Member Info for PIKEMAN

Notrex. Agreed. I doubt that DEC can find any new NG investment with the same IRR as BB's. At some stage we will see NG prices $4+ at which point the off balance sheet assets alone would amount to a big %age of the current market valuation. However I can't find another company able to consolidate and manage these mature assets, the numbers of which will continue to grow following the fracking boom of the past decade. More and more yof these wells are entering the expodential phase of production and not viable for the big E&P companies. I am betting that there are enough smart US based investors who "get" the DEC strategy.

Notrex. No I am not. However the 'payback' time for the future dividends saved vs the capital cost of the BB's shortens dramatically at a lower SP. At these prices (all things being equal), the only sensible use for any excess free cash is BB's. I expect DEC to keep retiring expensive equity every chance it gets. 2024/25 sees a significant run off of ABL's which should help even more.

Notrex. To be fair we have no idea re the cash flow week to week. I should imagine it's "lumpy" which is the reason for the RCF in the first place. The key is that that they are conducting BBs. These will never be of scale to satisfy everyone but every share bought increases the NAV/share and cash available for future divs/investments/well retirements, etc. All positive for investors longer term.

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Notrex. It's an interesting exercise to look at the value of DEC assets if you extract the value of the non-core undeveloped acreage ($200MM -$500MM). I would use the lower number. Extract as well the value of the pipeline business and the plugging business....the discount to the PDP reserves value is astonishing!! Given that with no further acquisitions DEC will be debt free, has gross margins of 40-50% and you have to question today's SP. Rustys philosophy has always had divs as the key means of sharing the fortunes of the business. He will continue to responsibly squeeze every last cent of efficiency from these assets, share them as divs with Investors and will leave the land in a better shape than when he acquired it. It's a shame because DEC should never have been a public company. It's far more suited to be a PE fund for sophisticated investors who are prepared lock up their cash for 10 years and forget it. IMO investors who acquire shares at the company at current levels will make returns over the next 5-10 years that would make a Columbia drug dealer blush. If you did not know the current SP and just look how he has run the business over the past 7 years, it's impressive.

Notrex. BBs continue. At these prices more shares for the cash committed. No doubt Rusty wants to show confidence to new investors at these levels. I expect them to continue and as the ABL commitments fall, the scale will increase. The RCF will never be put at jeopardy however no matter what the SP.

Notrex. The BBs have been sporadic and at different share prices which at first sight appears inconsistent.....unless if course it can be explained by the cash receipts on specific days vs payment obligations. DEC has always managed it's money to the penny and I have no doubt that Rusty would like to BB very share possible at these levels provided that the covenants surrounding the FRC are never at risk. Total debt falls significantly in 2024 and continues every year until 2030. If DEC is not in a position for whatever reason to acquire more assets I have no doubts that the increased FCF will be deployed retiring equity.

Notrex. BB's are not intended to manipulate the share price. In fact their use for that purpose is prohibited. Given the environment of rising interest rates, massive redemptions of small and mid cap funds and the prohibition of investment on fossil fuels by many institutions I can't see what more DEC could have done. One of the key investor concerns was the cost of the FRC facility. Increasing this to buy back stock was as Oak rightly states was "borrowing from Peter to pay Paul". There are obviously other covenants surrounding the facility and the worst thing would have been to put the facility at risk. The dividend is not a "give away". It is a payment to Investors. The dividend itself is unchanged but the yield has increased as the price has fallen. The dividend is clearly affordable know and hopefully for the future. We are all disappointed and shocked by the scale of the fall. The US listing made perfect sense given the hostile attitude towards the share price in the UK. Without the probe announcement it would be likely the share price would be significantly higher. In 6 months I believe it will be ... Remember Rusty has more skin in the game than any of us. The BBs will continue but j suspect their scale will depend on the timing of cash receipts .

I am sure that PWC have been all over the well plugging liabilities in preparation for the US listing. Not to mention their audited accounts

Trek. Can't understand how this will get far. DEC is probably one of the most heavily audited O&G companies on the planet particularly regarding it's ESG commitments. The questions asked in the letter have been answered a dozen times already. An unnecessary distraction ATM which will impact the share price. Would expect an RNS shortly and possibly a copy of the reply letter?

Trader76.

