It's all numbers16 Jan 2024 00:25
Seems a fair bit of conjecture today on DEC's viability, concerns over ARO costs, debt cost etc and as everyone is running the numbers, so do I.
DEC make assumptions, so I'll make a few, for ease here, namely that production, dividends, unit cost and a well plug cost of $21k remain static, and no new debt/refinancing/acquisitions: -
804 mmcfepd () x $3.46= $1,015,371,600
Unit cost @$1.46 = $478,339,800, leaving $537,031,800
(On an annualised basis from the 3Q results)
Dividend cost $143,000,000
Amortising and interest at 6.1% on $1.56 billion ($2.2 billion divided by 8 years the period to 2031 that DEC use for debt clearance) =$282,360,000
ARO of 70,000 wells @21k ($1.47 billion divided by the same 8 year timeframe) = $183,750,000
So you have annual post production/admin income of $531,031,800 and annual costs to retire debt, maintain dividend, and cap all wells (i.e. the business/production ends in 8 years) of $609,110,000, a shortfall of $78,078,200
I would suggest this isn't the basket case people are suggesting it is - I mean on an extremely aggressive view of including all ARO costs, no more production (and disregarding that the ABS debt has contractual end dates averaging 11 years,), if you just halved the dividend, you would meet all your obligations within 8 years. I'd suggest that would be quite a pretty place to be sitting as a long term shareholder.
Not least because it ignores future production beyond year 8 - DEC intimates 50 years worth, gains on economies of scale from NextLVL, and the total debt cost I've used is overstated as I've used a straight line interest rather than a reducing interest.
Of course, if the realised price is $2.46 and not $3.46, well, DEC's going to need them wells producing for 20 years (and halve the dividend, and stop all capping until 2031) just to meet the debt. But then that's what DEC has pretty much always projected. And if the production volume doesn't fall of a cliff, I think they are right.
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