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@Ticketi-Boo - You have awakened a distant memory in me.
" I've never seen a CEO of a company sell their shares even before they go under." Globo?
Globo was subject to unexplained share price weakness over an extended period. The CEO and FD were selling their entire holdings into the market - but not disclosing. The penalties for this in the US would be far more severe but DEC is London listed so would UK law apply?
I have no evidence that is the case with DEC, but it has happened in the past. The SFO never laid a glove on the Globo miscreants.
AceOfClubs
Maybe not.
https://www.theguardian.com/world/2023/oct/26/hurricane-otis-mexico-acapulco-damage-aid-military
AceOfClubs
From a Net Income of £178M in 2021 Marketscreener is forecasting £17M in 2024 and £25M in 2025. Struggling to see any deep value above 50p. CMC appear to have lost the ability to make any meaningful profit. Does anybody know why? I know volumes have declined but didn't they see that coming? Can't they adapt top market conditions?
AceOfClubs
Jim800 - We can certainly agree period on period comparisons are difficult because of the welter of acquistions over several years. 2023 will be the quietest year since the IPO but still a 1 February $250M acquisition with " Current net production of ~17 Mboepd (101 MMcfepd) (76% natural gas), representing a ~12% increase vs. the Company's December 2022 exit rate net production".
Added to DEC's existing exit production at 31 December 2022 of 141 Mboepd that would be 158 Mboepd at 30 June '23 with no decline. DEC declared 144 Mboepd exit rate at 30 June - an 8.9% decline in 6/5 months.
Whichever way you cut it, production output is in decline at rates that will seriously reduce cash flow. Hedged selling prices will inflict further damage in 2024 and 2025.
Halving the dividend would still offer a 10% yield at 70p and may even boost the share price!
AceOfClubs
@Agricore
“You ask when has $4.66MMBTU or higher been achieved?” You misquote me. I asked “When has DEC ever achieved close to $4.66?”: with reference to average selling price over a 12 month period. DEC is using this average over a 10 year period to support its cash flow thesis. I then went on to demonstrate the improbability of this with its published hedged prices over the first 3 years.
On production output I wrote: “My estimate is that output at end of 2023 will have declined around 10% from output at 30 June, only partly because of disposals.”
Exit output at 30 June was given by DEC as 144Mboepd – the commentary on third quarter production listed an average of between 134-138Mboepd – a 4%-7% decline from 30 June – so 10% by 31 December could be conservative.
DEC themselves in their Half-Year report state: “Maintained industry-leading consolidated corporate decline rate of ~10%” To maintain their cash flow thesis they again have to make the unrealistic assumption of a 4.5% decline rate.
You can call the market wrong all day long; but that usually ends in tears.
AceOfClubs
The share price says the market does not believe the dividend is sustainable. Is the market right or wrong? I think it is more right than wrong. Operational cash flow has been in decline for 18 months - despite all of the accretive acquisitions. The latest Corporate Presentation dated 19 September, slide 33, requires the following assumptions: Nymex 10 year strip at $4.66MMBtu and production decline rate of 4.5%. When has DEC ever achieved close to $4.66? It will not in 2023 (85% hedged at $3.79) or 2024, (80% hedged at $3.31) or 2025, (70% hedged at $3.26). See slide 29 of presentation. Why is selling price so crucial? Because every extra cent earned is cash profit. If output remains constant cash generation takes a big dive from 2023 levels in 2024 and another downward leg in 2025. Output will not remain level. Slide 33 requires an output decline rate of 4.5%. DEC has never achieved such a low decline rate. It used to boast of an "industry leading" decline rate of 8.5% (only industry leading because it had the oldest collection of wells in the industry!). My estimate is that output at end of 2023 will have declined around 10% from output at 30 June, only partly because of disposals. RCF levels at 30 June indicated that cash flow was already under pressure. With output and selling prices guaranteed to fall in 2024, cash flow faces a double whammy. All at a time when leverage is at a peak.
The dividend looks under threat; the market prices accordingly. Wish I could be more positive but the numbers don't look good.
AceOfClubs
From the DEC 2023 Interim Report: "During the six months ended 30 June 2023 we retired 100 Diversified wells, inclusive of the Central Region, at an average cost of $20
to $25 thousand per well."
Ignoring the contradiction in the statement ($20 to $25k per well is a range not an average) how does this compare to third party evidence and experience?
The Ohio Valley River Institute examined the evidence from the 4 States it covers and in which DEC operates covering the year 2020. The figures it compiled show these States (Kentucky, Ohio, Pennsylvania & West Virginia) plugged 467 wells at a cost of $17M an average of $36.4k per well at 2020 prices.
In August 2022 the Federal Govenment awarded $25M to each of these States for orphaned well plugging.
Kentucky plans to plug 627 wells - $39.9k each
Ohio, between 170 & 320 - using the median figure of 245 - $102.0k each
Pennsylvania, 227 - $110.1k each
West Virginia, 202 - $123.8k each
All wells are individual and will have individual costs associated with plugging and site restoration. On this sample of 1,301 wells, at a cost of $100M, an average of $76.9k per well.
No opions expressed, it's just numbers.
Source: https://ohiorivervalleyinstitute.org/getting-unions-connected-to-orphaned-well-clean-up-a-second-bite-at-the-apple/
AceOfClubs
I am a bit shocked and surprised at an offer at any price by Apollo Global Management after their diasterous foray into bottom end "dining" with Chuck E. Cheese in 2014. I rate the Global Management: but I suppose they are entitled to the occasional bad move. I do hope somebody makes a higher bid!
AceOfClubs
New Ohio River Valley Institute Report Shows Conventional Oil & Gas Well Owner Diversified Energy Lacks Resources To Plug Wells, Including 22,507 Wells In PA
http://www.paenvironmentdigest.com/newsletter/default.asp?NewsletterArticleID=55250&SubjectID=58
AceOfClubs
If you have inside information on the power of the EPA document to move DEC's share price 15% then you have the advantage of us. If it is mere supposition on your part then it is just that; suppostion.
P.S. Calling it as I see it does not make me a doomsayer - I try to look at the evidence objectively - other opinions are available and to those with them the current share price is a fantastic opportunity! What's not to like?
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