Member Info for TerryM1

Part3

Investor Presentation, Page 6

Clearly, low natural gas prices don't mean much to shareholders, as the hedges are doing their magic in keeping cash flow intact. Thus, this may explain why the stock is mispriced in my view, as people do not see that the hedges are outweighing low natural gas prices. In fact, it is precisely in this natural gas market where a company like Diversified Energy should shine. While their peers may be suffering lower profits and cash flow, a hedged strategy should allow Diversified to take the higher cash and reinvest in exciting projects and new wells to take advantage of a potential future upturn in natural gas prices. This strategy speaks well to me because I like the downside protection it gives, and think gives investors stable cash flows in any natural gas market environment.

The quarterly dividend of $0.29 seems sustainable to me, as the cash flows seem to be resilient to natural gas price fluctuations. I think investors are being paid to wait while seeing the company cut costs, focus on increasing production, and hedge cash flows intelligently. Management's strategy on acquiring "long-life, low decline producing wells" is unique and effective because it allows for a level of certainty in long-term cash flow and looks easier to manage operationally in my perspective. In conclusion, I think the cash flows will continue to be stable, can cover the dividend, and give investors solid income while they wait.

Part 2

Q1 Earnings Review

The company reported Q1 2024 earnings on May 9, 2024. Here is the brief summary,

Production essentially flat from 4Q23 adj. production of 725 MMcfepd (121 Mboepd)(A)

Operating Cash Flow of $107 million, and Net loss of $15 million inclusive of non-cash unsettled derivative fair value adjustments, and non-cash depreciation, depletion and amortization

Achieved 1Q24 Adjusted EBITDA of $102 million and Free Cash Flow of $74 million

So, investors can see the company is earning solid cash flow, with adjusted EBITDA that roughly matches operating cash flow. Production is relatively flat, but certainly not low enough to justify a stock price decline of over 40% in the past year, in my view. Overall, the quarter showed continued consistency in the cash flow, which is enough to support the dividend of $0.29 a quarter.

The company is also starting to buy back shares at attractive prices in my view. For the quarter, the press release says, "Repurchased ~400,000 shares in 2024 for £3.9 million ($5 million) at an average of £9.74/share", which translates to about $12.38. Management seems to know that their stock is undervalued and is putting money where their mouth is with their buybacks.

Debt is heading the right way, down "~20% (~$309 million) compared to Q1 2023". With these fundamentals heading the right direction, I am surprised that the stock trades so low. With strong cash flows, repurchases and dividends, production holding tight, I question whether the market is pricing this one correctly.

CEO Rusty Huston commented in the press release, "I am pleased that our ongoing focus on cost reduction opportunities has translated directly into a 7% sequential quarterly operating cost improvement, allowing us to effectively navigate the current natural gas market headwinds". Given natural gas trades at around 5 year lows, I am surprised to see the business hold up pretty well. Their cost reduction and hedges seem to be working, with free cash flow of $74 million a quarter could translate into $200+ million of free cash flow for 2024. Management seems to be keen on continuing buybacks, so I feel confident that this quarter demonstrates the fundamental story behind Diversified Energy is still intact.

Hedges Outweigh Low Natural Gas Prices

A key reason why I think this stock is misunderstood is because people may think it sells natural gas and therefore will struggle given low natural gas prices. Henry Hub shows a significant decline in price, from as high as $9 in 2022 to below $3 today.

Google Finance

However, after reviewing their financials and investor presentation, I am surprised to see that management has intelligently hedged for this risk and still churns out steady cash. According to their presentation, 85% of their production of natural gas is hedged at prices that are favorable for shareholders. The hedged benchmark price is enough for the company to still be operationally profitable and gush free

Behind Paywall but managed to get to it

Part 1

Diversified Energy Company: Cheap

Summary

Diversified Energy Company stock has been undervalued due to pessimism, despite consistent cash flow and strong adjusted EBITDA.

The company owns wells in the Appalachian Basin and focuses on acquiring existing long-life producing wells.

Q1 earnings showed solid cash flow, buybacks at attractive prices, and decreasing debt, suggesting the stock is mispriced.

Shares are a buy with a price target of at least $20.

SimonSkafar

Investment Thesis

Diversified Energy Company (OTCQX:DEC) has been an underperformer for the past year, down significantly and approaching a rock bottom valuation. Given the consistent cash flow from operations the company has, I find this pessimism to be unwarranted and think the stock is undervalued. Free cash flow and adjusted EBITDA continue to perform quite well in my view, leading me to believe the market does not appreciate the fundamental improvement of the company. With a prudent hedging program and solid operational results, I think the stock is a buy.

Company Overview

Diversified Energy Company is "an independent energy company engaged in the production, marketing, transportation and retirement of primarily natural gas and natural gas liquids related to its U.S. onshore upstream and midstream assets" according to its website. Basically, they own a bunch of wells and other oil and natural gas producing assets that generate steady cash flows for investors.

