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"Now, that pain only impacts 25-30% of the people with mortgages immediately. There will be people on five year fixed rate mortgages who will never feel the full brunt of that pain in this interest rate cycle."

I am old enough to remember the 70's. Dilemma for a government is do you keep interest rates persistently high to protect the £ and cause terrible pain domestically or do you drop rates to ease the pain short term but import inflation? Even worse today given our reliance on imports and commitments to net zero. This is how countries become poorer and people don't realise until it's too late. Either way I don't expect any UK growth for the foreseeable. But what do I know.….I am losing money in DEC!

Https://youtu.be/3pAJXM9iKEA?si=E0XCqqpAPN8jI2ejE

Good analysis of the UK economy. Not so pleasant viewing. It's all about relative risk. The DEC leverage is peanuts compared with the UK economy. Not sure I know any UK house builder that has hedged it's sales for the next few years. Gulp!!

I understand and your views are shared by many . The big problem is that many on this board are seeking regular inflation beating income. I look around and there seem to be two sectors where most have been chasing yield . These are housebuilders and some high yield insurance/financials. I am pretty bearish on the UK and sterling and that's a big influence on my choice of DEC. I don't believe that renewables will be replacing NG in my lifetime. For the UK market the second shoe has yet to drop when millions of mortgages ) including B2L) will renew over the next 18 months which will be crippling for millions, depressing house prices and demand. There are consequences for house builders, lenders, UK based financials and UK focused growth stocks. There are few if any levers left for the government to pull. I hope I am wrong but this is in many ways a worse environment than 2008. GLTA.

As I have said before this is a "publicly traded private equity fund" beyond the comprehension of most . The objective is unlike any other O&G company. It does not explore or drill, it buys proven long -life neglected assets, fixes it's costs, locks in a margin on its sales and its debt. Uses the cash roughly one third for divs, and the rest to pay down debt and buy more assets. As the debt is paid off much of that free cash it is allocated to plugging. In the meantime it has a rapidly expanding and I assume profitable in-house plugging capability allowing it to manage these obligations (like it's production) in the most effective manner. The risk is not making a mistake and so far I have not seen any clangers.

ace. not really a fair comparison. gulfport was coming off it's lows having had a 2022 resembling dec's 2023, crescent is up and down like a *****s draws like most gas stocks. get your timing wrong with that one costs you 20% in a blink

Trotsky. Agreed. I can only guess at the margins they are getting for third party plugging and the type of wells. It's all fingers in the air stuff but I believe that the principal is sound. The more they plug third party wells the more cost effective will be their own. I should imagine that many of the third party wells are either isolated and/or in remote locations. I should imagine that they can keep their crews fully occupied

Alessandro. Well plugging costs for the type of wells owned by DEC are in the region of $20+25K. As DEC has it's own plugging crews you can eliminate 20-30% from those costs. If you assume that the plugging division plugs others wells on a 1:1 basis as DEC you can take the profit margin of these third party plugs and take off another 20-30% off the cost of a DEC plugging cost. On a 2:1 basis the economics gets even better. Also DEC can schedule it's pluggings in the most efficient manner giving it greater flexibility.

As regards the 10% decline rate of the wells a 10% decline rate does not mean they are empty in 10 years. Most wells produce for 40-50 years and DEC is pretty good at squeezing every last molecule of gas. The more recent acquisitions in the central area have different economics, higher plugging costs but more productive.

Damofari. Some good points raised. I am however confused by your "red flag" comment. I have never known a company so transparent with it's hedging activities and it's been consistent from day 1. When has prices were at $9 the strategy was criticised and at $2.50 likewise. They addressed rising interest rate risk with their amortised ABL notes and they keep delivering high gross and cash flow margins. It gets lost on the crazy US accounting standards but that's not their fault. The fact is they have kept costs under control and protected margins in spite of the volatility.

Rusty has confessedly that the higher interest rate environment makes acquisitions challenging until vendors realise that the cost of capital affects the bid price but this will eventually sort itself out.

There is always execution risk but DEC seems very focused. I can't see any reason why the model should not throw off lots of cash for investors for years to come and still preserve net asset value with selective acquisition.

I hate the current share price but I hated the BP share price during COVID too.

Ace. You are not counting the profit from physical sales. Simplified..cost of gas @ $2.00...hedge @ $3.00....spot price on settlement @ $4.00.....

