Member Info for Redtom

Guys,
Is it possible that we could post purely informative DEC related posts or comments about DEC without the slanging matches that appear on other boards? We are all guilty of it at times but we would all benefit without it.

I asked the company about any future plans for a US listing and I received the following. To be honest I thought this was a decent response given how their hands are tied giving out sensitive information. Whilst it doesn't say anything definitively, it does says what I expected and hoped it would, ie a US listing is still being considered etc
"We certainly appreciate and understand the sentiment that a US listing could better serve the company and its shareholders in regards to the market’s perception of the stock and accompanying share price performance. Relating to any potential change in the Company’s listing status – we are evaluating both a dual listing and a complete US listing, aiming for the arrangement that will provide the most value and return for our stakeholders while best positioning the Company for continued success. We are deliberately and diligently walking through this evaluation, engaging in recurring communications with our external advisors on the timing, type and effect of the US listing, and will make the final decision of the same as and when appropriate in due course."

Not quite sure whether this is a reaction to the recent deal announcements or not but its a shame after a decent run on the previous few days.

SD,
I think you will find that DEC hedges up to 10 years forward. They publish the percentage hedged for this year and next year but they have significant hedges going will into the future. There is obviously a cost but given this cost is a function of interest rates, it is not as expensive as you think.

That does not surprise me as I said a few days ago that a big deal was in the pipeline. Otherwise they would not have done the share placing. Good news if it is at the price indicated on ADVFN. DEC is looking better and better and I hope they have hedged a lot of future sales given the NG price.

It is a bit disappointing that we've had no update. DEC did say that they expected it to close in late June.

Edwina (or anyone else),
What is your view of the share sale at 10:41 today? These were 'Off-book'.

Could the 5.8m shares that have gone through a few minutes ago be part of this?

Edwina, good point. And if under 3% we are unlikely to find out about it publicly.

Thanks Edwina. I don't have level 2 but something is going on. A big seller would make a lot of sense. I added a few more earlier today as I struggle to see this dropping much further.

Edwina,
Are we aware of an institution selling a biggish stake in DEC?
I like this as an explanation of the current SP but is there any evidence?

Teamwork86,
Yes DEC (like every company in Oil & Gas or commodities) hedges some of its sales in order to get certainty over an element of future income. DEC has hedged 90% of 2021 and 65% of 2022. They have also hedged elements going out 10 years.
So the recent rise is the gas price is still very good news for DEC as it allows for it to hedge further income at higher prices that it might otherwise have expected.
For those who don't know how hedges work, here is brief explanation using some made up examples.
Let us assume that at start of year DEC intends producing 100 units of gas. The gas price is 3 at this time. So it decides to sell forward (ie hedge) these sales now rather than gamble to see what the price might be later in the year. By selling forward these 100 units at say 3 (actual forward price will be slightly different due to time value of money, ie interest rates) the company has 'locked in' its income for the year. So at the start of the year the company knows its income is 300. This means it can control its cashflow for dividends, investment decisions, debt financing etc. Certainty is worth a lot. Let's say the price reduces and is at 2 when hedges expire at end of year, then company still has 300 as it will sell 100 units at 2 but make 100 on the hedge. Equally if the price rises to 4 the company sells 100 at 4 but loses 100 on the hedge. Mathematically this is reasonably straightforward where the hedges expire in the same year as in my example. But in reality there will be hedges in places going out 10 years. So at the end of the year the hedges still in existence are revalued (ie marked to market). This can produce big accounting gains or losses depending on what the market price is verses hedged price. But these accounting adjustments are non cash items are are purely timing so they should be ignored when looking at the true value of a company.
At the end of the day hedging is an incredibly sensible approach to protect cashflows which allows for uninterrupted dividends.

Ash, Halifax do not know what they are talking about.
Whilst it is a UK quoted stock it is also considered a US company based on US tax law. Therefore any dividends that it pays are subject to US tax rules and in particular US WHT rules.
As stated before by completing a W8-BEN the wht rate is reduced to 15% (from 30%) for share accounts and ISAs etc.
Under the UK/US tax treaty the wht rate is reduced to 0% when held in a pension, eg a SIPP.

Throne,
The principles are:
Under the UK:US double tax treaty:
Standard WHT rate is 30%.
If you do a W8-BEN this should be reduced to 15%
But if the shares are held in a pension wrapper (eg SIPP) then the rate is reduced to 0% under the DTT.
Whilst these are the principles it appears that there have been inconsistent practices adopted.

My shares are in SIPP and 0% is deducted. My wife has a few shares in a normal share account and 15% was deducted.

And for those asking about the debt levels, the debt (sum of both ST & LT) is estimated to be $651m at 31 Dec 2021 ($717m as at 31 Dec 2020) reducing to $561m by 31 DEC 2022. Essentially the element of FCF not used to pay the dividend is used to repay debt. So there is a careful balance to be had of paying dividends/repayment of debt.
Obviously these estimates only account for the 2 recently announced acquisitions. I suspect that a much bigger deal will be done this year which will be done via debt not equity. But any new deals should be earnings and FCF accretive so will add to the FCF element put towards debt repayment whilst still maintaining the high level of dividend.

I've been looking at some of the numbers for DEC and thought I would share them here.
DEC has stated that it will pay out dividends that are no less than 40% of adjusted free cashflow. So what is adjusted FCF you might ask? This is defined as hedged
adjusted EBITDA less maintenance capex, interest expense and well retirement costs. In 2020 this was $247.8m and divis were $104.3m, so 42.1%. The estimates for 2021 and 2022 are $273.1m and $263m respectively with the divi percentages being 47.7% and 51.7% assuming divi remains at 16 cents. To me this makes the divi extremely sustainable and actually allows for modest increases. The FCF is very good at DEC.

Good post. But given the shortage of NG and the steady increase in NLG prices over the last month or so, why has this not translated into a higher SP already? I'm still puzzled by the drop when they announced the 2nd deal and the fundraising. We have speculated about the reasoning for the drop but nothing seems to fully explain it. If DEC isn't loved by the investment community during a mini NLG boom, when will it be? I have a very big stake in this and I have no intention of selling as long as the divis remain at their current levels but with a 11% cash yield I would have thought this would prove more popular with income seekers (like myself). I'm not in DEC for capital appreciation per se (my average was 108p before the last dividend was paid) but I would expect an SP around 120p to 130p when it delivers a 9%+ dividend. Maybe this deflated SP is a temporary blip - time will tell.

Apendragon,
You appear to be MIA today?

Thanks Jim

Anyone know when this deal is due to complete? I thought they said late June so I guess it could be any day soon.
I really hope that it does complete, particularly given the strength in NG pricing over the last few weeks.
Nice to see a blue SP - makes a change from recent days.