They focus on "acquiring existing long-life, low decline producing wells" and "do not actively engage in large-scale, capital-intensive drilling and development programs that seek to capture short-term high production and revenue". Therefore, the cash flows are relatively stable as those wells sit there and produce natural gas at prices that are hedged with contracts purchased by management.

The company owns wells and operates in the Appalachian Basin, with 141 mboepd average daily production and 842 MMboe proved reserves, according to its website. Long term, I think this is attractive as the country still uses fossil fuels to power electricity, so my belief is that production rates should increase as the company continues to strategically acquire more wells.

Website

It is rather interesting to see a company with $2.6 billion in acquisitions trade at a market cap of below $1 billion. I got interested after seeing this discrepancy and wanted to see if the stock was undervalued, or if these acquisitions were truly disastrous and thus deserved a markdown. To my surprise, since the IPO, cash flows have increased from $87 million in 2018 to $410 million for TTM. The stock is now reaching all-time lows, which leads me to believe there's some mispricing here.

Savage_KeyboardR

"btw please take the vile Tory Ideological trash with you on making your exit"

Don't know about that but I will take all assets and the tax I am currently paying in UK (for very little). When I talked to the estate agents about selling up and moving abroad they said they have a quite number of people with large properties doing the same thing. Hope the increase tax bill you will get will make you as happy as you are to get rid of the so called Tories.

Trisor

IMO there is no chance Labour will not be in government on 5th July, this lot have mess everything up and p****d off their core support. The worst thing they have done is given Labour an easy ride into government, get ready for Ed Miliband, Angela Rayner, Dawn Butler, David Lammy etc.

It is also not the future I want which is why I have been putting plans into place the leave the UK, pity I can't leave for a time.

Yep, Keir's wife measuring up for new curtains at for 10.

Look forward nationalisation, more government workers, more North Sea taxes so NS shutting down, more expensive green energy with more and higher taxes for all of us along with the state, WEF, WHO, WTO, EU etc being brought more into our lives. Not much to look forward to except getting rid of the a useless and unelected PM and his cronies.

Yep, Keir's wife measuring up for new curtains at no 10.

Look forward to TW tax loses gone, more NS taxes so NS shutting down, more expensive green energy with more and higher taxes for all of us along with WEF, WHO, WTO, EU etc being brought more into our lives. Not much to look forward to except getting rid of the a useless and unelected PM and his cronies.

Up a little, Numerco 91.00/92.25

Savage_KeyboardR why are you here on a board for a company you clearly have no interest of investing in? why not spend you time on the BT board and not spend it telling everyone what a good purchase you made on the CPI board.

I investigate many shares but if I decide not for me I move on and don't go on their chat board flooding it with negative messages.

I am a long suffering shareholder of CPI and a very long time critic of JL even when it meant I got a lot of flake for my comments but I have skin in the game and I am now happy that CPI is being run as it should have been for the last 6+ years. CPI is at the start of a turn around, as the Eagles say "We may lose we may win but we’ll never be here again", only time will tell.

I have many other investments like BT but would not put any more cash into it as my investments are targeted at Uranium (Including CCJ), Gold (which I trade a bit), Glencore and a number of O&G companies that are doing very well (much better than BT) but I do not go on the BT, CPI boards telling everyone they are making mistakes and telling them how well my other investments are doing.

Please give it a rest.

"Labour 'plans' are simply destructive and based on a complete lack of understanding of business"

So what's new

Notrex

I understand and obviously know that there may be more going on, perhaps an unknown unknown or is it a known unknown now. Usually when something changes there a reason and it is not just PP saying this as I have seen this said by someone elsewhere who has been looking at the data for a time. It may well be that is was a one off and it will come into line next week. Be interested in others opinions if it does not come back into line.

"Perhaps things are a little more complex than your simplified explanation for SP falls."

Not a simple explanation just noting that after DEC SP has been following the HH price for a time it has now deviated, any ideas what complication caused the change?

Numenco up a little 90.75/91.75 and Cameco flying at $53 sold just under half my shares at $53.15 but hoping to get back in next week if it goes down.

Not such a good day HH now up +5.53% to 2.633 but DEC down in London and NY, for now the link between HH and DE SP has been broken but there is always next week.

Caught out by the spelling chequer

Yep UK in big trouble, useless and downright dangerous Politicians voted in by an ill-informed electorate. I am probably stuck here for a few more years and then I am off if all goes well, been do a lot of research and some traveling to find a good place to live.

Notrex

Take a look at U2O8, bit high at present but I have made a lot more on this than I have with Gold. Not advice just saying.

