Diversified Gas & Oil Share Discussion Threads

[carcosa] 05/7/2018 15:38

Apologies if I am late in seeing this but I can't see anyone else posting this in recent times:

EQT Conventional Appalachia Acquisition Presentation:
hxxps://d1io3yog0oux5.cloudfront.net/_0b8e8f48f2ac84f70791816af779045d/dgoc/db/460/3378/file/DGOC+-+EQT+Conventional+Acquisition+Presentation+vF_Web.pdf

(If above link does not work then access it from here: hxxps://ir.dgoc.com/document-downloads )

[mirabeau] 05/7/2018 12:31

Don't shoot the messenger - if the IC article stoked contrasting views than that can only be a good thing.

thanks

[zengas] 05/7/2018 09:46

Some other hidden nuggets that IC imo have missed -

"High liquid content provides exposure to oil" (Page 4).

"Unique opportunity to add 3rd party volumes" (Page 7). Last year from existing 3rd parties this generated $9m revenue.

Examples of further assets on market ranging from 8 - 38k boepd "demonstrate opportunity for growth" (Page 20).

'6.5 million acre land position = 80% of the entire asset base still undeveloped with around 267,000 drilling locations' (Page 22).

I expect DGOC to continue to head towards being a 100k boepd producer. I think they'll make a further sizeable acquisition to do this. Given they're called Diversified Oil and Gas, but as yet with little oil mix, with the significant cash flow I wouldn't rule them out also buying some smaller dedicated oil production assets along the way now that cashflow is high.

[lab305] 05/7/2018 08:56

Good post carcosa with a sensible perspective.

[carcosa] 05/7/2018 08:21

The IC article wrt dilution is misleading. Share price activity will not change purely as a consequence of the placing. It can change for other reasons such as investor sentiment, gas prices etc. All things being equal you can work out a fair price for the shares using a number of metrics. The following example, although crude, demonstrates what I am referring to. You can add it time value, finance costs or whatever but that would be nibbling around the edges of fair valuation. The following works out how many barrels of oil equivalent production is represented by holding one share. As you can see the current share price is 'about right' for post 17th July

[kenmitch] 04/7/2018 20:25

Thanks Mirabeau. The last sentence answers my question. So dilution means share price likely to start lower on 17th. But pent up buying demand should soon see it bounce again. A possibility (assuming no great change in share price between now and then) of being able to top up lower on the 17th.

[mirabeau] 04/7/2018 18:36

Tip Update: Buy at 125p

We said BUY at 58p on 16 Feb 2017

Appalachian Basin-focused Diversified Gas & Oil (DGOC) has received investor backing for a $575m (£437m) deal to buy a large portfolio of low-cost producing wells. The deal, which looks set to make DGO the largest producer on the junior market, is being funded by a $250m share placing that company advisers have said was three times oversubscribed.

As the transaction was classed as a reverse takeover under listing rules, trading in DGO shares was suspended until last Friday (29 June). Ahead of re-listing, the targeted assets were revealed to be conventional wells, pipelines and compression stations owned by New York-listed EQT Corporation.

The low-cost, long-life and low-volume wells are expected to almost quadruple cash profits, on a pro-forma basis. Proven reserves will also increase 142 per cent to 393m barrels of oil equivalent (mmboe). Further convinced that the shareholder register has been buffeted by yield-hungry institutional investors prepared to pay a premium for shares, the market promptly pushed up the stock 30 per cent to 125p.

That approval appeared to overlook a few discrepancies in the counterparties’; description of the deal. According to EQT, it is selling around 12,000 wells with daily gas-equivalent output of approximately 200 million cubic feet (mmcfe), and which carry around $200m of decommissioning liabilities. On DGO’s numbers, these liabilities are just $69.9m, the well count is 11,250 (revised down from 11,350) and output is expected to hit 186mmcfe.

Diversified Gas & Oil said the difference in well count and output was due to the non-operated nature of some of the licences, while decommissioning costs have been calculated on a longer-term basis, and on the assumption that wells can be plugged for less.

Arriving shortly after the CVX and Alliance Petroleum purchases (for a combined $180m), investors seem content with a deal-making spree which obscures the underlying cash flow generation. DGO says the quicker it can transact, the more value it can extract from shale-focused explorers looking for a low-multiple cash windfall and a steward for their productive assets. We have also been told that institutional investors are pushing the company to find deals at similar earnings multiples.

IC View

It’s clear to see why investors are buying in above the placing price. On a pro-forma basis, DGO reckons its merged entities would have generated $129m in annual net income in 2017, equivalent to EPS of 25¢. At 125p, that puts the stock on seven times forward earnings, assuming no more deals are announced in 2018. The shares look a little pricier on a 50 per cent premium to pro-forma net asset value, though that’s arguably in line with expansive dividend payers with limited exploration or jurisdiction risk. We're comfortable with that, and remain buyers at these levels, though shareholders considering a bid should wait for new shares to dilute the current price once they are admitted on 17 July.

