Member Info for AceofClubs

Spot on sageoflondon - high risk - potentially high reward and anything in between. 2023 is peak pricing and peak production - 2024 gets harder. Minority view on here but not on the market.

AceOfClubs

"DEC’s dividend is precisely as sustainable now as it was when the share price was 95p some 5 weeks ago" - Metalhead 25 - you may, unwittingly, have just nailed it.

AceOfClubs

@Trotsky - there really isn't a requirement for more disinformation!

Cash Flow: You argue that both DEC and now the International Accounting Standards Board don't know how to measure cash flow from operations - TheTrotsky does. I'm sticking with DEC and the IASB on this one.

Borrowings: you are clearly discombobulated between "Borrowings" and "Net Borrowings".

Net Borrowings are Borrowings less Cash or Cash Equivalent balances - do you follow?

Borrowings in the year to 30 June 2023 did indeed increase by 13%. Net Borrowings (a more informative figure in my opinion and the figure I wrote about) in the year to 30 June 2023 increased by 31% - still able to follow?)

The Big Picture. I commented on the period you defined - if you have to move the goal posts to make the figures fit your opinion....... My point is that DEC's financial obligations, inflated by "accretive" acquisitions are outrunning their cash flow - which is actualy in decline.

Hedging - The huge cash losses run up by DEC's hedging activities and the disappointingly small gain in the first half of 2023 tell me that DEC is indeed trussed like a Christmas Turkey by its Bondholders and the blunt hedging covenants. I do hope they don't get an opportunity to stuff us in the oven. The Oakley Capital Vulture Fund sits patiently on its perch.

DEC has a very tough 2024 to negotiate with falling hedged prices and product volumes.

I have just over 1% in DEC it's been a rough ride for those with greater percentages.

AceOfClubs

@Trotsky – “Repeating falsehoods don’t (sic) make them true” Totally agree, so let’s examine some shall we?

Cash Flows: I have already disclosed on this forum (3 Sep) how “Net Cash Provided By Operating Activities” has consistently declined over an 18 month period. I have used the DEC numbers, straight off their accounts, no adulteration or alteration to fit any particular narrative. If you think that DEC are getting it all wrong and misrepresenting with falsehoods then I respectfully suggest you take it up with DEC; I am sure they would be more than willing to be corrected. (By the way Trotsky, working capital adjustments over the 18 month period actually add $37M to the Operating Cash Flow, stripping them out makes the picture even worse!)

Borrowings: my case was that net debt had risen by 31% in only 12 months.

“With regard to (sic) whether they are paying off debt with free cash flow or the RCF, I'd suggest you actually look at the figures. They expended $262m on asset acquisitions in 1H23 and increased their RCF by $209m. I rest my case.”

Your case needs resting Trotsky because it is more dead than a Monty Python parrot. They did indeed expend $262M on assets and increase their RCF by $209M. You missed out the $37.5M raised by selling assets and the $156.8M equity raise, but easily done. I rest your case.

Hedge Prices

“The hedged price in FY24 is less than the FY23” We finally agree on something. Just for information the Nymex NG strip price for 2024 is $3.36.

AceOfClubs

@Andy144 - The obvious sign of distress is the share price: the market does not regard the dividend as sustainable. Did Eric Williams leave because his advice was ignored? All of the key numbers were moving in the wrong direction at 30 June - I cannot see that has changed.

AceOfClubs

@PIKEMAN & Andy144 - My take is: yes they are paying off the ABS Notes monthly but are they doing that with free cash flow or increased borrowing on the RCF? I don't know, possibly a percentage of both. The same question can be asked of the very small share buy backs. I think that at 31 December 2023 the net debt position will be very similar to that of 30 June.

In 2024 the cash demands of the ABS Notes amortisation will decrease. But will it decrease more, or less, than the free cash flow decrease brought about by lower hedging prices and falling output? If it's less then they borrow on the RCF to pay off the ABS. I can't remember clearly but I think their might be some wriggle room on the repayment schedules for the ABS Notes.

The ABS Notes are non-recourse to the company on default but I am sure the bondholders will be more than pleased to seize the assets and offload at a nice margin; Chapter 11 if you like by the back door.

From the published information at 30 June this is my interpretation of the numbers. I have seen nothing subsequently to change my opinion. DEC is in a tight cash position - it requires recognition and action - cut or halt the dividend. It doesn't matter short term if the share price is 75p or 35p. The risk is the ABS holders snatch the assets - I do hope they are not friends of Rusty.

