Diversified Energy Share Discussion Threads

[johnhemming] 18/1/2024 10:07

We can agree to disagree on this.

Any acquisition will be partly debt financed so there is also a gearing effect on the usage of working capital for an acquisition.

This is a situation where the future is known to have a reduction in revenues, the revenue reduction is linked to a cost reduction as well so there is not that much operational gearing.


In the end, however, with the right acquisitions the company can maintain the dividend. (not for ever, however)

The strategy of the company is about buying up gas wells and managing the decline in an effective manner finishing off with plugging the wells correctly.

[fordtin] 18/1/2024 08:58

I've read many articles suggesting the climate worriers are keen to reduce worldwide coal consumption and many other articles suggesting the US are keen to relieve huge parts of Europe and Asia from their dependency on Russian gas.

Banning US LNG exports seems like a good way to increase both of those dependencies!

[pogue] 18/1/2024 08:49

The reason Biden blew up the Russian gas pipeline was to get Europe dependent on US gas can't see him banning exports now the US is making a fortune on gas exports. Don't want the mug punters finding other sources.

[bountyhunter] 18/1/2024 08:20

"The climate fear mongers are pressuring Biden to ban natural gas exports." published on "mishtalk" whatever that is.

Given the size of the US LNG export industry I can't see that happening anytime soon even if Biden caries on.

[fordtin] 18/1/2024 08:17

re; “The additional point is that if show they can maintain the dividend the share price will at least double. Hence the equivalent yield of buy backs is only about 12%.”

That doesn’t make any sense. The saving from not paying dividends on cancelled shares is an accumulation of every future dividend paid until the company ceases trading.

[johnhemming] 18/1/2024 07:50

@riskvsreward If they intend to maintain the dividend over the next 5-10 years then they need acquisitions. The worst thing to do would be to spend limited liquidity on buy backs.

The key point about this is that there is depletion. I always do rough estimates using 12% for safety, but they quote normally 10% although the recent acquisition is a bit higher and will drive up the aggregate for a year or two.

The ABS amortising debt has two approaches, fast and slow. If it moves to slow the interest rate is a bit higher, but it protects the business against any refinancing issues.

However, to have spare cash to pay USD167m of dividend each year they cannot do anything other than acquisitions. Otherwise the dividend will reduce - maybe not in 2025, but definitely in 2026.

Over a 20 year timescale I would think the dividend would be reduced even with acquisitions. However, once they have actually cleared the ABS debt they will have quite a lot of spare liquidity which can be used both for retiring wells and retiring stock.

Hence I am pleased to see no RNS about buying back stock yesterday.


In terms of:
"What new purchase can ensure a return of over 25% long term to support the current dividend?"

It is not a single purchase, they can do multiple purchases as long as they start the trend, but they needed additional working capital because of the working capital movements. The shorting prevented getting working capital so they did the DP Lion transaction. They can do more of these if needs be (but only about three I think, they would then have to start selling the ABS subsidiaries which is not as cash flow effective).

The additional point is that if show they can maintain the dividend the share price will at least double. Hence the equivalent yield of buy backs is only about 12%.

[nigelpm] 18/1/2024 07:44

No shares purchased yesterday is interesting.

[riskvsreward] 18/1/2024 07:40

If they intend and can afford to maintain the dividend, then buyback at the current market price with a yield over 25% is the only sensible use of any capital. What new purchase can ensure a return of over 25% long term to support the current dividend?

[johnhemming] 18/1/2024 07:18

I think the market recognises that they need acquisitions to maintain the dividend. Hence I am quite pleased that they did not buy back any shares yesterday as that would imply they are not keeping the cash for one or more acquisitions.

Personally I think any announcements are likely to be on the same day as the Financial Report that will enable the directors to be not subject to any restraints on trading.

[joedjoed] 17/1/2024 23:07

Has this been mentioned? : hxxps://mishtalk.com/economics/biden-weighs-banning-natural-gas-exports-to-save-the-climate/
Clearly would have a big negative impact on US gas prices

[parob] 17/1/2024 20:51

Great price action in US.Closing close to days high.

[imnotspartacus] 17/1/2024 20:34

You would think market makers but it would be good to know how it’s done.

