Member Info for asp1

Given DEC is the largest well owner in Appalachia, it does look it is well positioned to materially grow its ~$10M EDITDA of CMM (coal mined methane) going forward. Below are some data points from CNX that outline the opportunity:

-Methane emitted from coal mines accounts for approximately 10% of all U.S. emissions, with about 80% of those concentrated in the Appalachian region.

-In 2023, less than 0.1% of the 30,771 abandoned mines registered methane capture projects.

-Estimated methane emissions from abandoned mines will increase 8-fold by the end of the century.

Furthermore it looks like Trump will pressure the EU and allies to purchase more US gas (in order to avoid higher tariffs) and will allow US LNG export to expand further than the doubling of capacity already planned for go-live from 2025 through to 2027.

It is also seems demand for domestic gas is set to increase as the US aims to maintain its leadership position in AI. The compute coming online for AI appears to be increasing by a factor of 10 every six months according to Musk. Also add in the need to meet the demand for the growing number of electric cars.

All of the above should be highly positive for DEC in the short & medium term. Also given the above, I would say that the value of the 8,6M acres of land DEC has will only increase rather decrease over time, again this should positively impact valuations.

Finally, when Shell is threating to move its listing to the US from the UK due to low valuations, it only underlines my belief that a basic re-rating of DEC shares is underway as more US investors come onboard thanks to its US listing.

Promising signs for the year ahead. Links to sources below. Good luck all & DYOR.

https://www.positiveenergyhub.com/congressional-members-witness-a-new-dawn-of-clean-energy-in-appalachia

https://sustainability.cnx.com/introduction/how-we-produce-natural-gas/

https://www.theguardian.com/business/2024/dec/20/donald-trump-tells-eu-buy-more-us-oil-gas-tariffs

https://newatlas.com/technology/elon-musk-ai/

https://www.thisismoney.co.uk/money/markets/article-14242071/Shell-shock-warning-plot-listing-New-York-fuel-oil-gas-exodus.html

From my understanding the data cut off date for the rebalance is close of business today. The confirmation that DEC will re-enter the FTSE 250 will come tomorrow (after markets close). The effective date of the change will be Dec 23rd.

While a number of trackers may have already purchased, there may well be some that wait until the confirmation is issued and will purchase up until Dec 23rd.

Given trackers (russell 2000 & ftse 250) are typically bought by investors who invest on a regular basis (monthly, quarterly etc.), then this creates underlying buying demand on an ongoing basis as we move forward.

https://www.lseg.com/content/dam/ftse-russell/en_us/documents/policy-documents/ftse-faq-document-uk-2024.pdf

Confirmation that DEC is on the indicative list to re-enter the FTSE 250. The final review will be based on data at the close on Tuesday 3rd December 2024.

https://www.lseg.com/en/media-centre/press-releases/ftse-russell/2024/ftse-uk-index-series-indicative-review-december-2024

Simply wall street show the ownership of DEC shares as follows:

75% Institutions/Funds

9% Private companies (basically crescent & maverick as part of recent acquisitions)

12% Private Individuals

3,4% Insiders

The 25 biggest holders (which they list) own 68% of shares issued. Meanwhile yahoo indicate 186 institutions have positions in DEC and also show institutions owning a similar amount of 73%.

In my view we have been through a period since early 2023 where weak holders have sold (e.g. institutions who wanted to limit their exposure to the fossil fuel industry). Shorters clearly took advantage of this net selling period starting in early 2024 and it culminated in DEC being pushed out of the FTSE250 which triggered a final bout of selling from trackers. Clearly these effects have created a big disconnect between value & price as I have mentioned in previous posts.

However, now that this selling demand has played out, a greater % of DEC shares are held by stronger holders who need to be motivated to sell.Demand from shorters covering positions and FTSE250 tracker funds buying back in ahead of December index change seem to be forcing the price up to encourage holders to sell as liquidity seems tight. Dec mgmt. are also doing the right thing by also drumming up demand from US investors through recent investor engagement activity.

As a final note for the bulls out there simply wall street see fair value for DEC as 57 GBP based on a discounted cashflow basis!!

https://simplywall.st/stocks/gb/energy/lse-dec/diversified-energy-shares/ownership

https://finance.yahoo.com/quote/DEC.L/holders/

Hi Jim, my point is more that changes in sentiment will cause prices to go up/down over the short term but longer term its the inherent value of the company that will eventually come through. DEC has not really changed over the last few months, only sentiment.