AceOfClubs

A few observations:

Cash Flow From Operations (that's pumping and selling gas) is in decline

Hedged prices for 2024 are below those for 2023

Product volume output for 2024 is likely to be below that achieved in 2023

Net Debt is rising

Interest cash burden from net debt is rising

Owing to equity issue earlier in 2023 cash dividend burden is rising

There is no financial scope (debt or equity) for any more "accretive" acquisitions (sigh of relief)

Management have their work cut out to keep this from sinking - the former CFO jumped ship.

Look at the numbers - words such as good, solid, etc. are just meaningless words.

AceOfClubs

Jim800 - What makes you think I thought any of it was factually incorrect?

AceOfClubs

Reads like a paid for piece of puff.

AceOfClubs

The share price took a sharp dive just after the US markets opened; somebody knows something we don't. Oakley Capital loves to be close to a winged bird. Where is the management statement "Unaware of any reason for the recent share price weakness"?

AceOfClubs

"A chalk and cheese comparison?" Crescent Point Energy +14%, Gulfport Energy +53% - DEC - 30%: more like the good and the ugly comparison!

"You have to take the rough with the smooth" There is far too much rough and very little smooth. I am not against hedging, just boneheaded hedging to meet the requirements of bondholders.

"I disagree with your comments about the cash flow. Under IFRS working capital adjustments are included in operating cash flow" The figures I posted earlier reflected that. In 2023 "working capital adjustments" constituted 36% of operating cash flow !

"I have never seen such disproportionate hedging originated value destruction as has been disclosed by DEC; well Enron maybe" Can you point me to even more disproportionate "hedging originated value destruction" than DEC has achived?

The Enron jibe was tongue in cheek.

Ending on a cheery note: Malcy remains positive about the prospect of even more debt - so at the moment grin and bear it seems the order of the day.

AceOfClubs

“I would suggest the fact that you can currently get a risk free return of c6% compared to less than 3% 12 months ago has played a part.” All of my other O/G holdings are significantly up since January 1, DEC has declined ~30%.

“Some people have been pontificating about DEC's risky derivative trading and production issues without providing any tangible evidence.” The evidence has been provided and is very tangible. The DEC accounts disclose the huge amounts of cash foregone by DEC’s derivative trading; they also disclose the declining cash flow at the operating production level.

“Hedging is the backbone of the oil/gas and farming industries.” Very true; but it is generally used selectively and intelligently to protect and hopefully enhance a business. DEC are constrained by their obligations to bondholders to use hedging in a blunt and rigid manner to protect the bondholders: equity holders can go to hell in a handcart. I have never seen such disproportionate hedging originated value destruction as has been disclosed by DEC; well Enron maybe.

The news that the syndicated RCF has had its limit raised by $50m (that’s an average of $3.6m per participating bank) should ensure our dividend cheques don’t bounce and all those monthly payments on the ABS loans go through on 30 September – that’s a relief – for now.

AceOfClubs

Gavster-NBC - the only information I have is already in the public domain. DEC, to their credit, put out a lot in their financial reports.

Production decline was 8.5% at the interim in 2022 and I can't find it right now but I think I read it was 10% for the y/e 2022. The Tanos acqusition only raised production 4% at 30 June 2023. For me, 6 months ended 31 December 2023 is peak production. Onwards it's all naturally in decline - not unique to DEC - just the way it is. Their decline rate may be less than an industry average but tht's only because their wells are older than the industry average. They don't have a magic formula or magic wells.

I don't pay much attention to the SAM puff. I am sure the tweaks to maximise production, minimise cost, are widely known and practiced in the industry. There aren't too many out there practising Dumb Asset Management.

AceOfClubs

Lots of posts about the continued share price decline and its causes.

Trying to keep it straightforward:

Cash Flow from Operating Activities has been in decline for the 18 months to 30 June 2023 - despite multiple acquisitions funded by expensive debt and even more expensive equity.

The cash hungry debt pile and the cash hungry equity pile have both been growing - when cash gets tight which pile will be fed first? Will the RCF lenders be prepared to see their money fed to equity holders or will they have a quite word in Rusty's ear?

DEC have committed to pay the dividend in December 2023. I think the 6 months ended 31 December 2023 will be maximum production and cash generation levels for DEC.

In 2024 we already know prices for DEC production will be lower than 2023 - their hedges tell us that. I think absolute production volumes will also decline in 2024, possibly sharper than anticipated.

If I am correct the result will be a dividend cut/halt. What will that do for the share price? It may even raise it - stranger things have been known to happen.

Rusty's new best friend, Howard Marks of Oaktree Capital, is a creditor whose business is becoming a predator - he loves Chapter 11 scenarios.

An old but still pertinent quote from Mr Marks: "Creditors are about to become the owners of many companies, equity holders will be wiped out. When you buy with borrowed money there are some environments you can't withstand."

