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Hi all, I know this is an old subject but have trawled through threads and cant find an answer. As we all know, we get hit with 30% WHT (withholding tax) if we're in the UK, unless a broker plays ball with a W8BN to reduce it to 15% or even to 0 in a SIPP. My broker (Saxo) wont do this. I like their platform and everything else but they have flat out refused to deal with this one. Does anyone here have a broker who does actually deal with the WHT issue - and even better if its one who will zero it out in a SIPP? Id also prefer it to be a reasonably priced but competent broker with a decent online platform for obvious reasons.
Apologies again for raising it but couldnt find peoples' specific recommendations for this - only "find a broker who does this", which isnt very helpful :(
A couple of thoughts on some of the posts today.
Re potential share buybacks/dividend increases, I agree with the comment that we should expect only very incremental and gradual divi increases and I also do not expect share buybacks for the following reasons:. (a) Acquisitions and the ability to finance them without going cap in hand to shareholders for a capital increase are a very high priority for the company - without acquisitions their earnings (and dividends) decline due to natural depletion rates, hence retaining the financial flexibility to execute on M&A is supremely important (b) the market puked all over the unexpected capital raise last time and I think management have learned from this (c) Rusty has made no secret of wanting to get a US listing at some point but was also clear they need to reach a >$2bn market cap to raise enough interest (I agree with that observation - anything else is "micro cap for US institutionals") and share buybacks go against this (d) at some point they are going to have to start getting serious about building up cash reserves/plugging activity for the ARO (e) Management is naturally conservative (which I respect and like) and so dont want to lean too far out the window with aggressive dividend increases as it jeopardizes all of the above.
On ESG and plugging, I like what they are doing and that they are taking it seriously. Their share price was crucified by that Bloomberg hatchet job, and whilst i think Bloomberg were out of whack on much of it, there were some valid points which need to be addressed. Given the 3,000+ non producing wells that they currently have, I still find the 130 p.a. plugging number something of a bad joke and they are likely to come under continued pressure until they are seen to be upping their plugging game proportionally to reflect this reality. Increasing the inhouse plugging capability and even providing these services to 3rd parties is a great move in my view but I think it needs to be ramped up by multiples of their current capability - which may indeed have the capability of turning them into an ESG angel as has been observed
One final point on some of the "lower cost" comments - the central region acquisitions , whilst they have better sales price - closer to Henry Hub levels - they also have significantly higher BOE costs (and plugging costs - the wells are deeper) and decline rates . I havent yet done a proper analysis on this and would like to see more comprehensive data from the company, but would be cautious about assuming improved cash margins overall - though i do think there should be decent room for SWM synergies in the new region, particularly with more infill acquisitions
Thats my 2 cents for the moment. Think 2022 is going to be very interesting
Land is typically leased. The key issue here is the cost of plugging the end of life wells - known as the ARO liability. Based on their current well count and $25k per well plugging cost that's a $1.7bm liability. If youre interested, look at the investor Relations site under presentations where there is an ARO supplemental presentation from August 2021. FWIW they cant continue increasing the dividend (or even maintain it) and fund the ARO, but then thats not news to anyone given their ~7% decline rate. Basically the dividend levels are only maintained/ grow provided they continue to acquire assets to replace the declined production volumes. Theyve done a great job to date on the acquisitions and I assume this will continue, but at some point the music stops. I actually ran a "run-off" model at one point and came to a fair price conclusion somewhere in the 100-110 range (a lot depends on your discount rate as well as assumed yield on cash reserves for the ARO, but thats sort of where I ended up - which is where the market tends to trade)
Any idea if theyre putting the discussion/video up on the web? I see the powerpoint presentation itself, but missed the management presentation and would have liked to have listened to that - plus the Q&A. Dont see anything on their site yet unfortunately
I think you're right that the Capital markets day is going to be pretty important on this point. If one has actually read the original Bloomberg article itself (and not just looked at the video which was tabloid garbage) there is definitely a case for DEC to answer and I would very much like to see what they propose to do to (a) address plugging of the 3,000 idle wells in Kentucky, Ohio, Pennsylvania, and West Virginia in advance of the lamentably low annual state plugging requirement of <90 p.a. (b) provide better quality information on well flow rates and idling profile (given the articles observation of uneconomically low flow rates on certain "live" wells) (c) confirmation of the adequacy of their plugging process, given commentary that $25k is a questionably low cost per well for plugging (d) how the retirement obligation on the CNX assets fell from $200mio per CNX to $14mio per DEC (e) how they propose to properly monitor over 70,000 wells when they only have 9 remote well monitoring devices per their last trading statement etc. I believe it is entirely possible that the team have credible and defensible arguments and evidence on each of these points, but the burden of proof does lie with them and there is clearly an ongoing sea change coming into effect regarding methane emissions in the US which the company is going to need to proactively address, comply with and factor into their ongoing cost calculations.
That did make me LOL.
What makes it even more incomprehensible is that the US tax incurred is offsetable in UK tax returns so ultimately makes no difference anyway and is a storm in an (uninformed) teacup. Such is life.
To give you a more specific answer, automatic US Witholding Tax deduction is 30% (assuming your holding is not in the US). You should be able to reduce the withholding to 15% courtesy of the double taxation treaty between the US and UK (assuming your based in the UK) by filling out form W8 BEN. There is however a wrinkle in that many UK brokers are holding client stocks in mingled accounts and so cannot/ will not apply the reduced rate for you (its a long running battle a lot of investors here have talked about) Trotsky may be correct about the ISA gross payment implications , I cant comment on ISA related, though have a sneaking suspicion that even with an ISA you may run into the same lack of UK broker co-operation. Good Luck!
