Diversified Energy Share Discussion Threads

[asp5] 02/11/2023 10:00

Lab, I disgaree with your two main assertions.

1) "more focus on complex derivative trading". Please refer to my post 6004 where I address this point. Furthermore look at the FY 2016 report (pre IPO), p47 under the section "commodity risk". The last para clearly states, "DGO’s normal policy is to .....keep options and swaps in place for 12-24 months in advance to minimize commodity risk and create stabilized and predictable cash flow".

DEC has followed and continues to follow a highly consistent, transparent & steady strategy as regards hedging. I accept the accounting around this topic is not simple, however the volume of hedges has essentially increased to match the increase in cashflow DEC generates (this is good) as per its business model. Complexity has remained the same.


2) "Remember Long life, low decline?" We still have them. In every corporate presentation since IPO including the latest from May DEC confirm this. On p3 DEC describe what their business model is focused on, "Optimising long-life, low-decline producing assets". Can anyone name a single other gas producer in the US market with a lower decline rate than DEC? My post 6042 tried to clarify my understanding of this topic, so will not repeat myself.

Good luck all & DYOR.

[cassini] 01/11/2023 16:21

Back in, albeit very modestly.

[action] 01/11/2023 14:48

Time to buy when hits 62p

[1knocker] 01/11/2023 12:42

There are always buyers and sellers, whatever the price.
Have you ever come across a publicly traded share with any significant number of shares in issue where the response to a modest buy order was 'Sorry, none to be had. We just can't get hold of any shares to fill your, or anyone else's, order'?

[stevensupertrader] 01/11/2023 12:05

I like to know too? Unless those shareholders throw in their towels 😊

[renewed1] 01/11/2023 10:49

When DEC are buying back 350k per day where are this nos of shares coming from. Who is so desperate to sell at these prices???

[11_percent] 01/11/2023 10:38

2020 Covid low is 55.2......will it get there again.

[lab305] 01/11/2023 10:32

asp you are so wrong when you say only the perception has changed. The company is very different from what it was in 2017. Remember long life low decline ? In the first years there was practically no decline at all. What they termed legacy wells had close to zero decline rate . Conventional wells only , no shale. This has morphed completely and has much more focus on complex derivative trading than producing gas. Even accountants now find the results challenging. They have made big mistakes especially not taking advantage during covid of once in a lifetime opportunities cited several times by Rusty during the period. No this is a very different company now and not for the better.I was stupid enough to believe Rusty and stayed for the "enjoyable ride ."

[oneillshaun] 01/11/2023 08:59

Lol breakeven by 2027 that's is massively dependent on the share price not dropping any further

[asp5] 01/11/2023 08:10

Hi Tag, you are correct in your comment, however for those who bought in at 120+, they have 3 choices:

1) Sell now, crysatize a 50+% loss as they feel DEC is a lost cause and try to reinvest elsewhere. In order to breakeven they would need a 100% gain in their alternative investment.

2) Hold (assuming they feel DEC is not a lost cause), wait till end of 2027 and essentially breakeven from the dividends as per my earlier post (assuming this price level is the new normal).

3) Buy at these levels (capital permitting) to reduce breakeven point, wait until end of 2027 and make a profit.

The investment thesis around DEC remains essentially the same since IPO, it is the market perception that has changed (ESG, interest rate env etc.).

While nobody can predict the future, option 1 strikes me as the worst option in the current environment.

[oneillshaun] 01/11/2023 07:35

If they don't maintain the dividend this will die very fast

[cassini] 31/10/2023 22:31

Ex-dividend is on the 30th of November.

We had what felt to me like quite an unusual pump and dump last ex-div date.

The price went up 7p in the two market days beforehand and went down 12p in the following three market days. All on a ~3.5p divi.

It's going to be an interesting month ahead.

[1knocker] 31/10/2023 18:49

Everything turns on the dividend.
If the dividend holds, even those who bought their holdings at the very top of the market (low 130s from memory) will do very nicely, with a return on capital of about 10%, and those who bought at the bottom will be in clover with a return on capital of over 20%.

Its an odd state of affairs. There has been no dividend cut nor the threat of one, gas looks set fair for decades to come, broker predictions have held pretty steady around 150 /160 for as long as I can remember, and the share price has halved!

[laurence llewelyn binliner] 31/10/2023 18:34

Next update circa 14.11.2023

IF the progressive dividend policy is maintained we could/should see a raise to 4.50 cents..?

4.00 cents *4 received
4.25 cents *4 received
4.375 cents *4 received (29.12.2023)

Perhaps the catalyst for the share price trend reversal could be the confidence coming from the next dividend announcement in 2 weeks..?

NG1: 3.58
HHub futures 3.6-4.6 out to Jan 2025

[tag57] 31/10/2023 18:29

ASP5, while I agree with what you wrote it does not help those who invested at higher share price
Especially after what feels like the unrelenting downward fall in share price
I have not sold any of my shares, in fact have continued to add to my position. I believe that the fundamentals remain strong and we should see the full benefit of the latest acquisition in the next quarterly results.
I am expecting the divi to be maintained (hopefully increased) but the share price drop always adds the anxiety of “what if” as I watch the capital loss build up.
Anyway, I am of the opinion that gas prices will continue to build as the US export capacity grows in the coming years and US gas prices align more with international prices. With a couple of years of compounding divis at 20% pa I will be a happy chappy.