Profit on physical sales ($4-$2) = $2.00.....CASH loss on derivatives ($3-$4) = loss $1.00..net position (2-1) =profit $1.00.

Conversely if spot prices close @ $2.00 DEC makes a CASH profit on their derivatives ($3-$2.00) = $1.00 profit on their hedge and $0 profit on physical sales. Net position $1.00 profit. Last year was crazy volatile hence the big CASH losses numbers on derivatives but also higher prices for physical sales.

Unvrkw. I agree. There is not a major wheat, corn or barley farmer who would not sell forward his production to lock in a profit rather than gambling on a higher price at harvest. For some reason several investors think it's crazy for DEC to be prudent. Locking in a 50% margin is sensible and good business!

Aceofclubs. I have been investor since the IPO. They have hedges since day 1 of operations. The fact that they have this strategy has enabled to get the long term fixed rate finance. It's been in Rusty's DNA from the start. Buy long term neglected proven reserves that have been neglected. Sweat the assets by running them more efficiently, lower production costs and hedge your production to limit market risk. Take the margin. Pay 40% of free cash flow back to investors and use the balance to acquire more and build scale to further reduce costs.

Compare DEC with a high yielding UK house builder. The latter would love to hedge the sales price of their houses for the next 5-7 years but they can't. The housebuilder is a hostage to future input prices like bricks,glass and cement. They can't control demand (mortgage rates) and the lumpy state of the biz makes obtaining fixed rate borrowing a challenge. I know which biz model I prefer!

The confusion amongst investors IMO is the volatile cash position due to acquisitions. I view DEC in similar way as Trek: base case. cash generated in a run off with no new reserves acquired. I think they have enough experience to make sure any acquisition is accretive. The divs don't account for all the free cash flow. If they top up their reserves as fast than the depletion rate then in 10 years they would have paid out exceptional divs and still have a chunky valuation. This excludes the value of infill drilling (low risk and inexpensive). As I have said before the best thing that DEC did was to convert floating rate bank debt into fixed amortised notes. DEC really should be a private equity/hedge fund rather than publicly traded. Being listed on London is another confusing factor for many. The biz plan is very simple. Gas price and interest rate risk have been minimised. Execution risk remains but that's the same for every business. That aside worse case is fat divs for 10 yrs and a decent stub of equity left over.

HSBC forecasts weaker GBP falling to $1.16 mid 2024. Not bad for Investors holding shares in high yielding companies with revenue and divs paid in dollars...

Production is hedged for the next few years. I take a leap of faith in that Rusty understands the risks of excessive leverage for a cyclical business and am comfortable that the balance sheet is prudent. There could always be a Black Swan event but I think most of us are confident that NAT gas is going to be demand for at least the next 20 years (and longer).

Saga999. Some good points made in your post. In fact the drop in price reflects the historical ~ 10-11% risk premium over short term bonds which have risen from effectively zero to 5% over the past 12 months. Most high yield shares have faced similar headwinds for the same reason. At times like this I find it useful to value a biz based on breakup value (or standstill). By my calculation DEC is trading at ~50% discount to NAV. The two big variables are debt liabilities and revenues. Thankfully the best thing DEC did was to get ahead of the curve and convert floating rate debt to fixed and amortised🙏🙏🙏🙏. On the revenuenside much of the

Looks like some BB activity this afternoon with 85p again looking like the trigger. With potential new assets being deemed expensive by DEC this makes sense financially. All things being equal should result in increased div/share. Pay down of current debt should not be an issues given the structure of the ABLs. Expect to see more sales of non-core assets or JVs.

Ace. I have been in DEC since the IPO and watched dozens of presentations from Rusty. From Day1 he has always hated cash on the balance sheet using it to repay debt particularly in the early days when acquisitions were funded by bank loans. Now that the assets are now funded principally by the means of structured asset back notes this is less critical and de-risked the biz for general lenders. DEC still uses every spare penny to pay down expensive obligations. With the gross and free cash flow margins enjoyed by DEC and it's amortized debt, I am confident that the company is not approaching it's OD level. Plenty of valid reasons for investors not to like the DEC story but this is a weak one. As always DYOR

Could be..great acquisition for a private equity player. Cash generating business, assets trading at huge discount, demonstrated business model. Strong industry fundamentals . What's not to like?Always felt this was a risk if the public markets continued to remain sceptics. The current silence suggests something is up...

My bet is a merger, getting a listing via the back door and growing assets at the same time. Not another simple purchase of assets.. time will tell