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Hi. Does anyone know how many operating wells DEC have? Those actually producing meaningful amounts? I am trying to look into this a bit more deeply but cannot find this information.
I would like to know how many wells actually need to be P&A as a percentage of the 70k wells they own. This might be more helpful than the number of wells that they say they will P&A per year - currently upto 200.
Thanks in advance.
Andy,
Not sure you'll get that level of detail given:
- they probably don't know themselves given recent acquisitions. Wells might be dormant at present but suitable for re-start when geographically convenient.
- probably changes on a daily basis
- wells may cycle through production, pause, production., pause etc pre final closure.
All you can base your view on is that they will have to plug all wells eventually, are currently doing it ahead of state mandated requirements at an average price of £20k ish and that the total cost is factored into their plans as described here a few weeks ago (referenced to a DEC presentation).
Hi Andy,
Not sure if this is what you are after, but the August 2021 'Asset Retirement Supplement' published on the company's website sets out the asset retirement decision tree (p3), and the number of Operated Wells (62,000) and Total Wells (69,000), on p10.
Therefore there are around 7000 wells which were not being operated in August 2021 (although this does not necessarily imply they are all not capable of being operated).
To me, the worst case scenario in this area is that legal/regulatory change could require gas producers (including DEC) to rapidly cap these non-producing wells. Realistically, some time would have to be allowed for this - couple of years at least.
But even in this worst-case scenario, it seems to me that the immediate cost to the company would only be about 7000 wells x $25,000 cost per well = $175m. Presumably spread among at least 2 financial years.
In the context of the brokers pointing towards FCF of $400m+ for FY22, this implies that even the very worst case scenario for immediate capping would be a cost of about 22% of predicted FCF for FY22 & FY23.
Or, hypothetically, if the whole of the money for capping 7000 wells was deducted from dividend payments to shareholders (which I don't believe would be the case at all), then the company would still have £113m to return to investors over FY22 and FY23 combined - i.e. about 13 c, a yield of 5% or so.
These numbers suggest to me that any potential changes to federal/state capping requirements - while plainly an inconvenience to the whole gas industry - could be overcome by DEC reasonably easily over the course of a couple of years.
Thanks. Regulatory change looks to be a real possibility. I would suggest that states may not insist that unproductive wells be capped right away but they may require $$ to be set aside for capping and insist that such wells are not emitting methane.
Looks like there is a fair amount of pressure from various quarters here. A large institutional holding might well also come under some pressure to sell.
Andy144, if your prediction comes to pass re: putting money aside for capping unproductive wells then that's plainly a better position than the 'worst-case scenario' I outlined of having to cap 7000 non-producing wells, so would be dealt with more comfortably by DEC.
I think it's clear from the Capital Markets Day that the Company is committed to minimising methane leaks anyway. In my view, DEC is taking all the right steps to become the best-in-class operator of these types of wells from an environmental point of view as well as from a production perspective.
For these reasons, I think investors will eventually come to see that DEC is a good news story in terms of environmental impact. These wells have already been drilled, and the best environmental outcome is for them to be owned by a reputable and financially sound company with the desire, funds, and technical ability to prevent methane leaks, and to meet their capping obligations over time.
While legal & regulatory change may impose certain higher costs on DEC, it's important to recognise that these costs would affect the whole industry, not only DEC. In particular, this would likely lead to a buyer's market for DEC when making new bolt-on acquisitions: there would be some motivated sellers out there, where existing owners do not have the same funds or the same expertise.
So the effect of potentially increased regulation is not all negative for DEC, there is upside too.
nice (and correct) comment MillerJackson.
I agree with everything you say MJ. Thanks. I have been positive on DEC since it's float.
Polititians have a bad habit of knee jerk policies when opinion favours them. So I just try look at all possibilities. It is most unlikely that DEC will be required to plug all unproductive wells (your worst case senario) in the near to medium future. But what if they were? Their current team to do this job would have no hope with 7000 wells over 2 years, or even 5 years. Outside help would be needed and then c$25k a well is out the window.
I think the thing I would love to know is (and probably the market would love to know) when DEC make a purchase, how many wells are unproductive, how many are marginal, and how many are the real assets. Apparently DEC have 7000 unproductive wells but how many are a few years away from this?
I was told most things in life follow the 80/20 rule. Let's hope that 80% of DEC income doesn't come from 20% of the wells they own.
Cheers.