Diversified Energy Share Discussion Threads

[bountyhunter] 16/1/2024 07:44

A sensible update from the company:

Diversified Energy Company PLC (LSE: DEC, NYSE: DEC) today notes the recent decline in its share price and confirms it is unaware of any operational or company-specific reason for this share price movement. The Company further confirms there has been no material change to its financial and operational condition.

The Company intends to issue its fourth quarter and year-end 2023 Trading Statement during the customary timeframe at the end of this month.

[bazboa] 16/1/2024 07:03

Will be interesting to see how the share price reacts to that news

[leoneobull] 16/1/2024 06:21

From LSE.... It's all numbersToday 00:25Seems a fair bit of conjecture today on DEC's viability, concerns over ARO costs, debt cost etc and as everyone is running the numbers, so do I.DEC make assumptions, so I'll make a few, for ease here, namely that production, dividends, unit cost and a well plug cost of $21k remain static, and no new debt/refinancing/acquisitions: -804 mmcfepd () x $3.46= $1,015,371,600Unit cost @$1.46 = $478,339,800, leaving $537,031,800(On an annualised basis from the 3Q results)Dividend cost $143,000,000Amortising and interest at 6.1% on $1.56 billion ($2.2 billion divided by 8 years the period to 2031 that DEC use for debt clearance) =$282,360,000ARO of 70,000 wells @21k ($1.47 billion divided by the same 8 year timeframe) = $183,750,000So you have annual post production/admin income of $531,031,800 and annual costs to retire debt, maintain dividend, and cap all wells (i.e. the business/production ends in 8 years) of $609,110,000, a shortfall of $78,078,200I would suggest this isn't the basket case people are suggesting it is - I mean on an extremely aggressive view of including all ARO costs, no more production (and disregarding that the ABS debt has contractual end dates averaging 11 years,), if you just halved the dividend, you would meet all your obligations within 8 years. I'd suggest that would be quite a pretty place to be sitting as a long term shareholder.Not least because it ignores future production beyond year 8 - DEC intimates 50 years worth, gains on economies of scale from NextLVL, and the total debt cost I've used is overstated as I've used a straight line interest rather than a reducing interest.Of course, if the realised price is $2.46 and not $3.46, well, DEC's going to need them wells producing for 20 years (and halve the dividend, and stop all capping until 2031) just to meet the debt. But then that's what DEC has pretty much always projected. And if the production volume doesn't fall off a cliff, I think they are right.Ps, I use that $2.46 purposely, as I believe that is the inflection point at which DEC can retire it's debt at it's contractual maturity date rather than its currently more aggressive projected date - just - if it doesn't pay dividends or cap before contractual expiry.

[leoneobull] 16/1/2024 04:53

Somebody needs to post prrvious post on other advfn BB. The investec note significantly appears to overestimate interest costs, given this is an amortising loan, seemingly by 100m. Will analyst be left with egg on face?

[sbb1x] 16/1/2024 01:54

So new price target is £13 a share.30% upside from current price.

[jaknife] 16/1/2024 01:24

Does anyone have access to the Investec note that they published yesterday (15th Jan)?

It sets a price target of 1300p but starts off:

We remain constructive on the story given the value underpinned by the
producing assets, but note that a financing solution is required to maintain
the dividend story. The company has demonstrated, with the recent SPV asset
sale, that it can produce alternative and unique financing solutions; however,
more disposals are required in the short term to provide liquidity to fund debt
repayments and fund the dividend - without this we believe the current
dividend is at risk.

I can't get a copy myself without paying!

JakNife

[scrwal] 15/1/2024 23:41

In the placing offer document of 8 Feb 2023 it was stated that the plugging and abandonment costs of the wells being acquired was $40,000- 60,000 per well. 150 wells were bought from Tanos.

[podgyted] 15/1/2024 23:17

Don't think I'd rely on anything from Malcy.