I think there will have to be some careful steering of DEC to avoid trouble ahead.

AceOfClubs

Those of a different opinion can joyfully fill their boots - I'm not buying.

I have held too large a tranche of IGG since I can't remember when; average cost £6.20.

The Julie Felix reign has been an unmitigated disaster for shareholders, if very rewarding for Julie Felix personally. Why do I write that? The numbers tell me.

IGG Annualised Total Return: 1Yr -9.53% 3Yr -2.36% 5Yr 0.65%

FTSE 100 ATR 1Yr 9.97% 3Yr 12.52% 5Yr 4.80%

I and all other shareholders would have been much better off with the money in a FT100 tracker. Tasty Trade was a hopeless buy and it has subsequently had huge amounts of cash thrown at it to try to hide/rectify that.

The whole BoD is culpable for letting this happen.

IGG sits in the "too cheap to sell bucket".

AceOfClubs

From the 2022 published accounts:

"For the year ended 31 December 2022, the total loss on derivative financial instruments of $1,759 million increased by $784 million compared to a loss of $975 million in 2021. Adjusting our unsettled derivative contracts to their fair values drove a loss of $861 million in 2022, an increase of $209 million, when compared to a loss of $652 million in 2021. While this loss certainly reflects the increase in commodity markets in relation to our hedge floor, the magnitude of the loss is amplified due to the increase in the size of our long-dated hedge portfolio, which has increased meaningfully with the addition of four new ABS notes in 2022 that each contain long dated hedge portfolios that in some cases extend through the life of the note.

For the year ended 31 December 2022, the total CASH loss on settled derivative instruments was $897 million, an increase of $575 million over 2021. The CASH loss on settled derivative instruments relates to higher commodity market prices than we secured through our derivative contracts. With dividend distributions and scheduled debt principal payments central to our strategy, to protect our downside risk we routinely hedge at levels that, based on our operating and overhead costs, provide a healthy margin even if it means foregoing potential price upside."

They lost CASH on their hedging greater than the market capitalisation of DEC in a single year, 2022. Something along the lines of children and matches springs to mind. I am not against hedging per se, but DEC are stuffed and trussed tighter than a Christmas turkey.

Probably I, just like the market, don't understand the business model.

AceOfClubs

The DEC business model is to have income exceed expenditure. Unfortunately, they find themselves in the vice like grip of the bondholders and no doubt RCF lenders. They have to hedge (forward sell at a fixed price) to comply with ABS and no doubt RCF covenants. This hedging produced a cash benefit in the first half of 2023 and probably will in the second half too. However, at 30June 2023, every subsequent year, forward hedging was underwater against market pricing. There is hope that there is something left over for equity dividends, but as the market is demanding 16% to hold DEC equity that is not a certain or cheap option. Equity is costing DEC approx twice the cost of debt because the business model is constrained to return both capital and interest to bond and debt holders; equity holders hope and pray.

With the volatility of pricing in the NG market and its regional nature in the USA only adding to the mix, DEC is not in an awful lot of control of its own destiny. (Other views are available.)

AceOfClubs

Hello Trek,

So it is Eric Williams that has been shown the door - or is it not?

I am sure you don't really need all the 000's repeated ad nauseam after every number - do you?

A more concerning feature is the substantial and repeated selling of DEC equity by Brad Gray; but perhaps Mr Gray is a sharp cookie, he certainly got much better prices than available to sellers today. - but you don't see him buying at current price levels.

I am not in the Chapter 11 camp but I fear the dividend is under strain which will only increase with the lower hedged prices achieved for 2024 v 2023.

AceOfClubs

First Posted - 31 May 2023

"Bradley Grafton Gray (Chief Financial Officer) has been a heavy and consistent seller of DEC equity to the tune of 1,991,667 shares since May 2021 I calculate, his last tranche of 250,000 only a couple of weeks ago.

For all our head scratching and pontificating, if anybody knows what is really happening with the DEC finances it is (or should be); Mr Gray."

From the 3 September 2023:

"It’s at times like this that a company needs a Finance Director, with a steel backbone, to tell the dominant CEO the facts of financial life. It must be a nightmare juggling the cash flow against the monthly demands for capital and interest payments on all those ABS Notes and keeping the RCF lenders on board ($265,000 drawn at 30 June 2023).

By the way Trek, it's Eric Williams not Brad Gray who has been shown the door.

Perhaps Eric spoke truth unto power once too often? - but do draw your own conclusions.

AceOfClubs

Year end 1 April - audited accounts scheduled for 15 August (a long wait in my opinion). 12 September still no audited accounts - why? Auditors doing the job they are paid to do by and for shareholders? Geoff not happy? Silence reigns.

AceOfClubs