Diversified Energy Share Discussion Threads

[1knocker] 29/10/2021 22:45

That is a much more pertinent question, lab. I don't know the answer, but I do trust this management. I think we can safely assume that if the opportunity was recognised by you and me, it will have been in the board's mind too. Indeed Rusty's words indicate that it was. Perhaps it was a question of finding the right deal, with synergies?

[lab305] 29/10/2021 21:47

Yes they have to hedge but it's a question of degree. If it is gambling not to hedge , it is also a risk to hedge so much. Many will argue that hindsight is wonderful but these guys have a much greater insight into the business than we do and they will have detected forward demand much sooner , being one of the bigger producers now gives them an edge on this.
Putting aside the hedging debate what I find really difficult to understand is why last year and in the early part of this when prices were on the floor for a period of 12 months no deals were done. During this period I watched the company closely and Rusty several times commented that the period presented once in a lifetime opportunities. None were taken even though the Oaktree deal was in place. Any insights into this would be welcome as deals were being done in this period, notably the Chevron deal in Appalachia.

[johnhemming] 29/10/2021 18:11

I remain a supporter of hedging. I would prefer a guaranteed good result rather than a random choice between a better result and collapse.

[1knocker] 29/10/2021 18:02

Lab, any wise purchaser will want to hedge. It will itself have gas to deliver at an agreed price, not at spot on the day of use! Year on year, it will probably pay its supplier a shade more for certainty, as its profitability depends upon it having gas to sell at a higher price than that at which it purchases. In order to achieve a fixed (hedged) price, it will need to contract to purchase an agreed quantity. If it fails to do so, it will be required to pay a penalty for gas not taken. That suits the producer. All commodities are forward sold, including the crops, Unexpected demand and excess production are bought/sold at spot. Its the difference between business and gambling. When a producer makes profits and pays dividends of the scale and regularity DEC does, year on year, it is operating its business very well. I wish all my shares were giving me a gulag annual total return in excess of 10%

[lab305] 29/10/2021 16:28

Excellent article mondex. Agreed we had a decent year for one year when gas prices were low but Diversified's heavy hedging strategy doesn't look so great now. Share price over the year has been poor especially as gas prices are up over 150%+.

[mondex] 29/10/2021 15:46

"Appalachia gas producers Antero, EQT, and CNX diverge on hedging strategies

Executives at three Appalachia natural gas producers Oct. 28 revealed three different takes on how to hedge for the uncertain market ahead.

Regaining investment-grade ratings was a stated goal by executives at all three producers in third-quarter earnings calls, with maximizing free cash flows and paying down debt highlighted as key objectives for the next several years. Hedging programs were touted as the pathway to accomplish these balance-sheet goals.
Executives at Antero Resources and EQT were bullish about where prices are headed and structured their hedging programs to have more exposure to higher possible future prices. An executive at CNX Resources, however, expressed a more cautious view, given the market's past volatility and the possibility that even relatively minor shifts in the basin's production could substantially alter the pricing landscape.

The past several years have brought immense volatility to regional gas prices, with Appalachia benchmark Eastern Gas, South – formerly known as Dominion, South – trading above $5/MMBtu in recent trading sessions and falling as low as 52 cents/MMBtu last October.

The Eastern Gas, South forward curve shows strong pricing for remainder-of-winter 2021-22, with expected prices falling into the $3-$4/MMBtu range for 2022 and $2-$3/MMBtu for 2023.

Antero Resources
Antero Resources management team laid out a strategy to hedge 50% of 2022 production and to be "essentially unhedged in 2023 on all commodities and going forward," CEO Paul Rady said in his opening remarks.

"We're looking forward to being completely unhedged to take advantage, obviously, of the high prices, and that will accelerate our de-levering," Rady said.

Part of the company's comfort with greater exposure to the market and confidence in capturing higher prices can be attributed to its sizeable firm-transportation portfolio, which Rady said allows Antero to sell 100% of its production out of basin into more premium markets.

In light of a difficult legal and permitting environment for pipeline development in the Northeast, takeaway capacity remains a risk to Appalachia basis spreads should production increase at a faster pace than pipeline capacity.

CNX Resources
CNX expressed the most conservative philosophy of the three companies on hedging, with 91% of CNX's gas production hedged for the fourth quarter.

