Diversified Gas & Oil Share Discussion Threads

[stemis] 06/6/2019 19:13

Henchard,

That makes $140.19m the present value of gross decommissioning costs, the way I read it. If so, it would raise serious questions.

What questions?

[stemis] 06/6/2019 19:04

Stemis/ Why on earth would you discount future liabilities by 8%, when they're presumably highly likely to come to fruition?

I don't know what you mean, but the 8% is time value of money. If you don't know what I'm talking about I suggest you read FRS12.

[alotto] 06/6/2019 17:00

did you notice how the share price falls the first hour in the morning at the opening bell and then stabilises? Investors must be more negative early in the morning ...

[laptop15] 06/6/2019 16:15

Looks like a big seller in the background here guys, that's maybe why the unexpected drop in share price today

[damp seaweed] 06/6/2019 15:27

It is the discrepancy between the sellers valuation of the decommissioning liability and the liability acknowledged on the books by DGOC.
I suspect we will be due another RNS shortly advising us of more share buy backs

[elcapital2018] 06/6/2019 14:50

He was an oil analyst and definitely knows how to dissect accounting. Anyone that went through QPP will know that

[henchard] 06/6/2019 14:16

SteMIS

"If this is the case, the author is wrong and DGOC are not misaccounting at all. it's just he doesn't understand the accounting."

Asset retirement oblibgation of $140.19m under non-current liabilities on the balance sheet and no ARO under current liabilities. (AR 2018)

Note 15 to the accounts:
The decommissioning liability represents the present value of decommissioning costs relating to oil and gas properties, which the Company expects to incur over the long producing life of its wells, presently estimated through to 2093 when the Company expects its producing oil and gas properties to reach the end of their economic lives.

That makes $140.19m the present value of gross decommissioning costs, the way I read it. If so, it would raise serious questions.

That average end of well-life of 2093, also looks bizarre to my eye.

[alotto] 06/6/2019 13:54

I think the director have always done a great job keeping investors happy.
On time with updates, issuing shares at the current market price, etc. Now they tried to ease concerns by purchasing company shares.
So far I am happy with the way they are running the business.

[skatersav] 06/6/2019 13:47

theprovosts! What is I3E?? some AIM minnow e&p nonsense... Whatever. TW called Purplebricks, Woodford, Quindell, Globo, Avanti, IQE, Tungsten, Accesso... and he'll be proven right on BCA eventually. In any case, this isn't TW's work - it belongs to some young research analyst - and who cares who he is - the research is solid. Play the ball...

[cockerhoop] 06/6/2019 13:23

Stemis,

My understanding is DGOC auditors Crowe previously provided services to Chinese Aim companies as notorious as Naibu & Camkids............but probably nothing to see here ;-) I'm sure their audit will have been comprehensive!

[eezymunny] 06/6/2019 12:50

Stemis/ Why on earth would you discount future liabilities by 8%, when they're presumably highly likely to come to fruition?

[lab305] 06/6/2019 11:48

alotto you are right about the date but it was only recently put up on the TW site and that's what gave it an audience.

[catsick] 06/6/2019 11:45

Yes noble was exactly my thought with the way they marked the long term contracts plus the way that transactions with other listed entities his the accounts of each side in wildly differing ways, I shorted noble down to zero ....

[deuchar] 06/6/2019 11:36

Shades of Noble in Singapore

[alotto] 06/6/2019 11:14

The article hxxps://oarfishresearch.blogspot.com/2019/05/diversified-gas-oil-decommissioning.html?m=1

dates 14.05.19, I don't believe that it is having such a delayed effect on the sentiment on the stock. I blame the Oil industry being bearish for the recent share price fall.

[lab305] 06/6/2019 10:49

Unfortunately the company making a statement on this would add credibility to the blogger. Good post SteMiS and a reasoned deconstruction of one of the bloggers arguments.
I am stunned by the traction that this has gained and the attitude to those on here supporting the company of somehow being ignorant and stupid. Many if not all of the arguments put forward in the blog could be shown to be similarly specious. For instance on projected well life. Due to better maintenance , extraction techniques and cost synergies some wells have markedly longer projected lifespans since takeover. This apparent anomaly is basically portrayed in the blog as the company falsely inflating the figures.

[shanklin] 06/6/2019 10:26

SteMiS

Great post. It would certainly be helpful for DGOC to explain the major difference in estimated decommissioning liabilities.

[damp seaweed] 06/6/2019 10:13

SteMis, Thanks for sharing your considered post. Much better than the denial approach, so prolific on this board at the moment. However, whilst I assume there must be some basis for the Directors valuation. There is a lot of depth to the oafish analysis, and far too many questions and doubts for this to be considered a prudently managed company, and consequently, IMHO, the risk/ reward needs a complete reassessment.
Oafish may be over egging the situation, but something smells bad ....IMHO

[stemis] 06/6/2019 09:53

Firstly, I've no position in DGOC long or short or likely to take one. I've read the blog - hxxps://oarfishresearch.blogspot.com/2019/05/diversified-gas-oil-decommissioning.html?m=1

and whilst I've no view on management's estimates, I've quite a bit of experience of accounting for long term restoration costs, so I was interested in the comment

"In their June 2018 10-Q, CNX Resources announced the sale of 'substantially all of its shallow oil and gas assets' for cash consideration of $89.3m. However, they also announced that 'in connection with the sale, the buyer assumed approximately $196,514,000 of asset retirement obligations':

A report from Natural Gas Intelligence’s Shale Daily echoed this, saying that the buyer had assumed $200m in liabilities from CNX that were primarily related to asset retirement obligations. But, as we've seen, DGOC did not report almost $200m in AROs - instead reporting a liability of only $14.3m.

So, DGOC have reported a decommissioning liability of $14.3m on the same assets that CNX Resources reported asset retirement obligations of $196.5m."

The author then goes on to extrapolate this and other significant differences to claim that DGOC are understating decommissioning liabilities by ~$1 billion.

The difference is so large (especially as the DGOC liability is audited) that it's hard to believe it's as simple as presented. I wonder if the author has failed to understand the accounting for decommissioning liabilities.

Under UKAS companies have to provide for the discounted value of liabilities, which then unwind each year (the unwinding being charged as an interest expense). I wonder if the figures disclosed by CNX are gross. I believe DGOC use a discount factor of 8% and if you discount $196.5m at 8% over 34 years (which is a reasonable view of well life), you get $14.35m. If this is the case, the author is wrong and DGOC are not misaccounting at all. it's just he doesn't understand the accounting.

[fozzie] 06/6/2019 09:43

Catsick - complete deramper - filtered

I am not discounting it Eezy, i am happy with the agreement clarification from the company with regard to DGOC's asset retirement obligations across the four states within which it operates virtually all its wells.

[eezymunny] 06/6/2019 09:33

Amazing how many thicko punters will just dismiss the decom blog report and bury their heads in the sand.

I mean it either has credence or it doesn't, so read it in detail and form an opinion. Simply dismissing it has enormous potential cost if it's right.

[catsick] 06/6/2019 09:17

I am guessing the reason the number of wells in all these deals increases is that the initial report gives the number of producing wells, then the final numbers include the dead ones which need plugging, the company really need to provide data on how many wells are already dead and therefore pure liabilities.... I think the nasty little game has been discovered

[hiddendepths] 06/6/2019 09:14

A friend suggests this is "a hatchet job." Inclined to agree and topped up at 103.9.

[bushranger] 06/6/2019 09:08

TW has highligted a series of blog articles that effectively implicate the company in fraud accounting.