[asp5] 31/10/2023 17:03

I have read a number of posts lamenting a raft of issues surrounding DEC including:

1) Management & execution of buybacks
2) Concerns over debt levels
3) Worries over the sudden departure of the CFO
4) Poor hedging strategy and how it is impacting profits
5) Risks associated with DEC's ARO commitments
6) Problems with purchasing assets from the market given the higher interest rate situation
7) Lack of communication from the company
8) Decline rate of the wells over time and impact to revenues over the longer term
9) Tanking of the share price currently and the current market perception of DEC

In my opinion, all the above issues and any others I may have missed, can be discussed and argued but are essentially irrelevent from a value investing perspective. What I believe makes DEC a compelling investment case for long term investors (those willing to hold till the end of 2027) are the following:

a) DEC has hedges in place for the next 3 years that secures the current dividend. Furthermore henry hub futures prices for 2027 are in the $3,5 - $4,8 range which if locked in would comfortably secure the dividend.

b) If I invest today (assuming in a SIPP) and DEC do not cut the dividend (as per hedge strategy & committed by the founder & CEO) by the end of 2027 my initial invest will have been repaid. Whatever the DEC share price at the end of 2027 (which is unknowable now, but should be above zero) will be pure profit.

c) None of the issues listed above impacts points a & b.

I think it was Warren Buffet who said the first rule of investing is not to lose money. The second rule of investing is not to forget rule 1. With DEC the risk/reward balance is heavily skewed in favour of investors who invest at these levels. The rest to my mind is frankly noise and those who can be patient should be well rewarded.

I continue to invest into DEC and am happy to constructively discuss the above logic (my time permitting). Good luck all and please ensure you DYOR.

[tag57] 31/10/2023 16:05

Cassini, I would have thought that higher interest rates would be reflected in a higher discount rate on future cash flows therefore would be reflected in the acquisition price paid. This should be reflected by all bidders so should not really affect the business model, except if they cannot get access to fixed rate debt.

[cassini] 31/10/2023 15:23

lomand1,

Makes sense, like housing then, higher interest rates means falling house prices so the total cost of acquiring an asset remains about the same i.e. what the market can afford.

[lomand01] 31/10/2023 15:15

Cassini. No the cost of capital is reflected in the price paid for the assets. E&P companies also face higher COC which means that many will be selling assets to raise capital. Eventually it sorts itself out like any free market

[cassini] 31/10/2023 14:56

I'm wondering if the rise in interest rates hasn't just lumbered DEC with a bit of extra interest on its non-fixed rate loans, which apparently aren't more than 12% of their entire debt, but has changed the whole business model somewhat?

DEC started up in times of ZIRP, but those days are gone.

DEC's strategy was to acquire declining fields by a mix of issuing new shares and using their RCF, then to hedge most of their future gas sales to guarantee they could pay off their debts.

On the face of it, having 12% of debt in non-fixed rate loans doesn't seem to alter things fundamentally.

However, as it buys wells in decline, DEC's strategy is to continue to acquire gas/oil wells to replace declining production. There would be a run-off phase in the distant future, where presumably the share price would decline continuously to discount the falling worth of what was left in the existing wells, but that wasn't to be the case for a long time.

Now, interest rates have risen precipitously, so has the cost of borrowing therefore, so acquiring new assets going forward is going to hit the potential profitability of any new acquisitions as servicing the debt will be more expensive.

So, are we therefore looking at a step-change in DEC's business model? Is maintaining production by debt-funded acquisitions no longer a sustainable option, at least, not at the current dividend levels?

This either brings the run-off phase nearer or it hits the dividend. Hence the recent whackjob on the share price.

I expect this theory is full of holes but I put it out there for comment.

[topazfrenzy] 31/10/2023 10:55

So buying in at this level with the dividend where it is you'd get your money back in 4-5 years

It should be seen as a sort of annuity in this case where you are paid the dividend and what it is worth after 5 years, what you cash in, is the money you paid for this return

[oneillshaun] 31/10/2023 08:49

Someone said this will be interesting takeover target, I would love to hear why you believe that?Right now I don't think this is getting any takeover interest maybe if drifts to 50p which at the current rate is very possible.Also people getting excited about a 20% plus divi on a consistently share price it's just madness, every time you reinvest it just ends up falling a little more.

[johnhemming] 31/10/2023 07:33

We know that the gas price drop caused issues with Liquidity. One can only assume that the increase in gas price will reverse some of that as the company becomes less dependent on the cash flow from hedging and instead on cash from gas sales.

I think #6042 is a good analysis.

[stevensupertrader] 31/10/2023 07:32

Johnbuyghost. Halloween is today , pipielime still shut . If I were you , I hung up my boot for good and keep my mouth shut. Time to shut up .

[marksp2011] 30/10/2023 19:32

Probably good you have sold you will sleep better you were obviously stressed.