Member Info for PIKEMAN

Tickiti

DEC can't BB with objective of manipulating share price. Must be seen as being objective. Not much short interest in stock. Weakness just due to more sellers than buyers. FTSE100 holding up well despite New York losses, probably due to weaker £ and international earnings of top 100 companies. In theory DEC should be a beneficiary of weaker £ ( the reason why I bought it originally). Anything with debt whether fixed or floating is getting clobbered. I am confident that DEC has it's numbers correct. Rusty has always run it like a bank matching assets with liabilities and taking the margin. It's a strategy for all seasons and worked well during COVID. At the end of the day,you either have confidence that the finances have been run correctly or they have not. I have seen nothing which makes me think they are not. The Cfo leaving was not great but I suspect that he is probably now riding his Harley down to Florida having a few months R&R.

Alessandro.

Let's hope that Dec steps up to the plate with some serious BB. 350k yesterday was a step in the right direction but short term cash requirements aside there is no compelling reason not to be BB every share they can at these levels

BlackRock trader. Amortised debt. Think of it like a mortgage. Capital and interest is paid down over the life of the loan. Compare that with a trad bond where a bullet payment is due on maturity. The issuer has to either cough up the cash or roll it over into a new bond with the capital used to repay the principal amount of the first. Most of DEC debt is the former. When the note matures it owes nothing and owns the underlyung assets. The hedges it has on the gas produced gives visibility to the lenders of the payments due. Consequently DEC can borrow at a fixed and attractive rate. It is only one of a handful of gas operators that has the skill to do this.

I have muted GG for some time. Welcome to hear other conflicting views and criticism when backed up by evidence no matter how uncomfortable it may be to read but wild speculation just destroys the purpose of this board.

Just a reminder that DEC is on track for $520MM EBITDA this year with 80% of its debt fixed and amortized. Not sure what they are paying on the RCF (prime +4%?) but does not look like as chapter 11 candidate to me. Been in since the IPO and never seen management move away from disciplined approach to risk management. Most importantly Rusty is a banker and has a tin of skin in the game

Ntl101. Unlikely...company operates on 50%+ gross margins with excellent free cash flow. Better to spend the next few months retiring equity from those that want to get out

Oiled-up. In June the Co approved a buy back of up to 10% of their shares (£100MM at the time). They have been periodic buyers til now but in small volume. I expect them to ramp up the buying at these levels. The economics of retiring expensive equity is just too compelling. The cost of funding this initially from their credit facility and then repaying that from cash flow is very attractive. Rusty is not a fan of BB but with prospects of add acquisitions v limited it's the best option. A shame because DEC business model is scalable and sustainable and buying assets I am sure would be his preferred option

The Trotsky. Excellent post! Not seeking to ramp the price (and very critical of DECs IR) I am surprised how the financials are distorted by many. The criticism I have not got of DEC is that it always goes out of its way to explain factors such as plugging, debt profile, hedging costs, etc... puts most O&G companies to shame. It is however time for Rusty to step up to the plate and address investor concerns.

Lukee.

(Continued). My guess is that the planned expansion that Rusty had in mind has not come about, mainly because of the interest rate environment. The current debt structure (80% fixed, hedged and amortised) and a 20% floating facility (recently renewed and enlarged) is sustainable in pretty well any environment (think of it like a mortgage) ...Cash flows are visible but may drop slightly due to well depletion but DEC has a good handle on its costs and a huge portfolio of non core assets to dispose of it wished. I can see them disposing of some more over the next 12 months. The IR has been terrible however. The CFO departure has quite rightly everyone speculating although I have seen many CFOs pack it in for an easier time or to sail around the world. DEC has some big instu Investors which are getting whacked by the market particularly those income funds. Even a modest paring back in their holdings adds pressure on the SP and let's face it, only tobacco stocks are less popular than fossil fuels!!

Lukee. I don't think Rusty was joking about buying back the company. Thee DEC busines model has been built around risk management, hedging out market and interest rate risk....even if this means limiting the upside. He knows that NG is a volatile cyclical business and the key to success is not taking on excessive debt and gambling on prices. He won't overpay for new assets and if nothing comes along at the right price will stick to his plan of squeezing costs and productivity. I have no doubt that he will continue to allocate 40% of free cashflow to dividends and if there are no new assets available will use the extra cash as efficiently as he can. At the mom IMO that's BB although it I was him I would be looking at taking DEC private.

