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Trek. I agree 100% with your analysis. I think there is also a fundamental change which investors are missing. NG is often/usually a biproduct from oil production. The dramatic increase in US oil production in the past decade has been from new technologies and mainly from the Permian basin. The best Tier 1 acreage has been drilled already which means that drilling costs for tier 2/3 targets are significantly higher. At current crude prices there is not a lot of incentive for new drilling and if it is done the returns are lower. Also with non-trad wells the vast majority of oil is produced in the first 12-18 months at which point it tails off quite dramatically. Therefore E&P companies constantly need to drill new targets replenish reserves. IMO these will become very scarce. This is a perfect environment for DEC. The E&P sector is just not set up to manage low yielding, long-life assets particularly NG. It's a specialist game requiring completely different skills and focus. The "coupon clipping" strategy of DEC is boring but can be very profitable particularly if (as I expect) NG prices to rise and remain at levels $2-3+ higher than currently. The tax breaks that DEC enjoys are v compelling for a company with its market cap. Unfortunately the UK investor experience is mainly with E&P companies looking for gushers. They don't understand DEC and any listing which widens the investor pool is welcome. My greatest fear is that some PE fund swoops in and grabs a bargain in DEC at £1.00. I see signs that there may have been some buy backs today and if so it is both welcome and a good use of the free cash generated.

Certainly looks like forced sales from fund redemptions. No great surprise given the general outflow of monies from stocks to bond funds. Add the general dislike of hydrocarbons and the small market cap of DEC it's no surprise that the stock price just slides download. Much as I prefer DEC uses it's free cash flow for acquisitions there comes a point when the economics make stock buy backs the only sensible option. Fortunately DEC has plenty of free cash and solid credit facilities which give it plenty of options here. Seem this plenty of times over the past 30 years...

I agree. There is no appetite for companies taking on debt in the current environment. DEC has largely insulated itself from rising interest rates for it's current acquisitions. Finance costs for any new ones would be higher but I suppose the corollary to that would be lower bids for new assets. Either way Rusty hates cash on the balance sheet so the only other two options would be to accelerate any debt repayments or buy back stock. The biggest cost saving right now (and value creation) would be to buy back stock and save the div costs. ATM Mr Market is only interested in the here and now.

Correct. Error on my part in abreviation. Yes DEC is using ABL. The key point is that these loans are non-recourse, in SPVs , fixed coupon and are amortised. In 8-10 years DEC will have all the remaining upside on the assets and debt free. Plenty of headroom for additional acquisitions financed on this innovative basis along with it's bank facilities . Plenty of "gas" in the tank to acquire more assets..

You obviously missed the RNS regarding the renewal of DECs banking facilities and it's use of RBL structures to move the borrowno risk off the balance sheet. But hey ho this is what makes a market. The fact is that the Tier 1 acreage in much do the country particularly the Permian basin has been drilled. Any significant increase in production requires consistent higher NG prices to be economic.

That's the question. Does he use the free cash generated every day to buy back stock (assets) at a significant discount or do further acquisitions and potentially weaken the stock further?. At the current SP the short term value is in share buybacks but Rusty is looking to build a multi billion market cap monster which will be in a dominant position as US nat gas production declines over the next decade and prices rise. For that he needs more assets...

TheTrotsky . Some good points although I do dispute the idea that an additional 50 years of gas demand is unrealistic. There will always be a demand for consistent base electricity and although nuclear will inevitably gradually replace fossil fuels the momentum of adoption will be driven by the depletion in onshore gas reserves. As reserves fall, prices will rise which will likely mean DECs base line scenario will prove conservative. We have seen (apart from a few spikes in the past 20 years) low gas prices. The shale revolution dramatically improved productivity but we have now passed the high point. I believe Rusty has been on a land grab to be one of only a few operators to "ride the tail". For a number of reasons we will see US gas production fall and prices rise as tier 1 acreage drilling ends, new drilling costs rise but nuclear fails to completely fill the gap. Anyone holding acreage and able to complete low risk infill drilling should do very well. The cost of ARO's with consistent $8-10 gas will be small change...that's my thesis for investing in DEC since 2017. The key for Rusty in his strategy is to keep his asset backed lenders on board for the ride. I can't see any reason why he should not.

