Member Info for asp1

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 !!

GG, I post not to ramp or encourgae anyone to buy any particular share but to explain my investing logic (value based) and to assess any feedback or data that other posters share that may make me re-consider my investment thesis. In this way we (fellow posters) can help each other to make good investment decisions for our individual situations.

IF you believe DEC is a dog and going to hell like rrb thats great. However I have not seen any argument that you (or rrb) have put forward that convinces me to change my view on DEC.

There is no conflict in the posts I made. When DEC purchases assets they do so with care meaning they are accretive so current shareholders are not losing out even if some equity is involved. They then hedge this incremental production so that they can be sure debt can be repaid, dividends paid etc. They do not book any value associated with non PDP assets in their acquisitions. I see this as conservative and value enhancing (long-term) for shareholders.

The above is a great message that should allow a good CFO to gain support from key shareholders attract new investors etc and importantly balance FCF growth, dividends, acquisitions etc. However what happened, the previous CFO was not able to balance things. The divi was raised too high, which did not allow enough headroom for sizeable acquisitions, the issue of equity was not executed well and importantly he was not able to get DEC listed on the NYSE in a timely fashion.

This last point is very important, as it is a well documented fact that pension investments into equity in the UK have declined significantly over the years (as politicians have messed around with policies) and those that still make investments in UK equiites have become more activist on the green agaenda. This means its crucial to source new investors elsewhere hence the importance of the US listing. I could go on ....... but I hope I have made the point.

Look at the recent deals, the Oak tree deal was big and structured well and the other acquisitions both used equity smartly. FCF is now growing nicely and the divi has been set at a sustainable level (bearing in mind the balancing act that needs to be peformed). The share price has been hit by shorters but that is in part due to the legacy effects from the previous CFO, as these have now been corrected, it will only be a matter of time before its reflected in the share price. I even mapped out how a positive scenario could look ahead of Xmas, although as I keep saying market timing is a mugs game. I focus solely on value investing and am not a trader.

As usual good luck all & DYOR.

As of COB in London on Friday, DEC mkt cap was 436,17M GBP (position 358) vs NESF in 350th position (FTSE 100 + FTSE 250) with a mkt cap of 451,02M GBP a delta of only ~15M. An increase of ~3,5% from Fridays level would put DEC into the last FTSE 250 position. On Friday alone the share price increased by 3,2%.

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

The Index Rebalance Market Capitalisation data cut-off date is on 3rd December 2024 in addition 28th Nov is the upcoming ex div date. Both the dividend & FTSE 250 re-entry pose an upcoming risk to shorters.

Who knows how the share price will behave going forward and I tend to focus on value not short term price movements. However a potential positive short term scenario is:

A positive Q3 trading update in Nov from DEC (showing it is in fine health) which attracts net new buyers. In turn shorters buy back shares to reduce/close their positions by 28th Nov given the risks they face and then tracker funds start buying after Dec 3rd.

Now that would be a nice xmas present for current DEC shareholders.

Trek - so position 350 has a mkt cap of 460M, while dec has a current mkt cap of 436M. It would not take much of a rally in the share price to re-enter the FTSE250 in December.

Just another risk that the shorters need to consider when it comes to their positions. In addition of course to the dividend they have to cover also in December.

Hghotshot - completely agree

Gg - I still stand by my post you highlighted and I believe my subsequent posts have not deviated from this position.

On the re-entry possibility to the FTS250, your statement is completey wrong. DEC could still become a candidate even if no other shares in the FTSE 250 decreases. It only depends on the DEC share price increasing by an appropriate amount.

The two lowest market cap shares in the FTSE250 are PZC & PRTC with mkt caps of 367M GBP & 375M GBP respectively. For reference DEC current mkt cap is 438M GBP. However as you know it is not that straightforward so I would not want to mislead folks. It would need DEC share price to increase from here for this to be a realistic possibilty.

MrG123, I believe the root cause of the problems for DEC stem froms poor performance from the previous CFO, Eric Williams and why ultimately Rusty had to replace him. From memory around Q3 2022 the share price peaked around 28 GBP. It then started to decline and Eric williams left around Q3 2023 (which I think is a good thing).

DEC is complicated as its essentialy a private equity centric gas supplier. By that I mean it needs high competency financially, in purchasing assets, structuring finance deals in the right way, hedging risks including price, ARO etc. appropriately and making sure it operational is able to extract max production from the wells it owns. The old CFO performed poorly & lost control on these topics.

I have been very impressed with decision making of the new CFO Brad Grey and I think he has fixed the failures from the previous CFO. The benefits will be seen in 2025 and beyond. However this period, has enabled traders to come in looking for trading opportunities.

The ramp up in shorts I believe is driven by 2 factors, the move by funds in the UK to reduce their exposure to fossil fuel industries meaning reduced buying/ increased selling and the opportunity to knock DEC out of the FTSE 250 thus forcing sales from tracker funds.

One of the factors has already played out while the first factor will play out as the funds that are weak holders and wish to minimize their exposure to fossil fuel companies, reduce/eliminate their holdings while others purchse (I suspect mainly US funds).

Given recent share price moves, we may have passed the low point. But who knows, I am not a market timer but a value investor and measure my holdings in years. Clearly if the share price recovers a little bit then DEC becomes a candidate to go back into the FTSE 250 which would trigger buying from trackers - so the shorts have to decide when to stop paying out the dividend and if DEC share price increases what is the risk of tracker funds forcing the price further up?

However these are just tactical moves that come & go. A company with a FCF to share price ratio of 10 or less is regarded as good value. If my estimates are correct & DEC delivers FCF of $300M then based on the current share price the ratio would be ~1,9. So the share price could quadruple (x4) and still be good value i.e. 36 GBP at least from a value perspective, thats the potential opportunity.

I should add the ~4,3BCF DEC produces per week assumes a conervative 5 days of production on average per week (as not all wells will produce every day), if we assume a 7 day week with all wells producing, then it would be ~6BCF per week.

Rrb

The 40 BCF @ ~$3,58 per MCF (1mcf = 1,038 MMbtu) represents ~$143M in revenue over 3 years or ~$48M pa. Net of costs (of $1,68 per mcf from last presentation) this represents ~$76M over 3 years or $25,3M pa.

So not insignificant but would agree a small amount (as explained by Rusty in his pro-active interview) compared to the total revenue from the ~4,3BCF DEC produces per week.

However I think the value of this deal is in the fact that DEC have successfully navigated through the due diligence steps a supplier needs to get through in order to supply one of the major LNG exporters and is viewed as a reliable partner. This positions them to agree other such deals with the other LNG exporters and we know this capacity is going to grow 50% over the coming couple of years..

We are in the situation where we have auditors signing of accounts, petroleum engineers signing of reserves, multiple banks lending billions to DEC after each performing their due diligence, industry players happy to take DEC equity in sales deals and now a multi year deal with a large LNG exporter, that clearly believes DEC will be around for at least the next 3 years.

To me the above is re-assuring in light of the posts that seem to think DEC will go bust in the coming months. The revenue potential of DEC will become clearer over 2025. I expect a FCF north of $300M, which for a company with a mkt cap currently of only ~$565M just highlights the value disconnect. The announced deal contributes nicely to the highly positive FCF being generated.

good luck to all investors & dyor