Member Info for PIKEMAN

TerryM1. Dividends are rewards for investors. Why would DEC seek to cut them unless absolutely necessary? Investors buying here believe they will be well rewarded as they should be..The financials suggest that DEC can service debt and pay attractive divs. The cost is possibly little/no growth in assets short term. The RCF is for operational purposes not for supporting the SP. DEC will be judged how it manages its business not the share price. No way should Rusty risk the RCF by a big BB. He is too smart for that

Terry. BBs are impractical. Assume institutions own 80%, insiders 10% and private investors 10%. Given ESG, redemptions in income funds and small/mid caps there is probably 8% of total DEC shares looking for a new home from institutions. BBs could not absorb that quantity and result would be minimal. I would not want DEC maxed out on its credit to save a few pence on the share price. Madness

TerryM1. I understand your sentiments. The current share price is likely to put a lid on growth of assets short term but the company does not need to raise additional cash to maintain production. The ABL total is dropping quickly each yr along with the funding costs. Some $230MM ABL debt is repaid in next -9 months (interest and capital). Continued modest disposal of non-core assets brings debt down even further meaning that the headroom on the variable facility will rise quickly towards the $450MM. DEC only needs to use a fraction of this to acquire assets to maintain production. A big BB would ADD to the Variable BUT the benefit of lower div costs mainly felt in future years. It's would be crazy to add to total debt and particularly the variable at this time. Rusty won't risk the balance sheet so big BBs IMO are OOTQ . Huge swathes of UK mid/small caps/ closed ended funds are trading at massive discounts to NAV as investors dump stocks in favour of cash/bonds. Happened many times before and will happen again. DEC thank goodness is hugely profitable by any matrix, with excellent risk management. It does not need to raise cash. Unfortunately it's misunderstood, ii's own the biggest chunk and when these funds receive redemptions they just have to sell. (I know, I have been there) Pity it's not a bigger company. IMO Buffet would be buying this hand over fist...

Maybe sipping pina coladas on the beach in Acapulco?.....

This just posted on the Advn chat.. essential reading

https://open.substack.com/pub/theoakbloke/p/gassing-on-about-dec-part-2?utm_source=share&utm_medium=android&r=19pp7m

Oh yes of course!!. All those DEC acquisitions were just fields....not gas 🤔...the PDP they were referring to were Poppies, Daises and more Poppies!

Trek. Good points. Rusty must be p*ssed that the US listing was not possiblenand he got caught for once in a perfect storm. I presume he would have used the money raised to repay the ST facility and with a few bob for another acquisition. Can't really blame him though with the macro and political environment. I am comfortable with DEC even as a "run off". There is plenty of cash to be generated for investors in the next few years that I can use elsewhere. However, it is frustrating that this company could be 2-3x bigger! It is unique in its model and having Rusty, a banker as CEO. Not sure what he does now to fund future growth. I suspect that given his MO he will fight tooth and nail to maintain the div. One day he will return to the equity markets and his record on this will be under scrutiny from ii's. He is innovative (AIM, Oak, the ABL's, hedging, etc) so I believe he will find a way to grow this business. ( Perfect opportunity for a sovereign wealth fund or big family office)?.. who knows but once he has steadied the ship I don't see him slowing down. The SP will always trade on its yield vs UK short term govt bonds) . The only question is at what premium?

The issues here are simple. Most of the debt (82%) is fixed rate amortised. Each year (assuming no acquisitions) this drops and boosts cash flow. In another 7 yrs these are 100% owned and will throw off cash for another 20+ years. The concern has been the cost of financing the 18% floating debt which has risen as interest rates have risen. From day 1 Rusty has aimed to pay out -40% of cash flow as divs the balance to pay of debt and fund acquisitions. Funding casts for the short term debt had risen but this has been offset by sale of non-core assets ($50MM+ 1st half). Further sales of these non-core assets could raise another $30-50MM) taking the headroom on the facility to $180-$200MM). The lenders are obviously comfortable enough raising the facility by $50MM on last review). Big BBs would increase the debt short term and not reduce it. I am assuming that DEC has a handle on its daily cash flow and commit to limited BBs covered by excess cash. The Oak Bloke a far better accountant than I had provided the numbers. His conclusion is that the current glide path is sustainable. DYOR but I believe that once DEC demonstrates that the variable debt commitment is falling there will be stability and recovery in the SP.

