a poster (Trekmadone) is saying that before the latest TANOS acquisition, 99% of DEC's debt was fixed interest. After the acquisition, only 88% of it is, so DEC has acquired some not insignificant exposure to variable interest rates. I don't have any more info on the details.

If it was a problem I doubt they'd be doing any buybacks at all, but maybe they're being careful just out of caution?

[cassini] 23/10/2023 16:22

The US 10 Year Treasury has been knocked back to 4.88% from 5.02% this morning which may not be unrelated to our little bounce here.

Have to see if yields continue to drop...

[mondex] 23/10/2023 14:51

I strongly urge you to read the Oakbloke's piece on DEC below:

hxxps://theoakbloke.substack.com/p/dec-the-halls?utm_source=profile&utm_medium=reader2

He explains clearly how the common perception of their accounts is wrong because of IFRS9 accounting requirements: "IFRS 9 forces me to bring forward possible future losses BUT IT DOESN’T LET ME BRING FORWARD FUTURE PROFITS" also these "forward losses" have not yet occurred & are mostly protected through hedging.

"If you estimate that in the next 8 years DEC is estimated to make something like $4billion adjusted EBITDA profit. The fact “the numbers” say there’s a -$600m loss (for the next 8 years), really mean there’s a future net $3.4bn profit.

IFRS 9 is contrary to the MATCHING PRINCIPLE in Accounting that I should match my costs and revenues in the same time period. But there we go. I don’t set the rules I just try to explain them.

As an accountant it took me quite a while to get my head around DEC. For non-accountants until someone comes along with a simple model to explain it (and assuming they want to believe me) then they’ve got no chance."

[asp5] 23/10/2023 13:59

Mondex, my view is that its both a market sentiment thing as well as a company issue that is impacting DEC at present.

The CFO leaving abruptly in my view points to the fact that Rusty was clearly not happy at all with key aspects of performance which resulted in the decision to cancel the US listing.

It will be interesting to see how Brad tries to turn things around.

[mondex] 23/10/2023 10:33

Well said Cassini. It seems to me a choice of whether it's a problem with the company & how it is being run or a more general problem of the economy & the market's response to it. If you believe the former you should probably get out; the latter, hold on. The dividends pay you to do so.

[fordtin] 23/10/2023 10:28

Regarding the company’s apathetic attitude to buybacks, perhaps their 2019/2020 share buyback program has left them a bit shy of using up too much of their powder too early.

By the time COVID trashed the World’s stock markets, they’d been buying back millions of shares per day, (sometimes reporting twice per day) and had already used up most of the $68m buyback allocation.

A few days before DEC dropped below 60p, they completed their buyback scheme with a final purchase of 5,622,905 shares at an average of 85.311p/shr.

The 2019/2020 buyback scheme purchased 51,620,015 shares for $68.2m. An average of ~£1.06 per share.
During the dark days of March 2020, that must have seemed like a huge mistake.

However, In May 2020 they issued 64,280,500 @ £1.08 to make what was declared as an immediately accretive acquisition. Thus making the net result of the 2019/2020 buyback a minor success by giving a significant saving from not paying dividends on 51.6m shares for several months, plus re-issuing the shares at a small premium to the buyback average.

The question is, are DEC being too cautious and missing out on what appears to be a golden opportunity, or are macro conditions going to drag all equities even lower, either allowing DEC to buyback shares even cheaper, or perhaps make a once in a life-time acquisition which is even more attractive than buying their own shares?

The recent Director trades have signalled there are no current negotiations for acquisitions, but that doesn’t mean they haven’t got their eye on a few cash-strapped companies.