Member Info for Rrb1981

You claim he was a bad CFO? He literally developed the amortizing ABS's for DEC. Name me another E&P company that had a CFO savvy enough to come up with a creative financing like that? You can't name a single thing that Williams did that put DEC into a bad position.

Eric Williams left because he didn’t wish to be a part of an unethical scam. Once the market figured out Rusty’s scheme, the game was up.

40 BCF over 3 years.

40 BCF = 40 million mcf

13.3 million mcf per year

DEC produces 855,000 mcf/day

This is roughly 16 days worth of production or a bit over 4% of their annual production.

Rusty should know by now that fluff press releases won’t fool the market.

Don’t look now but DEC moving back down. Gas prices also dropping.

Asp1,

I thought I would open the eyes of the board today. Using asp1's brilliant cash sources and uses model. We know they get around $3.20/mcf and expenses are around 41.80 mcf. I believe asp1 wanted slightly higher realizations and slightly lower LOE,SG&A and transportation cost. Poof. Granted. We will use $3.30/mcf and $1.70 for LOE/SG&A & transport. That's a net margin of $1.60/mcf.

We use the 855,000 mcf/d of production. By my calculator, 855,000 mcf/day x 365 days x ($3.30-1.70) = $500,000,000.

Then subtract the $120 million in interest expense. Then subtract the $170 million for maintenance capital to offset natural decline. Then subtract $150 million for debt reduction. Then subtract the now $55 million for dividends (note, this used to be $165 million, but it wasn't sustainable as the math shows).

So, 500 million minus 120 million (interest) minus 170 million (maintenance) minus 55 million (dividend) minus 150 million (debt reduction on ABS's) = $5 million left over. Now do the math when they were paying out $3.50/share on 48 million shares vs the $1.16/share that they are paying out now. Note, I didn't set anything aside for AROs.

For those that are still silly enough to believe that DEC could actually keep paying the $3.50 dividend/share, this ought to serve as a reminder that management is not going to tell you bad news. They will simply wrap it up and put a bow on it and call it a dividend recalibration. LOL.

Asp1

If the acquisitions they made were all accretive, why did Rusty need to cut the dividend by 2/3?

"This cost will be met by a mix of debt, cash & equity"

Funding maintenance cap ex with equity or debt means the model isn't sustainable. If you cannot generate enough cash to cover AROs, dividends and maintenance capital without having to borrow, then it's no better than a ponzi scheme. By your logic, share count and debt would perpetually keep growing.

Asp1

Surely you aren't suggesting that maintenance cap ex be covered by anything other than cash? You mention, equity, debt and some cash.

if you are covering maintenance cost with debt or equity, they have another term for that, it is called a ponzi scheme.

Maintenance costs should be paid from cash.

Pickedpeck,

You see, it isn't a simple fact that the AROs are covered by earnings "over time". The reality is that DEC couldn't cover the $3.50/share dividend and was thus forced to reduce it by 2/3.

We've already noted that even DEC initially claimed to need a sinking fund in their presentations, then, conveniently removed it and began stating they didn't need it. We also noted that, their own model calls for dividends to begin declining as wells are abandoned. No one seems to like to discuss this but it is in DEC's presentation. No discussion on how the route density model collapses once they start retiring wells in Appalachia, both from the falling production but also from the high ARO cost.

The only way Rusty can keep dividends flat (and he only promised 3 years at the now reduced rate) is for him to keep making acquisitions and of course, cut the dividend to a "sustainable" level.

With natural decline at 9%, they need to replace about 76,000 mcf/day of production (855,000 mcf/d x 9%). The recent Crescent Pass deal was $106 million for 38,000 mcf/day of production. So, in essence, DEC needs to make 2 of those deals per year just to hold production flat. They even acknowledged as much during the Oaktree deal in saying it accounted for more than a years decline. In the case of that deal, it was about 1.6 years of decline and dividing the $377 million dollar price by 1.6 comes out to $234 million. It's easy to see that maintenance capital is e$200+ million annually.

Asp1,

Your math is off, but I actually appreciate the effort you put into this which far exceeds what most on the board have done. The issue is that you stopped at revenue and then, did some hand waving and said, everything is ok. Why don't you try doing the following: $3.20 mcf (this is from their presentation) minus $1.80/mcf (LOE, SG&A and transportation, this is also from their presentation), then account for the $55 million per year in dividends ($1.16/share x 48 million shares), the $30 million per year average ARO cost (about 1,400 wells per year at $22,000 per well) and of course, you neglected to account for maintenance capital to offset the roughly 9% natural decline. Natural decline is likely nearly 75,000 mcf/day on a yearly basis (855,000 x .09). The recent Crescent Pass deal was $106 million for 38,000 mcf/d (92% gas). So, you could assume it would be about 2 of those type deals per year to keep production flat (and well count constantly climbing). Natural decline is a key item you're overlooking. Smarter asset management won't cover for that.

TerryM1

Yes, shorts covering. Gotta let it run up some before they short again. The fundamental issues with DEC still exist. Rusty is trying to grow his way out of it but to little avail. Notice, he still continues to buy cigar butts. A rising tide lifts all boats, at least for a while. But to be clear, the market is far more aware now of the ARO issue. DEC isn't going to regain the highs it once saw before they were exposed. ~10% equity cost still makes it very difficult for Rusty to make acquisitions. And, why is Rusty handing out equity at these prices if he thinks it is worth more than $12? Leverage is still well over two turns. 2025 and 2026 gas heavily hedged so it's hard to take advantage of rising gas prices. You can certainly feel the frustration in Rusty's voice because he isn't able to get away with his scam like he used to. Equity market has forced him mostly out of the market. Issuance of equity at current prices tells current holders that either he knows the equity is worthless (due to the $17 in ARO per share) or that he is diluting for the sake of current cash flow to keep the concern afloat.

