Diversified Gas & Oil Share Discussion Threads

[lord gnome] 10/8/2018 08:35

Yes, they seem to have given over a lot of the RNS to decommissioning issues which I consider to be quite minor in the grand scheme of things. Why set a hare running?

[melody9999] 10/8/2018 07:50

This is the key statement:

The Company's integration of its most recently acquired assets from EQT Corporation is progressing as planned. The Board is pleased to confirm trading is in line with management forecasts and that it expects the results for the year to December 2018 to be in line with current market forecasts.

Think the wording of the RNS is not great but looks like they will reach amicable settlements on well plugging.

[spectoacc] 10/8/2018 07:15

Explanation RNS'd this morning. Trading in line, everything as planned, but - having a few decommissioning issues with the Pennsylvanians.

[podgyted] 09/8/2018 19:58

Slightly added to their short position - 2.72%.

Price falling quite dramatically at present - some big sells today - perhaps some profit taking on the placing?

[lab305] 03/8/2018 09:17

To those of us not paying attention (like me) Mangrove have reduced their short position by just over 1%. That will have cost them ! Still 2.59% to go.

[sogoesit] 31/7/2018 08:22

Yes, indeed, lab305.

My NAV analysis (and current market pricing) must be wrong somewhere because, even on the direct alternative comparison of future dividends the doubling of production from 28k boepd to 60k boepd implies that the capacity for paying dividends has also doubled (on a like-for-like profitability).

The pre-acquisition annual dividend was 9.175 us cents (equivalent to 6.95 p). Yield at 94.6p therefore 7.34%.
Doubling that dividend capacity to 13.90 p then gives a forecast dividend capacity yield on an share price of 114p of 12.19%.

If we assume the shares will be valued, again at a yield of 7.34%, then the current share price should be around 190p.
I hold and accumulated at 114p on this basis and that I thought the shares to be undervalued on the "drift back".

You point out good reasons for the mis-pricing in the market in my view. As you imply it doesn't make any sense for a well managed company to buy and own assets which have no "value" (albeit that in this space there are companies that do... intentionally or not)!

Other metrics that may be misleading the market, and industry buyers/sellers, are imv:
- Discounted cash flow NPV at 10% discount rate; (the cost of debt is way below this figure at this point in time so the cost of capital must be significantly below 10% to apply to DCF analysis - see page 139 of the CPP report where undiscounted cash flow is $1,697 million versus 10% discounted at $804 million);
- the "ball-park" $2.50/boe hydrocarbons in the ground figure for assets' valuation is "lazy". (in my day some 15 years ago the figure for oil used to be $5/bbl so, here again, Hutson has run away with a LOT of value!);
- the company has increased its debt capacity to about $1 bn and has about $400m to $500m unused (what will it be doing with that capacity?);
- etc. etc.
- caution that o&g producing assets are wasting so replacement of reserves will of course be necessary (in the longer term).

This company is seriously undervalued in my view (by a minimum of 50% probably).

Thanks for your response lab305.

Good luck!

[lab305] 30/7/2018 23:30

Sogoesit. Perhaps your valuations are wrong. There is indeed a large discrepancy between the new and older assets but the company have stated that the new assets are much more profitable. Some research is needed to find out why this is so but my theory is that 1.The new assets have a considerably larger percentage oil output. 2. They contain their own infrastructure, compression stations and 6500 miles of pipeline. Right or wrong Hutson has categorically stated that he will not buy assets for the sake of it and they must represent good value. If he is right that a dividend of 10p per year is now doable then the shares are very cheap. Since the man has been straight in the past and has always done what he said he would do ,I have no reason to doubt him.

[sogoesit] 30/7/2018 19:05

Yes, 97 is quite probable but difficult to know how the market will value this one with all the acquisitions going on and what metric to choose. Also complicated by the discrepancy between the stock market asset value and the new burden of debt compared to the purchase price of the new assets.

But in direct asset value simplistic terms the market was valuing the assets at $1.94/boe of reserves (163 mmbo) prior to the acquisition but company purchased the newly acquired assets at $2.50/boe (230 mmboe for $575 million). That makes a 22% discount to realiseable petroleum value of $2.50/boe.