Well explained and I think your last point is the most pertinent - communication. Whilst I think the management team is operationally very good and generally good at shareholder communication I think the last placement was not well flagged. I think there were very good reasons for the placement - it was obvious to me and probably many of those on here that DEC needed a warchest for any Oaktree related acquisition and had to prime the pump before any announcement , but it did cause some temporary heavy dilution which the market puked all over. As a public company they have to be very careful about any acquisition announcements, so am not sure what else they could have done except highlight more the acquisition funding imperative. Any, we're now back to those pre placement SP levels - admittedly with a Gas Price twice as high but such is life with a small cap.
Agreed. There are clearly some different dynamics in the Central region with higher decline rates on all of the acquisitions there but also higher realisable prices and its too early to see any SWM benefit and other synergies - should be an interesting 6-12 months going forward to see where that all settles
Thanks Ragnar - I see now. Thank heavens for that! I ran the numbers at the current forward 12 months of ~4.30/MCF with 17% year 1 decline and $11.69/boe cash cost which gives a 3.2x multiple - reasonably OK though if you were to run it at a historical $3/MCF (and where current futures are averaging from '23 to '33) you end up with a 7x multiple so they clearly paid a full price for this - especially as it is still declining at 13% 3 years out.
Be careful with "low multiple" the 1.8x they indicate is disappointingly misleading (these guys have historically been pretty transparent) as it is applying their ~200mio consideration amount for 50% interest to 100% of EBITDA - its actually a 3.6x multiple . As you note it is also a multiple of forward (NTM) EBITDA which is at extremely elevated pricing (though declining into '22 as you note) so definitely need to see more detail on this (including decline rate and look through working share) to figure out how good an acquisition it is.
Just to be clear, I think this is a very good, disciplined team, so am not criticising them , but really need to get a better understanding of the deal parameters in order to figure out its real attractiveness
Agree with RedTom. If you are (a) US resident and (b) your shares are in a US brokerage, then there should be no WHT in your case. The point of WHT is literally to withhold tax on dividends (and sometimes other flows) being transferred abroad, which isnt your case.
Hi guys/girls, I just bought into BOO when it dropped below 270 as it seemed too compelling. That said, has anyone seen the Morgan Stanley research report as MS are the most bearish with a 290 TP . They're one of the few shops I respect as a former i-banker so would be interested to know the basis for their assessment if anyone's seen it?
Fair comments @Redtom and I agree that the 20% share placing came as a bit of a surprise and hit the company hard until investors see the benefits of the acquisitions - though does make sense in the likely context of more acquisitions coming down the pipe.
I'd be a little cautious about assuming dividend increases as 7% annual depletion (even with their SWM in place, where they're coming to the end of that road in the Appalachians) means they are in a constant race to replace around $20-30mio of EBITDA each year just to keep standing still - achieved with Blackbeard/Indigo/Tanos but with the aforementioned 20% dilution it means they have bought themselves around 1-2 year's relief but will have to be acquiring again in the next 12-18 months. My gut feel says they're likely to hold dividends at 16c for the foreseeable future , using additional cash to pay down debt, make acquisitions and even do some more share buybacks.
On the US listing, whilst the US does tend to have higher multiples than equivalent European listings, shale is definitely not flavour of the month/century (yes, I know their capex model is notionally different though depletion means they do still need to invest a chunk to stand still) and possibly more importantly, the company is still subscale. I recall an interview with Rusty stating they need to have a market cap of $2bn+ for the US to make sense and get on investors' screens and Id agree with that assertion. Given a fair acquisition run in the new geography they're going to have to issue a fair few new shares and 1.2bn shares out at , say £1.20 share price gets you to $2bn market cap, but means a further 40% dilution to get there. I am sure the company will maintain acquisition discipline and make sure it financially makes sense and generates value including on a diluted basis, but expect that the market will take a while to get used to it
Things starting to make more sense now - and frankly what I suspected was going to happen as the 20% dilution and significant deleveraging for Indigo and blackbeard made no sense - so suspected/hoped at the time there must be some significant acquisition activity they were priming the cash pumps for. Good to see activity now happening with Oaktree and this brings leverage back up around $100mio net which rebalances their capital structure closer to optimal and still gives them a good chunk of dry powder for further acquisitions. Now whether we see any positive SP reflection on any of this is sadly a rather different matter - even with gas around $3.70...
If you run the numbers, bearing in mind it was almost all equity funded and Blackbeard has a 14% first year decline rate these 2 deals are barely accretive which is why I think the market has puked all over it - combined with some touhj news flow for Big Oil. I initially found the equity raise surprising but my gut says they have a significant Oaktree deal coming along which needs to be 50% funded by DEC, hence their premptive equity raise in order to prime the coffers. Hope Im right since otherwise they shot themselves in the foot, which is pretty atypical for these guys
Thanks - Interesting article - particularly on the Haynesville field which is what DGOC has just bought into and seems to be the next big thing after the Appalachian Basin with good Co2 numbers and preferential Gulf coast pricing. Smart move by Rusty & team. Downside of the article is the increasing (record) gas volumes expected to be produced in the US in '22 which usually means price pressure