I think you may be over estimating the correlation between NG prices and the DEC share price. In fact there has been a low correlation over the past 7 years. As long as DEC sticks to it's strategy of squeezing the costs of production it should do fine. Obviously $4-5 NG is preferable to $3-4 but DECs USP is that it is there to feed upon the scraps left by the traditional E&P companies that are just not set up to manage wells once their productivity falls.....They just have to keep digging more holes....in the event that NG prices were to stay around these levels there will be bankruptcies galore, few potential bidders for the assets and a potential feast for DEC to plug assets into their infrastructure. ....and then there are all the other DEC off balance sheet assets to consider...the other big advantage of Dec is access to credit. Try raising money in this environment for a new drilling program...

These slow slides in share prices are the worst and like many here I have been scratching my head looking to find what I have been missing. Convinced now that the DEC business is on track, the value is there and the strategy remains correct. The company will not put it's bank covenants at risk by excessive BBs which is the correct decision. I suspect that they will conduct BBs whenever they have excess cash available and it's likely to be lumpy. If DEC alone was acting like this I would be worried but it's not. So many companies trading at ridiculous low valuations mainly due to fund redemptions and PIs panicking to preserve wealth. No new money being committed to risk assets by Joe Public and pension funds hoovering up government debt after years of pitiful returns from fixed income. We are swimming against the tide but the reality is that under normal circumstances we search in vain for opportunities like DEC. I refuse to give away £1 for 50p despite the pressures. I have seen this dozens of times in 30+ years of managing money. Once DEC starts trading in the US I doubt this discount will last too long.... Too many savvy investors, an enormous deep pile of capital and the minnow size of DEC will see to that! In the meantime I am getting paid above inflation divs for my patience. GLTA

Great analysis as usual from the oak bloke. Extract the value of the pipeline that they own and the value given to the PDP reserves is ridiculous. Difficult to hold when the price drips downwards but the reality is £1 coins are being offered for 50p and a regular payment of 10p/year... The sad thing is that the UK markets are broken.

Trek. Unbelievable discounts to NAV's in so many closed ended funds in London. Shows the thinness of the UK investor base outside of the ftse100 and a handful of the big fund management companies. Not sure it's Brexit as the cause but the market is broken. DEC will quite rightly head over the pond full time before too long.

Serious discounts throughout the small/mid cap sectors and in particular closed end funds. Very thin UK market, little appetite for risk/growth. Keep clipping those divs until better times return. No doubt that those with patience will be rewarded over the next 3-5 years. The US listing shouldn't least widen the Investor audience significantly once it gets going.

Moglim I agree. The O&G investment sector in the USA is enormous compared with the UK. DEC is well known to the industry. I suspect that there are quite a few people like the Rice Bros or Harold Hamm who would love a piece of DEC for breakfast.

Joedjoed. No dispute there. I used to trade futures for a living. The spread between cash and futures is dynamic and changes minute by minute. Futures can trade at a discount to cash. DEC uses a number of hedging strategies including spreads and collars. If I was still trading futures I would be long long long the summer contracts from 2007/8....IMO the pricing risk is on the upside..but that's what makes a market :)

Joedjoed. Most natural resource producers hedge a good part of their production. A big agricultural farmer would not dream of risking his crop to the spot price when he comes to harvest. DEC managed to acquire its assets by using debt but hedging out both funding and commodity price risk. It truly is unique compared with it's peers digging holes in a search for gushers. DEC can drill infill wells for around $400k each but I am sure they would prefer to drill them when NG is at $5-6

Most of the existing hedging is related to the LBA notes and these all run off in the next 6-7 years. DEC will though continue to hedge to lock in margins. It's in Rusty's DNA...

Gas production in the US has peaked far earlier than anticipated. The tier 1 targets have been drilled and the next lss productive ones will result in higher production costs. Add to that the LPG export facilities coming on line in next 2 years and you have an environment for higher pricing. Look at Oak Blokes recent Substack posts just to see how profitable is DEC compared with it's peers. Gas prices will be less dependent on local weather and the enormous gap in pricing between US and global NG prices will narrow.

The share register will gradually migrate to the US. I should imagine there are plenty of 401K plans which will be having a nibble over the next few months. At these prices as long as DEC maintains the divd and gradually replaces depleting assets the potential returns would make a Columbian drug dealer blush!