Member Info for pickedpeck

There is again a misunderstanding of what dilution means. Dilution is in general where a company issues more shares against a fixed capital structure, usually to raise money for cash flow. In that case each share has a smaller slice of the fixed NAV.

What DEC are doing by issuing more shares is not dilution, it is issuing shares to increase the NAV. Depending on the nature of the transaction in question each share could potentially have a larger slice of NAV rather than smaller.

So for example (not using real numbers) DEC NAV is $500m, EPS is $1, and there are 50m shares in issue. Each share has a $10 slice of NAV and earns $1 a year. If from there the company decides to issue 10m more shares to acquire assets with an NAV of $120m and net income of $30m are shareholders diluted or not? Obviously not as their asset value per share has increased as has their income.

There simply being more shares in issue does not mean dilution. The NAV, or effectively the EV, of the company attributable to each share has to reduce in order for it to be considered dilution.

Real transactions are more complicated. As well as issuing shares the company has extended debt, got into complex hedging agreements, and issued debt notes against assets. But the asset values and income rates are also high enough to more than offset this.

A simple mental test which may reassure that the numbers work is that the debt holders are doing due diligence and issuing debt having done so. They don't want to end up holding a bag of assets, they must believe that DEC are well within their ability to service the debt they have or they would not be able to raise more. The debt holders will be doing a lot more due diligence than anyone posting here.

As for the share price, no company controls its own share price. The company has had an extraordinary dividend level in the recent past, that did not prevent the share price falling. Neither has an active buy back program. Suggesting that stopping acquisitions would do so is not correct either, that would be a simple admission that the company is going to go out of business. Shrinking income would bomb the share price not short it up.

I bought more again yesterday. I think the company has done pretty well in a low gas price environment. It has not only preserved income, its made some sensible but aggressive acquisitions, improved its ESG credentials to be defensible, and is in good shape to take advantage of the next gas price rise / lower interest rate cycle.

I've been meaning to write this for a few days. There seems to be a massive misunderstanding of the company by most of the posters here, especially those complaining about acquisitions.

Depletion

Does everyone understand that the gas (and oil) wells DEC owns naturally deplete at a rate of around 10% (8-15% individually) annually? That means DEC overall income reduces, so their ability to pay fixed costs or repay debt reduces by 10% a year. So like all oil and gas companies they either replace depleted production or slowly die a death. There are only two real choices to replace depleted production: Drilling or Acquisitions. DEC's clearly stated and demonstrated strategy is not to drill. They rightly regard drilling as risky, especially when even the ability to do it is based on government permits which may no longer be forthcoming.

Acquisitions

That leaves acquisitions as the only way to replace depleted production. Their Smarter well management program slows depletion rates to better than industry norms, but doesn't stop the basic physics involved.

The acquisition strategy is to buy assets that have a positive immediate effect on cash generation. Buying up wells that create immediate cash balance positivity is a risky approach too. Whilst they generate more cash now than their debt repayment cost, they are also depleting assets. The cash accounting has to be detailed in predicting debt repayments vs cash generation vs depletion rate. To stabilise cash generation they hedge most of forward production, smarter asset management reduces the depletion rate, and if interest rates drop as predicted we can expect some rate negotiations.

The big trick is to buy wells when they are cheap, when interest rates are high, gas prices low, so when the reverse becomes true the company can cash in. Gas prices will rise again, gas electricity production is absolutely required for any transition to renewables in order to fuel peak loppers, and interest rates will also fall.

So Rusty and Co are making hay buying up cheap assets whilst the market for those assets looks terrible. It's the right time to do it, as when gas prices are high and interest rates low the assets would be multiples more expensive.

With a tight spread and multiple market makers what makes you think it was a sell?

I've just bought some more, I expect a bounce and the divi will likely be a free bonus based on overall price action.

Timed my second chunk badly, but happy to wait for the target return.

Actually I changed my mind. Almost back up to 10,000.

I agree with Oak bloke. The results were good, not spectacular, but widely misunderstood.

Hello again George.

You'll be glad to know I just decided to put some more money back in, just short of 2500 shares.

That's thousand not million.

:)

I'm still going to see you in March next year to see where we are up to Simple George. I don't need to start arguing with you about nothing, but if anyone is under the he influence of Vlad the Inept Invader its you not me.

BTW no massive rise, nor a massive fall either.

There are no surprises or shocks in the results. They are if anything boringly fine, in line with market expectations, and utterly predictable.

DEC target FCF generation as their primary metric, that remains solid. The hedging strategy through a HH low cycle has preserved cash flow.

Like for like debt has fallen with new acquisitions, along with their associated FCF generation, inflating the overall figure.

George has nothing to comment on other than some random name calling.

Exactly how would results have been better given the low market price environment? Aren't these exactly what you would have predicted? If not what were you expecting?

George will likely miss the tropic thunder reference too, so just spelling it out for the hard if thinking.

Morning George. Hope you're as cheery as ever today.

Yes I trade positions, all of them, and it's no one's business but mine. I will post positive and negative comments on the companies I hold as I see fit too. The things that make me post the most are irrational commentary on shares that could be affected by it. There isn't much point posting about HSBC or Glencore, but here, maybe investor sentiment matters a bit more. Your posts prompt me to post to counter your BS in other words. While you're hiding during the rises I don't post much either.