TerryM1

"not willing to commit any more money to DEC even for a short time"

Come on now, you mean you are finally seeing the light? You finally realize that Rusty is a scammer and that the AROs were how he has managed to keep the ponzi scheme going, by not setting aside money to cover the nearly 70,000 wells they own.

Still no answer regarding the Alliance Petroleum acquisition. Wells that were producing 4 mcf/d in 2018. Factoring in decline, those wells are now producing less than 3 mcf/d. Will take years upon years of profits to generate sufficient cash flow to plug the 13,000 wells.

"All he has to do is nothing, the FCF will more than cover the debt in not that many years especially if HH stays around 3 or above."

Oh, but DEC is hedged heavily for 2025 and 2024...and of course, Rusty will need to use debt to acquire more assets offset dilution. There is no free lunch.

0715,

"lets hope Rusty doesnt buy any more wells unes they are going very cheap, he needs to payoff the debt/raise the dividends."

Yes, by all means, he should snap his fingers and, poof, pay off the debt, oh, and while he's at it, why not increase the dividend by 3-fold.

Tazed

"I just thinking imagine is stock over 10% shorted imagine the amount that need to be bught back, or short really need to start praying this go to 0, as can see short squeeze coming."

Look, enough of your Walter Mitty dreaming. Your grammar and spelling is atrocious, and that is coming from me, an American, where we butchered the English language. But, it's not hard to imagine how much equity would need to be bought back if 10% of the company were sold short. It would be about 4.9 million shares.

The fallacy here is that you are blaming DEC's problems on shorts and hoping for a short squeeze, somehow thinking that will solve all of DEC's problems. Don't confuse correlation and causation. Shorts did not create DEC's problems, they have exposed them. Rusty was FORCED to respond with a dividend cut. The next shoe is yet to drop. Rest assured, it will. CFO did not bail out here for no reason. Rusty chose not to go outside the organization for a new CFO, rather converting his Ops guy into the CFO. Keeping it all "in house".

Company is doing so well, they recalibrated the dividend down by 2/3.

MrG

"The dividend was cut because it's what any company would do. Why let 30% leave the business if investors are happy with 10%? If the SP rises, so will the dividend"

Maybe the company was premised on returning cash to shareholders? Have you found any shareholders that were happy to see their dividend cut (I'm sorry, "recalibrated" as Rusty calls it) by 2/3's?

If you really believe the statement above, you have no business investing in the capital markets. Let's look at the statement as a whole. With Diversified, the equity is but a relatively small part of the total enterprise value. So, for some strange reason you seem to think that management sets the dividend to the shareprice...when in reality, management sets the dividend relative to the financial performance and the market sets the price of the equity (often in relation to the dividend on what are deemed "yield" stocks).

I doubt you will find even one long term holder that was happy to see ole Rusty take a hatchet to the dividend. You, know, since the company is doing so well and every deal is accretive.....don't bother worrying about the debt, don't worry about the hedges, don't worry about the asset retirement obligations. Just focus on that shiny (sustainable) dividend.

Greygeorge,

"Oh, I dunno, pickedpeck. While it's true that I didn't see Oaktree Capital, the main potential complainant in the fraud case,"

Remember when several of the board posters smugly said "I'm with Howard Marks after Oak Tree bought in". I didn't see them post anything when Howard Marks, whom they obviously deify, so quickly removed Oak Tree from the joint venture. Absolute silence. Of course, that was during the time of the great "recalibration" of the dividend.

TerryM1

"I will help you, when LNG is stated this means HH" - Nice try to cover for your fellow uniformed investor. LNG = liquidfied natural gas. LNG pricing you will find is not Henry Hub. But, please, keep trying.

It's rather comical to see the echo chamber that this board has become. The smug arrogance of people who clearly don't know what is going on with DEC, but desperately want others on the board to think they are an authority.

It is however refreshing to see a few posters beginning to focus on debt, not jus the overall level but leverage (debt to EBITDA) and of course, the main concern, the AROs are finally putting down roots. People are waking up to realize that ole Rusty conned them.

As they say: It is easier to fool someone than to convince them they have been fooled.

Poor TerryM1

Still can't get over the fact that Oak Bloke just made stuff up. Complete fabrication. Let me ask you this: Do you really think two, 20 something year old guys at Snowcap have caused all of this downdraft by mere chance? Did it ever cross your mind that maybe Toby Rice is smarter than Rusty Hutson Jr? That the CFO bailing out wasn't just leaving for "greener pastures". Think about it, if it wasn't a scam, if the money was coming in so great, why would Rusty cut the dividend? No need to. Just keep paying it. As debt was paid down (with the amortizing feature) he could simply borrow again to acquire more assets to offset the depletion (natural decline) of the existing asset base. Why mess with a good thing....you know, if it was actually working. The issue is that it wasn't.

"LNG @ 2.91 now. This share has so much potential."

Hopefully some good samaritan on this board will let Mogli know that DEC has nothing to do with "LNG".