[bountyhunter] 17/1/2024 18:39

Picking up a little in New York where the volume is back to normal today after the highest volume to date yesterday at about 190k. Where do the shares in New York come from as no new shares have been issued? Do market makers acquire them on the LSE to trade in New York, or can an institution or hedge fund choose which market on which to sell existing holdings previously acquired on the LSE?

[nigelpm] 17/1/2024 18:29

I'm unconvinced either way. I can see the logic of what they are doing. There's a win:win aspect of taking dirty old wells from majors, running them dry and facilitating cheap clean ups. That's a simple business model and makes sense.

On the flip side, risks are high....eco warriors getting upset, lack of investment through ESG etc etc.

In two minds really.

I don't think the market thinks it's fraudulent - just that the risks far outweigh reward.

[bmw30csl] 17/1/2024 18:20

Nigel - yes the market thinks this is a fraud. Maybe it is but having met them many times and visiting well sites I don't think it is and keep buying. The wells decline but that rate of decline also does after you turn the bend on the hockey stick and we do not have a large proportion of production from young wells.

[johnhemming] 17/1/2024 17:17

The issue with the dividend is that without acquisitions DEC's net income will be reducing as a result of depletion (even if relatively slowly) and that will impact on the ability of the company to pay the dividend.

If there are acquisitions particularly ones without equity then the net income whilst lumpy will be higher and hence the ability to pay dividends greater.

[imnotspartacus] 17/1/2024 17:13

Rusty has never expressed concerns about not paying a dividend or reducing it, he should know ffs.

[nigelpm] 17/1/2024 16:47

Quite bmw - the dividend yield has no impact on a company's ability to pay it - only the market's view on whether it will be paid!

[johnhemming] 17/1/2024 16:09

The point about an acquisition without a placing is that the investment case switches at 7am.

[leoneobull] 17/1/2024 16:08

Investec 1300 target despite their dividend concerns. Roll on the results to clear up all the doubts the shorts have been promulgating

[leoneobull] 17/1/2024 16:05

DEC can reduce the 30% it pays in dividends due to the share price fall through buybacks . This will save huge money which will address the concern regarding whether the dividend is sustainable

[fordtin] 17/1/2024 15:56

In an email early last year they said something about playing a balancing act by carefully evaluating all uses of capital including paying down debt, dividends, buybacks and accretive acquisitions.

Comparing the share price now with what it was early last year, it must surely have tipped the balance toward buybacks being better use of capital than any of the other options. An accretive acquisition would need to be absolutely astonishing in comparison.

[bmw30csl] 17/1/2024 15:50

The dividend is 30% because of the share price! The idea that 30% is unaffordable when the denominator is not relevant to the affordability is pretty odd to talk about.

[kenmitch] 17/1/2024 15:47

When the share price falls as heavily as DEC’s has it’s nearly always the market knows. So often these (what look illogical) falls end with a major profits warning or other significant bad news, and in the worst examples the dreaded suspension of the share for good “pending clarification of our financial position.” Which translated means, “we’ve gone bust.”

I sold DEC several months ago just for this reason. Only occasionally is the market wrong and a reassuring update sends that share in to orbit. Also no Company surely can afford to pay a near 30% dividend.

I’m not arguing that holders must sell. DEC is ok for anyone who likes a risky punt that could pay off. But it’s certainly not worth anyone holding DEC risking more than they can afford to lose.

It’s easy to make a plus case for DEC. e.g if they are in serious financial trouble how come they can afford buybacks? And there are other plus points too that justify a punt with money we can afford to lose. BUT the odds are the market knows something we don’t and the share price is screaming at us that that “somethingR21; is nasty.

[johnhemming] 17/1/2024 15:39

@fordtin I stopped tracking it when I found out about DP Lion. (which was in the amended 20f), Incidentally I think you are about right.

I decided they were going to try to do an acquisition without equity funding.

Tennyson sort of confirm this: " 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."

Obviously the first we will know of this a 7am RNS. However, apart from the fact that they are in the closed period if any negotiations are going on about an acquisition then directors would be prevented from buying stock.

However, if they do start doing this you can see it has the potential of being a repeatable process. I think they would like some more equity per se, but not at this price.