Although CNX executives declined to expand on the details of their 2022-2023 planning, they were firm that the company remains committed to fuller coverage.

"We fundamentally believe that natural gas prices are impossible to consistently predict," CNX CFO Donald Rush said about the company's hedging strategy.

"You might guess right every once in a while, but not each and every year for decades. So we believe in the long run, you will catch any gas price upside in the forward markets. And over long periods of time, you will not miss out on gas price upside and we'll still protect the downside for consistently forward hedging over decades."

EQT
EQT took a middle path between Antero and CNX, hedging 65% of 2022 gas production and less than 15% of 2023 production.

Executives announced that EQT had recently restructured its hedge book for the fourth quarter of 2021 and full-year 2022 in order to capture more upside exposure to prices.

The company repositioned by "purchasing a significant number of winter call options at very attractive prices and strike levels that are currently in the money," as well as buying swaps in 2022 "at points on the curve we felt to be undervalued," CFO David Khani said.

EQT CEO Toby Rice expressed a bullish macro outlook for gas prices, positioning the company's new hedges as part of its strategy to tackle financial goals.

"Our reasons for hedging 2022 production at the levels we did while continuing to keep 2023 exposure open is simple: We believe that regaining our investment-grade rating and reducing absolute debt levels best positions EQT shareholders to fully capture these thematic, long-term tailwinds in the commodity," Rice said.

Production outlooks
All three producers emphasized their commitment to maintenance programs, eschewing intentional production growth to focus on paying down debt and returning cash to shareholders.

Antero CEO Paul Randy asserted that the company plans on keeping production flat.

CNX Resources revised its fourth quarter production guidance slightly higher, but Rush noted that the company plans on maintaining a "one rig, one frack crew" operation, with any fluctuations in production attributable to those teams' performances.

Earlier in the year, EQT grew its output through consolidation, acquiring Alta Resources and Chevron's Appalachia assets. When asked in Q&A about whether EQT plans on increasing production to take advantage of higher prices though, Rice said that EQT is "not contemplating growth."

Q3 financial results
For the quarter ended Sept. 30, EQT had a net loss of $1.98 billion ($5.55/diluted share) compared with a net loss of $600 million ($2.35/diluted share) in the year-ago quarter.

Antero had a net loss of $549 million ($1.75/diluted share), compared with a net loss of $536 million ($1.99/diluted share) in the third quarter of 2020.

CNX Resources had a net loss of $873 million ($4.05/diluted share), compared with a net loss of $354 million ($1.61/MMBtu) in the year-ago quarter."



hxxps://www.spglobal.com/platts/en/market-insights/podcasts/focus/102821-north-america-global-gas-markets-storage-us-canada-shale

[gary1966] 28/10/2021 09:05

Really pleased that 25% of 2022 production still not hedged but hedged price already averaging over $3. Expect further small dividend increases going forward as still targeting 18-20c pa.

[sogoesit] 28/10/2021 08:08

Good update. Execution (acquisitions and AROs) going to plan.
Let's hope we can get over the 120 line for a new channel over winter, with less hedging, but will depend on next acquisition (and therefore potential equity placing/raise when debt gets out of kilter).
GLA

[adg] 28/10/2021 07:14

Dividend raised 6% to 4.25 cents
Production and fcf figures very healthy

[1knocker] 26/10/2021 16:23

I hold all of them (have done for years) save Phoenix and M&G. They have all done very nicely for me save BATS, which unfortunately I bought before the bib fall a couple of years ago was complete - my mistake - but even on that one I am in the blue on a total return basis. I would suggest yo also have a look at FXPO. Huge dividends (including numerous specials), the only fly in the ointment being Swiss withholding tax which Houdini would not manage to get out of - the recovery process is more trouble than it is worth.

[cassini] 26/10/2021 14:11

redtom,

Thanks for the tip. Of course as soon as someone recommends some share to me either it soars away before I can buy it or I buy it and it nosedives ;0)

I'll take a look at it, cheers.

[johnhemming] 26/10/2021 13:41

I was a holder of VSL. It differs from DEC in that DEC has some inbuilt inflation protection and VSL does not. I sold my VSL earlier this year as I expected inflation and probably stagflation.