Last IC View: Buy, 96p, 15 Jun 2018

[lord gnome] 04/7/2018 18:21

Ask me again on 17th July. My crystal ball has gone in for a service.

[kenmitch] 04/7/2018 16:29

Ditto Plootocrat. I’m not concerned about Institutional selling and agree with Carcosa on that. My question, still not answered, is on an important technical point that as an experienced investor I should know! i.e what will be the effect on the share price when the placing shares start trading on July 17th. There are a lot of extra shares to be absorbed. With a rights issue this is factored in and the share price marked down accordingly on the day the share goes ex rights. This does not happen with a placing and usually there is not this long delay before the placing shares are added and trading.

I’ve only a half stake in DGOC and am keen to add, as dividend news alone appeals and high chance of good share price gains too, as long as future acquisitions are as wise. What I don’t want to do is add now only to find I could buy significantly lower on July 17th. My instinct is to assume little if any change in the share price then as if that was likely it would be getting priced in now. But would like to be 100% sure.

So maybe a daft question but can someone confirm please?

[plootocrat] 04/7/2018 12:51

Thanks for the constructive responses. I was trying to stimulate debate, which I seem to have achieved by the (thankfully) low-traffic standards of this BB.
I already hold this stock and will undoubtedly add more but hoping to avoid making a naive or unnecessary mistake with the timing.

[spectoacc] 04/7/2018 11:00

@Plootocrat - many who did want out would be largely out already - either on extended settlement or stock borrowing or selling down existing holdings ahead of receiving the placing shares.

Instead we've seen some tremendous buying, which is nice.

As for where next - who knows, down & up is my guess ;)

[carcosa] 04/7/2018 10:37

Institutional investors have seen an opportunity to get into a relatively risk free/safe position with a high (8%) yielding share exposed to the energy market and with a company which will continue to grow by acquisition over the short and medium term plus in all likelihood significant further uplift in the dividend, again in the short and medium term. US$/GBP exchange rate outlook for the next couple years is also favorable to holders.

The chances of II's selling out for purely reasons of short term profit are practically nil. They are not finicky day traders

[zengas] 04/7/2018 10:18

Why would a 'significant number sell' for 27% ? That's an assumption only. There will always be buyers/sellers but worth considering that they'll also be thinking about further growth both in share price and increased dividends given more acquisitions expected.

[lord gnome] 04/7/2018 10:13

I think that a few might sell some of their holdings, but if they have been promised at 10% yield then most will be here for the long haul.

[plootocrat] 04/7/2018 09:30

I might be missing something but it seems to me that as institutions who participated in the placing are currently sitting on a 27% profit then (assuming share price is still around today's level on 17th July) a significant number are going to sell and take their profit.

[spectoacc] 03/7/2018 16:15

Hard to say - last few times I remember them being strong initially, then strangely selling back below the price (strange as in no profit to be had by those in the placing). Seems a long way from that happening this time but who knows.

[kenmitch] 03/7/2018 14:49

Agree. BUT a large number of new placing shares have to be absorbed when they start trading on July 17th. I can't work out whether that is already fully priced in or whether the share will take a dip on July 17th. There's no point buying more now if there will be a better opportunity and at a lower price in a couple of weeks time.

[lord gnome] 03/7/2018 07:36

Having seen the market reaction to the deal, it's just a pity that we can't get our hands on any of the stock being issued at 97p.

[kenmitch] 02/7/2018 21:36

“Dealings in the Enlarged Share Capital including the Placing Shares will commence on AIM on 17th July.”

Wondering what will happen to the share price on the 17th?

Very pleased at recent news especially so dividend prospects and tempted to buy more but wondering whether to wait until the placed shares are absorbed first.

[zengas] 02/7/2018 21:14

I expect given they are still targeting further acquisitions that the dividend will rise further still.

[lord gnome] 02/7/2018 21:05

Useful interview. Superb news about the potential dividend. At that level I wouldn't even need to moan about the US withholding tax.

[blueeyes13] 02/7/2018 18:13

Divi mentioned at very end of this short interview

[blueeyes13] 02/7/2018 18:06

And say a 9p divi on 6% yield gives an share price of 150 for starters so there should be plenty of upside here

[blueeyes13] 02/7/2018 17:20

Interesting to hear Rusty say that based on 98p price future increased divi should be around 10% on that. Let's call it a round 10p divi which on 128p today is 7.8%.Happy days )))

[blueeyes13] 30/6/2018 10:24

Thank you for the feedback, it's very much appreciated and helpful. Have a great weekend!