[justiceforthemany] 15/1/2024 22:56

MALCY, MALCOLM GRAHAM WOOD OIL&GAS ANALYST
Whilst I understand the concern about the fall I need to know the full background as to why it has happened and whether there is a reason for it. I have been investigating the full details, looking at the comments from the House and the Company and have had meetings with most of the participants. As soon as I know exactly what the situation is I will write something, my latest reading is the most recent communications between the company and the Committee which show some inconsistency - which is not unusual for politicians.


Dirty, morally corrupt politicians and short sellers as usual then...

[mondex] 15/1/2024 22:36

"In their analysis of the 19,500 wells, the researchers at Resources for the Future (RFF) found that:

"The median cost of plugging a well without restoring the surface is about $20,000.

Plugging and reclaiming the surface around the well—which may be done for aesthetic, environmental, or job creation reasons—increases the median cost to $76,000.

Each additional 1,000 feet of well depth increases costs by 20 percent.

Costs of plugging wells goes up with the age of the well itself—Compared with wells that were more than 60 years old when decommissioned, wells aged 40 to 60 years old were 9 percent less expensive, and wells aged from 0 to 40 were roughly 20 percent less expensive to plug.

Natural gas wells are 9 percent more expensive than oil wells to plug.

Upon further analysis of almost 4,000 contracts, it appears that contracting plugging efforts in bulk pays off—each additional well per contract reduces decommissioning costs by 3 percent per well.

The paper focuses on orphaned oil and gas wells in Kansas, Montana, New Mexico, Pennsylvania, and Texas. These states were chosen because they differ in terms of geology, history, and regulatory structure, which helps ensure that the data is representative of more than just one region. Notably, there are significant differences in decommissioning costs across states"

So, in a significant dataset of 19,500 wells spread across many states the average plugging cost was $20,000 per well without land reclamation etc. This supports the DEC numbers. The research is from a non-profit, independent organisation which focuses on the environment i.e not oil industry shills"

hxxps://www.rff.org/news/press-releases/new-study-reveals-key-factors-for-estimating-costs-to-plug-abandoned-oil-and-gas-wells/#:~:text=In%20an%20analysis%20of%20over,depth%2C%20and%20other%20key%20factors.

[cassini] 15/1/2024 21:15

I read somewhere today (LSE?) that the cost of capping a well depends on whether its a vertical or horizontal well.

Vertical costs less and the poster said that at least 90% of DEC's wells are vertical.

Someone was complaining that DEC charged $126k/well to cap six wells for another company, far more than they claim it costs to cap a well.

Point #1 was that what DEC charges isn't what it costs them.

Point #2 was that these six wells were horizontal bores, the more difficult type to cap.

[fluffchucker1] 15/1/2024 20:26

Binliner. Agreed. If it is $125k per well next level will be making a fortune!!

[laurence llewelyn binliner] 15/1/2024 20:16

We own a plugging business Next LVL Energy, you would think that a company who writes the invoices out for plugging 3rd party and/or abandoned Gov responsibility wells would know how much it costs to do the job..?

Have we not just demonstrated this to the committee..?

During the six months ending 30.06.2023 we retired 100 Diversified wells, inclusive of the Central Region, at an average cost of USD25,000 per well.

We also outsource some plugging and have to pay those invoices, so we should know the size of those costs too..?

For retirement work that we choose to outsource, we aggressively manage third-party costs utilizing a competitive bidding process and leveraging our internal expertise..

In our publicly accessible Audited Financial Statements and our regulatory financial filings, we provide substantial information and required disclosures to estimating our Asset Retirement Obligation. It is also important to note that our robust and transparent disclosures were specifically highlighted by the United Kingdom’s Financial Review Council in an October 2021 white paper on provision IAS37, noting Diversified’s expansive disclosure as a laudable example of how to provide fulsome and transparent estimates related to the Asset Retirement Obligation.

[jaknife] 15/1/2024 20:03

elpirata,

I hadn't realised that anyone other than loafingchard really cared about what I thought. I sent this to them on Friday evening:

==============================
I'm not sure that I can completely get my head around it, I'll think more over the weekend.

There's a lot of bear commentary going around at the moment that DEC has materially under-stated its provision for decommissioning liabilities. The average cost to decommission a well is $100k and they have about 70k of wells so that implies a liability of $7bn!