Right now I hold just over 5,000 DEC, a few months ago I had around 12,000. I am tempted to increase again but it's all about timing. This seems stuck between 11 and 13, so below 11 offers a decent short term upside, above 12.5 is a sell for the moment.

It's not fill your boots territory today because Gas prices are down and the now only thinkers are selling as a result, whereas there is a strong likelihood of a gas price spike starting Sep - Nov that could change all that. So but buying here is about timing, trying to take a profit on other holdings before any serious rise here.

George,

I'm glad you think I have a pretty head. Someone has to. I've always thought it was a bit big.

Anyway...I am not buying at these levels, I filled my boots when we were in the 8s and 9s, and then sold half in the high 12s. I am close to free ride with what I have left in now, and see them going back to 15 to 18s, maybe March or April? Shall we check back then?

I've put that cash profit elsewhere for now as this is a long way from my only investment. Diversification and all that and a lot of good opportunities elsewhere. But if this does go back into the 9s I will be tempted to start selling elsewhere and filling my boots again.

I do recall you were still a negative nelly even when the price was 860 something though. Should we check your posts from March to see what you said then?

MrG,

European and US gas prices have been moving relatively independently for some time now, and energy prices are also mostly independent of other economic factors. The impact is the other way round, higher energy prices tending to damage the economy.

Also the spot prices are not that relevant to DEC, its more about the negotiated futures prices and DEC picking their moment to sell future production. I realise sector sentiment will drive the price to some extent, but profitability is about longer term pricing.

Right now futures are down, but nowhere near as much as the spot price. Nov 25 is still above $3.50 , Nov 26 is above $3.70.

This winter will be a La Nina winter in North America, that means colder than average whilst warmer than average in Europe.

https://seekingalpha.com/article/4541173-the-truth-about-la-nina-and-its-potential-effect-on-commodities-this-winter

This winter will very likely be a strong La Nina effect. https://www.climate.gov/news-features/blogs/enso/june-2024-update-la-nina-likely-late-summer

Have a look at the likely climate effect for North America here:

https://www.climate.gov/news-features/featured-images/how-el-ni%C3%B1o-and-la-ni%C3%B1a-affect-winter-jet-stream-and-us-climate

In that picture, where it is colder and cloudier over much of North America, what do you think will happen to North American gas markets?

George,

I've given you the benefit of the doubt for quite a while, but this endless cycle of ways to knock this one company is, as the democrats currently say a lot, weird. You only post on DEC, you only post absolutely negative views, and those views are almost all based on conjecture and nonsense. Nearly 1,500 posts on DEC, all of them negative?

Either you are getting paid to do this, or you need to get a life. Maybe both.

Whichever, the stuff you post is no longer even passing the most trivial BS sniff test.

NOAA is (shock horror) now indicating a La Nina winter for 24/25. Normally means colder and wetter / snowier than average across much of North America, in turn making energy from solar less reliable and energy in general in higher demand. Gas prices will likely spike in September - November.

https://www.powder.com/news/la-nina-watch-winter-24-25

Nope, they increased their holding. They moved 0.75% from equity to a financial instrument, plus acquired an additional 0.19% through the financial instrument also.

Total voting rights jnclduign direct and indirect went from 8.9% to 9.09%, a 0.19% net gain of effective ownership.

3.8 payback at current gas prices, but at predicted ones the number will come down fairly rapidly. The production will not be hedged in the same way as the DEC set.

No reason in the formula they have previously used. Surely they have not used their free cash up on the acquisition?

I know its esoteric in nature, but the early formation of the strong hurricane Beryl is an early indicator of a La Nina event. A cold winter in North America usually the main effect.

Terry - The companies involved use algorithmic selection of stocks for their short selling campaigns, this is different than the trading bots. To me automated stock trading, whether short or long term, done ro'bot'ically is all bot based but I understand I should probably use another term for clarity.

The point I was making is that these shorts are not being done on market or company fundamentals, at least not visibly. To draw the attention of the shorting algorithms there has to be significant detectable movement against market trends, although we are not privvy to the portfolio of shorts these companies are making.

Arrowstreet Capital - Also a quantitative analyst led co. Bot led analysis

Millenium - Is this a 1.35% hedge for Blackrock? New declaration of a hefty short.

Bridgwater - A risk parity specialist. Is this likely to be a hedge offset by an ii buyer?

Qube - reducing. Potentially a pure short , another quantitative led org with Bot analysis.

Voleon - definitely bot led quantitative

JP Morgan - Big and impossible to say what they are up to, but likely to be a risk offset

Walleye - Speculative shorters, Also started reducing. May be first out.

Adage - Haven't budged since March.

All speculative of course, but DEC may be seen as too risky to go pure long so the ii buyers are using risk offsets to minimise their downside risk.

What's interesting is what has attracted the quantitative analysts, there are a few here now. Something in the DEC price movement suggests their bots are triggered by it. I'd suggest the sharp downturn a year ago or so may have sucked them in, but it feels like they need to do some fundamentals to see the wider picture.

Blackrock buying in, a fair chunk it looks like (8.9%). Must have been a negotiated off market trade, maybe they bought up some of the shares sold by the two new shorts! Blimey, all going on.

More shorts, more II buyers. Getting tense!

If it's that simple Terry why aren't you in profit here?

Surely if you can see what's going to happen next with the price you will be making millions as a trading genius