[scrwal] 26/10/2021 13:14

redtom1
As a VSL holder I am happy with things but expect more volatility I held it purely for the yield but it is now one of my biggest gainers.

FAIR pays a big div too.

[redtom1] 26/10/2021 10:37

Cassini,
Just following up on my VPC recommendation. It had some SPAC activity today which boosted it 7% today such that the yield has dropped to around 8.2%. It normally is not a volatile share. Today was an exception.

[lab305] 26/10/2021 08:22

redtom1 in the early part of the year DEC share price did indeed reflect the gas price reaching 130p. That continued until the placing which in my view was a disaster . You only have to look at the comments on here to see that posters not only fear but expect another one. That placing did us far more damage than Bloomberg ever could and continues to undermine the share price going forward. A realistic share price in my view would be somewhere around 145p or more at present and the brokers target much higher @ 160 to 176p. I cannot see the company pulling the same trick again and they do have some ammunition left .

[redtom1] 25/10/2021 23:28

iknocker, I'm not suggesting that DEC should be totally correlated to the NG price. I'm just suggesting that the share price should be a little more responsive to the NG increases. Rusty himself said that DEC 'is a making a lot of money' when NG was 2/3rds of current level.
I also note that the recent Cenkos reports on DEC make reference to 2 of its closest comparison companies, Antero and Range Resources. They too have significant hedging in place. These 2 are bigger companies than DEC (so not some penny share Cos) and have risen 125% and 180% over the last 6 months. DEC has risen 5%. If other similar companies can rise significantly but DEC does not, that indicates (to me) that some others factors are in play that is holding it back. I guess asset retirement is a major issue (if a simple article can knock off 20%) and also the likely rights issue or placement in the near future. Just an observation from a slightly disappointed long term holder of DEC.

[redtom1] 25/10/2021 23:20

Cassini, great post and a great list. I hold all of those shares. I would add another, rather obscure company, to your list. It is VPC Specialty Lending Investments plc. It is a niche debt providing company, so not for everyone but has had good reviews in Investment Trust Newsletter. It yields around 9% and is on around 15-20% discount to NAV. Just a thought.

[sunbed44] 25/10/2021 22:47

Brilliant info TY. Will look at all these and sorry to other for the O/T while its a bit quiet

[cassini] 25/10/2021 22:22

sunbed44,

Try Chesnara (CSN) insurance. The very definition of a dull stock, but low P/E and high dividend and also good dividend record.

Imperial Brands (IMB) are the 4th largest tobacco firm in the world and their dividend is high and looking very secure nowadays. BATS also perhaps.

Phoenix group(PHNX) closed end pension funds/insurance are also good and relatively cheap at the moment.

In mining, Polymetal (POLY) and Rio Tinto (RIO) perhaps. Both cheapish at the moment IMO. POLY probably has bottomed now along with a lot of other PM miners. Not sure about RIO. RIO is a bit of a blue chip stock which generates a ton of money in the good times. Buy when cheap and squirrel away IMO.

Raven Properties cumulative irredeemable preference shares (RAVP). Russian warehousing. Seems very reliable and of course preference shares get paid before ordinary shares.

Also M&G (MNG), insurance. Trades on a low P/E and has a high dividend. Floated off the Pru 2-3 years ago. Looking a bit weak at the moment but worth a look.

[sunbed44] 25/10/2021 21:56

Thanks to all for the info re ex div dates etc. As we know this pays excellent dividends and im looking for other high paying dividend stocks. SEPL and WEN both pay about 7% and do any peeps on here have any other recommendations either in O&G or in any other sectors TIA

[johnhemming] 25/10/2021 20:20

@1knocker I agree with your underlying view, but the increases in US gas price do have some (positive) impact on DEC.

[1knocker] 25/10/2021 18:50

Redtom, that is why the rest of us are invested in DEC. The price does not rise 10% on a 10% NG price rise, and does not fall 10% on a 10% fall in the NG price either. If you expect to see a spike up in the share price on a spike in the NG price, you have backed an inappropriate horse in DEC.

[johnhemming] 25/10/2021 16:38

My figures on Henry Hub have a slight reduction on Spot to USD 4.81

[redtom1] 25/10/2021 16:30

Anyone else just a little bit disappointed that the share price goes up only 0.8p on a day that the price of NG shoots up over 10% (currently at 59.90). Oh well......