But they have managed to decommission 100 recently at an average cost of c. $25k per well. If that were used then the liability reduces to just $1.75bn. However, their provision is only $450k, which suggests a shortfall of either $1.3bn or almost $6.5bn!

The expectation is that the current US government intervention might lead to a block on dividends as they are forced to provision at a higher price and also forced to step in and decommission some wells that haven't produced for years that are simply rusting to pieces.

But if they don't and they do pay a dividend then that dividend is very expensive for shorts to cover as you have to pay extra to cover the WHT.

I've not seen anything compelling yet.

JakNife
==============================

I've looked further and the bigger difference between my numbers above and DEC's provision is that DEC are discounting the provision heavily over a significant period of time (much longer than the industry norm).

The US is extremely litigious and it's unclear to me that DEC have broken any specific laws. Does the government or an agency have the authority to force them to increase their provision?

I concluded that I would definitely not be long but also that it looks a risky short without a lot of detailed research into the legal position.

JakNife

[elpirata] 15/1/2024 18:42

its like a herd of wildebeest playing follow my leader at shareprophets & trading blind, I will be more interested in jaknifes pragmatic views if he ever gets round to it

[bountyhunter] 15/1/2024 18:42

An interesting post on LSE posted by VistaMan:

VistaMan
RE: Is the reason for the fall today ?
Today 16:20

Lampedusa,

That's a very "careless" statement by Alex Smith of Investec. The sum he mentions of $174 MM is not the interest payment but is probably the amount of the Amortizing Loan repayment for the year. There is quite a difference between the two!

As of June 30, 2023 Diversified had $1,555 MM outstanding debt across its various ABS loans, Term Loan and Credit Facility. Using the blended interest rate the annualised interest as of June 30 would be $95 MM pa. Debt would have been reduced by $135 MM in the second half of 23 and then by a further ~$200 MM through the SPV Asset Sale. So interest payment for 2024 should be of the order of [(1555 - 135 - 200) / 1555] * 95 = ~ $74 MM.

[johnhemming] 15/1/2024 18:41

When I assess the net present value of the company I look at the depletion in each year.

If the company can make acquisitions without doing a placing then the dividend can be maintained over future years although there may be an issue going into the 2030s depending upon what acquisitions at what costs.

Without acquisitions I have assumed there will be a gradual reduction in dividend although the ABS funding structures give considerable flexibility.

The 20F makes it clear that they are not guaranteeing a dividend that remains the same or increases each year.

With things as they are they might as well retire a lot of stock rather than fund dividends although the best use of funding would be acquisitions (as long as they don't have to do placements).

If they do end up doing an acquisition the shorters will have to be really nimble in closing their positions.

This year's dividend payments are more than a quarter of tonight's market capitalisation.

[bluemango] 15/1/2024 18:37

Thanks elp

#7262 US market was closed today, MLK day.

[renewed1] 15/1/2024 18:33

Was the US close $14.51

[pogue] 15/1/2024 18:08

Leoneobull
yes and it was a very repeatable deal just put wells in a ringfenced fund and sell it like a mortgage backed security as a guaranteed income for x amount of years. Plenty of wells they can buy and repackage its a whole new business model!

[johnhemming] 15/1/2024 17:12

To me the big question is whether they have sufficient liquidity today to do another acquisition without a placing. This is what Tennyson said on 10/1/24
"Importantly, the novel transaction structure is repeatable and provides a path for future growth (without equity) through the potential redeployment of capital into fresh acquisitions at lower multiples. It also reduces perceived risk around the dividend by delivering a cash injection equivalent to more than a year’s pay-out. "

The amortising ABS structure is interesting and if they can repeat that on multiple occasions they will do quite well.

[kaos3] 15/1/2024 16:40

bot filling

buy vs sell
1.16 m vs 300k

[parob] 15/1/2024 16:34

Yeah fingers crossed. I have bought half the amount I'm after and monitoring closely before I deploy the rest.

[oneillshaun] 15/1/2024 16:31

Solid entry point and ex dividend next month