The change in the macro picture should attract buyers but I also believe the upcoming re-entry into the FTSE250 is having an impact as the effects that hit the share price a few months back now play out in reverse. I would also add the fact that we have a US listing which will attract a greater volume of liquiidty. The shorts have only reduced their position by ~1,5% or ~800K shares, however the volume of shares traded over the last 10 days is >10M so I am not sure their impact is as great as some think - at least not yet.

Any long term holders who did not sell on the way down from the peak are not going to sell at these levels. This must reduce the number of shares available to buy meaning market makers need to increase the price to tempt sellers and meet buyer demand.

Given the recent focus on the positive price action, I thought I would re-iterate the value view on DEC:

From the annual report, the PV-10 value of reserves at the start of 2024 was $3,2B. Over 2024 DEC has acquired $706M of PV-10 reserves for $526M. In addition DEC has 8,6M acres of land of which 5,6M acres (65%) is undeveloped. Recent land sales have averaged ~$1,100 per acre or an indicative ~$6B of land value.

Dec has two main liabilities:

1) Debt of ~$1,5B net. 85+% is in amortizing ABS structures which will all be repaid by 2033.(reason for the hedges).

2) ARO obligations of ~$1,5B. 3rd party well retirement work can offset these costs. In addition wells could be used for carbon capture and other green initiatives meaning this liability could be turned into an asset in the coming years.

The macro picture is also turning positive with a trump presidency removing the green lobby risk for the next 4 years, low gas prices correcting as LNG export demand/capacity increases significantly over the coming months/years (which in turn positively impacts asset values) and the interest rate cycle turning meaning lower financing costs for DEC going forward. Also add in increased US domestic energy demand for AI data centres etc., electric car charging and the need for energy independence for the US.

Even after the recent price rises, the current market cap of DEC is still only ~$750M. In my view there is still a significant disconnect between the value of DEC assets, and price that I would expect to close over time. As usual DYOR.

Mines in the appalachia region emit ~1.1 million tons per annum (as per 2021 report below). The last sentence in the report "The level of emissions can be cut through changes in operating practices. And those changes in practices are not very expensive to implement.” This seems a good fit from a SAM perpsective and DEC skill set.

Also from CNX it seems 97,6% of active mines and 99.9% of abandoned mines have no methane capture in place.

So it looks like DEC has the skills, the land and the pipeline assets to capture the methane, sell it for revenue and also generate revenue from carbon credits as it prevents methane from leaking into the air. Also the cost to execute is not too high and nobody seems to be doing it at scale in appalachia.

https://www.wkyufm.org/environment/2021-05-28/appalachian-coal-is-a-major-source-of-methane-a-potent-greenhouse-gas

https://unece.org/sites/default/files/2024-04/10-BOB~1.PDF

Nice write up from oak bloke who again highlights the strong value play re DEC.

On Nov 26th the indicative list of companies to enter the FTSE 250 will be published. At current levels DEC will easily re-enter. Then Nov 28th is ex-div date.

I expect shorters to continue to reduce their positions, which does suggest that DEC is a trading opportunity for them rather than having fundamental conviction that it has serious flaws (aka Enron).

GG,

"They've gone from undrawn credit facility last quarter to a drawdown of almost 200 million this quarter." Your statement is incorrect. From the Oaktree acquisition RNS on June 7th:

".....$80 million increase in the borrowing base to $385 million and estimated post-transaction liquidity of ~$130 million."

The H1 results provided an update to the liquidity position of $120M. While the recent Q3 update just re-confirmed the $385 million borrowing base and updated liquidity at $102 million. The delta between quarters is ~$18M not the $200M you state.

Relevant links below.

https://polaris.brighterir.com/public/diversified_gas_and_oil/news/rns/story/x8ynpow

https://polaris.brighterir.com/public/diversified_gas_and_oil/news/rns/story/xqdnl2w

https://polaris.brighterir.com/public/diversified_gas_and_oil/news/rns/story/xokzg2w

In the Rusty comment in the RNS ".. we are well positioned for additional opportunities to add to the diversity of revenue generation streams, including robust undeveloped land sales, additional LNG agreements ..."