Https://theoakbloke.substack.com/p/captain-on-dec. At least it's the most independent view you are likely to get

Amazing the effect of redemptions in open-ended funds particularly in the smaller cap stocks. Fund and portfolio managers forced to liquidate carefully built positions to raise cash. My view on GROW is what is it worth in liquidation?...a lot lot more than the current share price even applying a very very healthy discount. My only surprise is that the vulture/hedge/sovereign wealth funds have not been rushing in to grab assets trading at such collosal discounts. It will happen for sure. It's just a question of when...it's times like this we see the biggest transfer of wealth to those with the deepest pockets

Gavster. I think you need to read your previous posts on the subject but please feel free to filter away.

Trek. Agreed and given the non-core divestments of around $53 million in first half of 2023 (which I believe represents approx 2% of the portfolio) I wouldn't be surprised if they sold off another similar amount over the next six months or so. That would takes the headroom on the variable debt facility to $180-200MM. A chunk of the ABL here paid off in 2024 which further boosts cash flow. I believe we have a bump in the road (caused by the use of equity and short term debt for the last acquisition which the company was aware of at the time but manageable) but the markets have been spooked by the hawkish Fed. Poor communications and depart of the CFO has not helped nor the UK persistent high inflation numbers and collapse if uknmid cap share prices.A bit of a perfect storm...but time for cool heads

Https://open.substack.com/pub/theoakbloke/p/growing-pains?utm_source=share&utm_medium=android&r=19pp7m

Posted before but astonishing discount given the quality of the top 5-6 holdings alone!

@Jim800. I agree that the Appalachian gas price is restricted for the reasons you mentioned but they are looong life assets, will be fully paid for in 7 years and throwing off cash for decades. One well can pay the cost of a well tender looking after 20-30 wells.More interesting for a PE fund is the business model which is scalable particularly in the central and Southeen areas and as Tier 1 acreage is exhausted and drilling costs increase there will be a lot of 💰 to be made for anyone with the cash to buy up inefficiently run wells and sweat the assets. IMO it's only a question not of if but when. There is only one co in the USA with this experience and that's DEC. Time will tell....

Worya. Reluctant selling I would suggest from uk fund managers dealing with redemptions. You only have to look at the fall in AUM in the mid/small cap funds to see it's been brutal.

Somewhat surprised that we have not seen much interest (yet) in DEC from PE/ hedge funds. Although there are plenty of companies and unit trusts trading like DEC at an attractive EV/EBITDA or in the case of the UT's at a discount to NAV, there are not that many (zero) with the profile of DEC. The key DEC investor concern is the ~ 18% of debt which is short term and variable and the ability to service the debt without cutting dividends.I have checked the Oak Bloke blog calculations and I am comfortable that he is correct that it is and gets a lot easier 12 months out from here as the ABLs continue to get paid down. As for BB's I would guess that the #1 priority of Rusty is to keep his lenders happy and DEC well within the covenants. #2 priority is the dividend around which he has built the business. Risking #1 is not an option regardless of the longer term prize of BBs. We know that Rusty is not a fan of BBs preferring to return investors their funds and let them decide what to do with them which is fair. For a hedge fund DEC at this price and yield should be like honey to a bee particularly when it considers the 80%+ of the debt in fixed rate , amortised ABLs maturing in the next 7 years. DEC is a publicly traded company which behaves like a PE fund focused on NG. It's no surprise that we all struggle to understand it. My concern is that some big PE fund swoops in, takes the company private and provides the capital to Rusty to grow the business 10X! It's a "no brainer" IMO and if you were Rusty what would you do? I suspect that somewhere the calculators are busy!

DYOR

Gavster. If you read the first couple of pages of any DEC presentation it would be clear that they buy Proven Developed Producing gas reserves. They don't buy spot gas..they sell it

Gavster. Not trying to be rude buy have you actually read their audited financial statements? They have acquired PDP assets since 2017 at attractive prices. They have driven down costs, hedged production and most of the finance costs with fixed amortising asset backed loans. If you think they are buying gas in the open market then maybe you should not be an investor in DEC?

Gavster. No. I meant that they acquired it at very attractive rates often in the PV20-40 range. As for selling it at attractive rates you may wish to remember that they managed ~50% margins even during covid when spot prices were through the floor.

US natural gas is the cheapest energy source on the planet. Its the reason why we have such a massive LNG export capacity coming online in the next couple of years.