Ace. But of a hurry at moment to give full response but. The ABL notes interest and cap payments are not from the credit facility. The DEC hedging is in place at the requirement of the note holders to provide the visibility for interest and capital repayments. When NG prices were higher many complained re hedges limiting profits but that's the nature of the beast. The objective has been to buy these assets, repay capital and interest within 10 years and be left with an aßset which will throw off very attractive cash for at least another decade or two. I think there is confusion amongst investors on how these work.

Terry. Agreed. It's a no brainer to retire expensive equity at these levels. Using even just $50MM of the enlarged credit facility would cost them ....$5MM ? max in interest costs saving $10MM+? in divs in one year. Repay the facility from free cashflow over the next 12 months and the longer term economics are even more compelling. One thing is for sure, inaction is not an option

Ace. "Management have their work cut out to prevent this from sinking"....with 80% of their debt in fixed coupon amortising debt and the production selling price hedged, how do you come to this conclusion? The ABL is all repaid by 2030. Margins are north of 50% and although the wells yields decline year on year, there is no value given to the low cost infill drilling ( cost approx $300k/well). DEC won't do this until or unless NG prices rise (why drill and produce extra now in a low commodity price environment?) . Then you have sales of non strategic assets (valued at around $200+ million) and a value pipeline infrastructure that they own which keeps costs down particularly in the Permian). Value? A $350MM renewed credit facility give plenty of headroom particularly if no further acquisitions. I just don't see the risks that you claim. They have hedged interest rate, NG selling price risk for approx 80% of their liabilities and have a culture of sweating the assets. If it used the free cash flow from ops it could eliminate all its short term debt in 12/18 months. It's a pretty robust model. I question the target price of 160p to 175p of some of the analysts. I think Jefferies is probably the most conservative at £1.00 but none of them see the financial model at risk. What do you you see different?

Andy144. Agreed. The analyst reports I have read all show net debt dropping in 2024 Nd again in 2025. Not surprising given that 80% of the debt is fixed rate amortized notes. Assuming no new acquisitions free cash flow rises and by 2030/1 DEC owns the assets outright. I have always said that the only way to value DEC is in a wind down situation. The cash flow from the wells (with some smart infill low cost drilling) will generate cash for years. Obviously Rusty wants to keep buying assets as DEC is in a unique position to run them. But of the numbers don't stack up on the current environment it would be better that he uses the free cash flow to retire expensive equity. I am pretty confident that we will see increased activity in this area. My biggest worry is that some smart money comes in and buys DEC for £0.90.!!

Chump. The company operates on 50% margins and ~30%+ free cash flow....it is making money from its operations and good money.

It's a key consideration nowadays for banks lending particularly to O&G.

Pretty standard to have these annual BB provisions in place. Some companies use them and some don't. DEC seems to using them sparingly and the tiny sums involved are not constraining should they have other use for the cash. They may do an acquisition tomorrow or nothing til '24 and use FCF to increase liquidity. Issuing new stock to fund part of the acquisition is obviously OTQ and Oak may no longer be an option. If NG prices rise I expect to see drilling partnerships activity and continued sale of non strategic assets (EST value $200-250MM). I suspect either something jaw dropping (unlikely now) or steady focus on well management. Nothing a matter with executing their bread & butter. They are under pressure to perform. The instus backing them @105 will be reminding them. They certainly need to improve their IR.

The Trotsky. I hope that you are right but although I was in the business since 1986, this one does feel different . We ahev had decades of falling interest rates, gradual increase in debt (both government and private) and every time there was a crisis is was a simple case of turning on the £ printing press. We formalised this with QE and most recently we went totally mad with COVID. At the same time we have an aging less productive population. The debt is unsustainable.

Thetrotsky. Thanks for this analysis. On a separate but perhaps related note, that as an ex portfolio/fund manager what many investors don't realise is that when you get redemptions (UK equity funds have been hemorrhaging assets recently) you have to liquidate positions no matter how much you like the company. Otherwise your asset allocation goes out the window. There are other issues including liquidity, market cap, percentage ownership, etc that come into the equation. It's complex and probably a contributor to the reason many open ended funds perform so badly. Warren Buffet was smart when he set up BH but we know that don't we?

Gavstar. Hopefully yes as long as they don't screw up. As I have said before they appear to be good risk managers. The ABLs were life savers, the hedging with them forcing prudence and the plugging business (largely Fed funded) the missing piece. I may be all wrong with my analysis but who knows?