Then on slide 19 "Ability to unlock additional hidden value in portfolio provides catalyst for re-rating"

It looks like they are gearing up to sell meaningfull chunks of their 8.6 Million Net Acres of which 65% is undeveloped. Would make sense given the change in US administration as per Lukee comment

Pickedpeck , fully agree. We have gone from a short position peak of ~9,5% in September to ~8% now. While short covering is a one-off and will probably have the biggest impact on price, it is the catalyst for re-entry into FTSE250 and the tracker buying which will be on-going. Especially as investors typical pay a regular premium into trackers which has to be continually invested and should reflect positively in terms of buying demand.

Pickedpeck

For me what will be interesting to observe is the buying dynamics now that DEC has a dual listing.

What I mean by that is given the shorts seem to be reducing their positions, this increases the buying volume but importantly removes a key driver of selling volume. With the entry into FTSE 250 trackers buy back in, but this also means Russel 2000 trackers need to buy as the DEC weighting in the index increases (due to the mkt cap increase) , which likewise triggers similar behaviour from FTSE 250 trackers. etc.

In the absence of a continuous stream of selling from shorters we could potentially enter a positively re-enforcing steady buying period, similar to what happened on the way down when UK funds sold due to redemptions from investors/mis-judged investor mgmt from DEC which then created the opportunity for shorters to push DEC out of the FTSE250.

Could we be at the start of a period where the disconnect between value and price re DEC is closed? Interesting times .....

Lukee

Good call. The 4,57% position Maverick Natural Resources, LLC has taken matches the numbers in the DEC RNS of the deal close.

https://polaris.brighterir.com/public/diversified_gas_and_oil/news/rns/story/w3lmojw

Maverick Natural Resources, LLC has taken a 4,57% in DEC. They appear to be very similar to DEC in terms of business model. This investment at a first glance looks different to the others where tyoically an investment fund invests into DEC. One to watch maybe.

Importantly it follows on top of Crescent Point & the East Texas deals where industry players are more than happy to take DEC equity. For me it is further supporting evidence regarding DEC's value.

As mentioned in a previous post we have the results soon which I expect to be positive, DEC re-entry into the FTSE 250 looking likely and thus triggering buying from tracker funds and we have the div ex-date at the end of Nov. Add on the trump victory and the republican majority in the senate, then the risk from the green lobby has materially reduced for the next few years. No wonder shorts are looking to reduce their positions.

Good luck. DYOR.

Arpea

12th Nov is the 3rd quarter update

26th Nov is the notification of indicative index membership changes to the FTSE 250

28th Nov is the ex-div date

4th Dec is the official notification of Index membership changes

As per my previous posts, I see a reasonable chance DEC could re-enter. Currently DEC are placed in position 242 of the FTSE250 (see link). Would shorters want to take the risk of trackers buying back in and also paying the dividend? Will be an interesting month ahead.

https://www.londonstockexchange.com/indices/ftse-all-share/constituents/table?page=18

GG, you are quire right , I stand corrected it went from ~28 GBP in 2022 to around ~16 GBP in 2023 (not 13 GBP). The dangers of relying on memory.

However this performance created the window for shorters to jump on the bandwagon and push DEC out of the FTSE250. Shorts dramatically increased at the start of 2024. No spin just my thoughts and I am always happy to correct statements if my facts are wrong.

Rrb, after college, Rusty spent 13 years steadily progressing into multiple leadership roles within the banking industry at well-known institutions such as Bank One and Compass Bank, prior to concluding his time within banking as CFO of Compass Financial Services. You seem to give all the credit to Eric William and none to Rusty the founder.

I think you do Rusty a disservice in terms of his contributions, but you are entitled to your opinion, and no doubt will be joining the other shorters of DEC aiming to benefit as all the alleged scams come to light.

While those who feel DEC represents value (like myself) continue to buy at these prices. You need 2 sides (buyer & seller) to make a market.

Should read founded in 2001 of course .....

Rrb, DEC was founded by Rusty in 2021, Eric William joined DEC in 2017 the year of the IPO in the UK market and then left in 2023 after a period where the share price decreased from ~28 GBP to ~13 GBP. So according to you he left because after 6 years of being CFO and signing of accounts every year he suddenly realised that there was some unethical scam going on (without providing a shred of evidence for this) rather than that he was let go due to poor performance?

Its fine to have your view, but jeez to take 6 years to identify such a big problem, he is then an even worse CFO than I outlined ....

GG, I am currently travelling in Asia, hence why the post is early UK time. You really do make alot of assumptions, I can only advise that is not a good thing to do when investing !!