Yep UK in big trouble, useless and downright dangerous Positions voted in by an ill-informed electorate. I am probably stuck her for a few more years and then I am off if all goes well, been do a lot of research and some traveling to find a good place to live.

The cause of the energy problem is this government and the next Labour government. They pander to green ideology and political pressure without the cash to support these causes. EPL is a typical example, it forces many O&G companies to quit or reduce operation in the NS, great for green dreams but very bad for the UK, this was applied after a lot of pressure from Labour. Also with Labours proposed changes to EPL some projects will be over 100% tax due to not be able to offset all costs (from Harbour). Also lack of support and tax has caused green companies like TRIG and GSF to stop expansion in the UK and in TRIGs case sell some UK assets. In the UK we are sittings on lots of O&G but will import most of what is used.

In truth we can’t afford green dreams and EPL although giving a short tax grab will reduce overall tax take and UK jobs and then add in ceramics, steel etc quitting the UK. The worst of it is this will not improve World CO2 production as these industries are exported to part of the World where CO2 rules are a lot easier or nonexistent and goods then have to moved around the World to the UK. Also the UK is not setup to produce electric cars partly due to the cost of producing the batteries in the UK so after 2030 when the number of new petrol and diesel cars are restricted and banned in 2035 we will see a collapse in the UK car manufacturing as China takes over.

There is a high chance Nuclear will be held back due to lack of Uranium in the western world, we have just lost Niger's Uranium to Russia, banned Russian Uranium, a lot of Kazakhstan production is going to China where it is being stockpiled. Also there is a lack of enrichment facilities in the West. Both new Uranium mines and enrichment facilities take many years to come on stream (10 years often mentioned). Cameco has said it will not increase production until there are term contract in place which no doubt will come but will add to delays. This was caused by green pressure (now gone) against nuclear energy (so companies like Cameco do not want to be caught out again) and Russian sanctions; Russia has roughly 44% of the world's uranium enrichment capacity and has/or controls a lot of the Worlds Uranium mines.

Take a look at how well Glencore are doing partly because it is increasing it's coal production and may well buy AA's coal business on top of Techs acquisition. Glencore my best performing share.

Pickedpeck

Some background/ facts

The price per kilowatt hour 0.27 in the UK compared to 0.15 in US.

I take it you not been reading the news on industries like ceramics, from the Independent

"Factories face temporary closures within weeks over spiralling energy costs, industry warns"

See also Cost of Energy: Ceramics Sector

https://hansard.parliament.uk/commons/2023-01-17/debates/EE144643-2287-4973-9388-C6057EBA793E/CostOfEnergyCeramicsSector

“If you go green with wind farms and solar you need the same amount of backup generation lying ideal a lot of the time but still costing money.”

Simple fact, where do you think the electricity come from when the wind does not blow and sun does not shine.

“Backup or quick start generators cost a lot more to run than generators that run 24/7.”

Simple fact, look it up, I spent some time working at CEGB and this was always being said.

The cost per KW is still very high (referring to battery backup), doubling the cost of the renewable source attached (which is also more expensive than fossil fuels)

https://www.adexcop.com/opinion/5-reasons-why-grid-scale-energy-storage-might-be-missing/

“Anticyclones in the UK in the winter cause little or no wind energy”

This is a fact as you should know as we had this in the last few years and was reported on at the time.

“UK cannot cope at president with power usage when there is low green output,”

This is fact consumers are being paid to reduce demand in certain period and plans to put full demand driven pricing in place, have you not seen this, why else is this happening.

Some facts

The UK due to high use of green energy is one of the most expensive counties in the world for energy, US is far lower.

Most (virtually all) of high energy industries have left the UK taking jobs and profits with them.

This accounts for the reduction in energy use in the UK.

If you go green with wind farms and solar you need the same amount of backup generation lying ideal a lot of the time but still costing money.

Backup or quick start generators cost a lot more to run than generators that run 24/7.

Battery backup costs a lot more than generating the electricity.

Battery backup only last a short period of time

Anticyclones in the UK in the winter cause little or no wind energy when solar is low but produce cold temperatures for weeks at a time increasing power usage to yearly peaks.

UK cannot cope at president with power usage when there is low green output, consumers being paid to reduce demand and plans to put full demand driven pricing in place.

Also partly related the EPL (windfall tax) is causing most/all North Sea Oil companies to reduce production and a lot are quitting the UK. Shell is probably going drop London to list in NY in the next few years with BP to follow due to ESG pressures in UK.

A little off topic

Nuclear energy is the new growth area which is why I have been buying Uranium (mention here a few times) as there is structural shortage by investing in YCA and the whole nuclear cycle by investing in Cameco.

However gas in the world as whole is and the US here for a long time, Europe can bankrupt itself on green energy as all the jobs and money go elsewhere.

Https://finance.yahoo.com/news/us-offer-3-4-billion-194826989.html