DEC is a low cost producer. The interesting point is that in a sustained higher pricing environment, their rolling hedges will be at higher levels further increasing margins whilst drillers will be capital constrained. The shale play has peaked for new drillers. Could be bumper times for DEC ....

@Trek. Interesting points. Seems like this is a response to debt macro concerns. DEC has been disciplined with much of its debt in silos but the long term AROs are getting closer every year. The cash flow once the amortized debt matures should offset declining production but should the availability of debt be limited replacement of assets will be challenging for DEC. The market is struggling to value DEC in this environment. It may be that DEC will be forced to expand buy backs with its free cash

Listened to podcast. Declining new shale production must be positive for pricing. Consistent $5+ gas price would be bullish for prices and margins for DEC.

Agreed. No fan of share buybacks but it appears that so shortly after their last financial reports, the market will unlikely to believe anything else. At these yields the pendulum has swung sufficiently to make it a more appealing option than acquiring more assets. IMO the market is trying to determine whether the constant growth of the asset portfolio is just delaying the day of reckoning. (I don't believe this to be the case in that ARO management is more flexible than most believe and that third party well capping will significantly subside the cost of their own in-house costs/well)

Present value... Of discounted value of future cash flows

Forgot to mention. DEC has positioned itself as ESG focused business for lenders. Cannot think of many/any new entrants able to borrow to acquire assets in this environment. The result is less competition and more attractive asset prices. Rusty must balance stock buybacks v PV 20-30 buying opportunities. The former would be a short term boost for shareholders but nothing compared with the cash generation from a PV 25 acquisition over the next 20 years. The biggest risk for investors IMO is someone coming along and offering to buy DEC for £1.

Difficult to understand the sentiment. Reserve levels are independently checked. Portfolio of a size now that underpermance of one or two fields not critical. Debt costs are fixed and hedging strategy to protect finance repayments and amortization. margins have been excellent even at low gas prices as has been free cash flow. Massive distribution assets. Debt amortization faster than production decline rate . In house ARO capacity and scalable.

Low cost/risk infill drilling opportunities. Founder has a lot of skin in game. Very little competition. Compare with risks of typical E&P company using expensive equity for drilling, often no local distribution, no /little hedging strategy, no ARO capability. Fast production decline rate after first 12-18 months...can't think of what Rusty could do more to de-risk operations. DEC has run financial models even showing future cash flows even in the event of no further acquisitions, incl AROs of existing portfolio. Strategy and message has not changed in 7 years and has delivered in all price environments.

Difficult to understand the sentiment. Reserve levels are independently checked. Portfolio of a size now that underpermance of one or two fields not critical. Debt costs are fixed and hedging strategy to protect finance repayments and amortization. margins have been excellent even at low gas prices as has been free cash flow. Debt amortization faster than production decline rare . In house ARO capacity and scalable. Founder has a lot of skin in game. Very little competition. Compare with risks of typical E&P company using expensive equity for drilling, often no local distribution, no /little hedging strategy, no ARO capability. Fast production decline rate after first 12-18 months...can't think of what Rusty could do more to de-risk operations. DEC has run financial models even showing future cash flows even in the event of no further acquisitions, incl AROs of existing portfolio. Strategy and message has not changed in 7 years and has delivered in all price environments.

Agreed. Strong third party validation. Unfortunately the significance will be lost to most investors but comforting for those of us who are shareholders

The hedging policy has not changed and was stated when the company went public. The aim was to acquire assets cheaply, run them more effectively and be a low cost producer and make money regardless of gas prices. Then pay a hefty regular dividend from the free cash and use the rest to buy more assets. If people want a stock correlated to volatile gas prices there are plenty of others to choose from. But remember that for DEC each month, the hedges are now being rolled over at higher prices for 23,24 & 25. It's because of the hedges that they can finance acquisitions at a low cost. On a total return basis this stock has outperformed 90% of the market since it floated. Good luck in finding the winners amongst the other 10%!