On the assumption that the total new assets (393 mmbo) are valued, for stock market pricing purposes, at $1.94/boe that gives a gross asset value of $761.35 million equating to $1.50/share (114p/share).

What about the new debt?
My $1.94/boe is the market cap at 94.60p/share on 14 June less $92 million of debt plus $15 million of cash.
But the equity raised amounted to $235 million so the balance, $340 million, is in debt. Adding the existing debt of $77 million the new total debt is $417 million.
So the new balance sheet NET asset value is $344 million ($761.35m - $417m).

The new theoretical net asset value of the company is therefore 68 usc/share or 51p/share. (507 million shares in issue).
WHOOAAAA I hear!!!!

The issues are were the shares undervaluing the petroleum assets prior to the new acquisition ($1.94 cf $2.50 per boe purchased); and/or
Will the shares re-rate to base the value on $2.50/boe... or better?

If they re-rate the assets to $2.50/boe ($982.5 million gross) then the net asset value, after deducting the $417 million debt, should be $1.115/share or 85p/share.

Right now the shares "appear" to be trading at a significant premium to net asset value (35%) based on purchase/re-sale value of the petroleum assets and there has been a switcheroo in discount/premium from before the acquisition.
Why?

(I hold and accumulated today at 114p)

[plootocrat] 30/7/2018 11:18

The share price seems to be steadily drifting down towards the placing price. Any thoughts on where a support level might be found?

[deuchar] 28/7/2018 12:44

So BP paid twice the going rate which makes DGOC cheap?
Any thoughts anyone?

[blueeyes13] 27/7/2018 10:50

ÇSorry

[sogoesit] 25/7/2018 14:32

Started building a stake here today for US Dollar exposure and growth.

[danieldanj] 24/7/2018 14:01

Diversified Gas & Oil (DGOC) News Out Just Now

[sogoesit] 19/7/2018 07:20

New fire power concluded.
Ambitious aggregation plans to expand quickly.

[podgyted] 13/7/2018 13:22

Half a million sale gone through at 97p - someone getting ahead of themselves?

[podgyted] 11/7/2018 17:35

I do think there is a danger on 17th July - market not all that good at moment - opportunity to cash in a 20%+ profit.

I'll watch in the sidelines until after the event.

[sogoesit] 06/7/2018 12:00

Just to add my "two bits" to what might happen on and post 17 July to the share price my experience is that with any addition of volume to the market the shares become less "closely held" and more "tradeable" from a purely market dynamic point of view.
(My experience is with BOO, FEVR and others when institutions persuade insiders to sell to release "liquidity" to the open market in contrast to when more tightly held companies remain so, eg PPH.) This increases volatility, simply.

Of course this can work both to the upside and downside but when there are profitable positions around you can be sure, in my view, that the increased volume will lead folks to "take profits" and trade to the short side. Just my observations on recent activities that have affected my holdings.
There are many players out there and guessing which band will predominate at an instant in time is impossible.

I am also interested in accumulating here but given the above will wait to see how all the recent actions pan out in the market before purchasing.

Good luck!

[mirabeau] 05/7/2018 18:11

yes, thanks for the link

[alter ego] 05/7/2018 18:01

The presentation carcosa provided a link for (substitute https for hxxps) is very informative and list 6 acquisition opportunities currently being looked at. Thanks carcosa.

[lord gnome] 05/7/2018 17:57

Roughly speaking DGOC will have around 400MMboe once the deal completes and around 500MM shares in issue, so each share is backed by 0.8 of a boe. I value a boe at $5, so each share is worth $4 or £3. This rough and ready calculation does ignore:
a) We have gas and not oil
b) the small matter of around $350MM debt
No doubt you can all put your own price on the value of a boe. Even allowing for this, the shares look very cheap to my eyes at 125p and still have a way to travel. Will probably move again once the first enhanced dividend is announced next year - or the next big deal comes along. The promised yield is the icing on the cake (or for me, the reason why I invested here in the first place).
I think the IC analysis is a bit lightweight and misses quite a few key points.

[kenmitch] 05/7/2018 17:28

Thanks carcosa for your convincing explanation and figures.