Member Info for TheTrotsky

Somebody appears to have sold c37m shares (c4% of the issued share capital) this morning. That's a big chunk of shares to sell and would appear to narrow down the seller to one of Rathbones, FIL, Valu-Trac and West Yorkshire Pension Fund.

Ace, Since when was circa eight months ago ever "a couple of weeks ago"? Did you mean "a few weeks ago"? Even that would be a linguistic stretch!

I have always been consistent with my views about directors selling (in any company); I see no issue with directors selling as long as they continue to keep some significant "skin in the game". Even a barely competent investment advisor will always tell you to diversify your wealth. Why should directors be treated differently? Why do investors always think that directors should never, ever sell and hold on to the bitter end, when they themselves (if they are sensible) always try to ensure that they don't have all of their eggs in one basket?

BGC has sold but he has also increased his holding at the same time; he hasn't sold and fled the ship as you imply.

Billynm, The BOD seems to be unable to put together any cogent response to the current questions being raised. In your last post you made a very good point about comparing "apples and pears" with reference to the discrepancy between the $25k per well cost of capping DEC's own wells and the $125k per well cost of capping third party wells. You put forward a logical explanation which DEC singulalry failed to use in its rebuttal.

IMHO there's definitely smoke (I do suspect that they've under estimated their future plugging costs) but I'm still not 100% certain there's a fire (the under estimate may not be fundamental). However, what's clear to me is that, if you have failed to placate market concerns, simply repeating what you've said previously doesn't cut the mustard. DEC is in a pickle.

Did they or are they just "top-slicing" (what's good for the bull is also good for the bear). As the share price continues to fall the value of their short position increases and it stands to reason that they'd want to realise some of their profits.

Ace, You are (as usual) being disingenuous. Bradley Grafton Gray has been, in the main, immediately selling shares after the exercise of options (which are pseudo-remuneration) and, between May 2021 and May 2023 (his last share sale; about 8 months ago actually), the number of shares he held still increased from 1.67m to 2.92m (despite his sales)! If you are going to spread disinformation at least get your facts right!

Hi Luther. That's quite strange. I've had similar occur with my spread betting account before; then it was because SpreadEx were (temporarily) unable to find a counterparty to accept my proposed trade. Given that the DEC sp has been falling you'd have thought that FT would have had more difficulty finding a counterparty willing to buy rather than sell. If it doesn't "fix" I'd suggest that tou ring FT to find out what's going on.

GG, you highlighted issues without any evidence and still haven't got any evidence to support most of your claims. You may be proven right in the long run but, without evidence, your claims ring hollow in the meantime. As regards your fraud claim, I struggle to see what benefit Rusty has obtained. His shares certainly generate a hefty annual income but its a lot effort for fairly meagre returns (hardly Bankman-Fried).

Unhooked, I have been tracking Saietta at a distance since late March last year when the sp jumped from c21p to c70p over a period of a few weeks and thought I'd missed the boat (since which the sp has continued to slide). Still looks an interesting prospect but its cash position remains perilous; it raised enough cash at the end of November to see it through to the end of March 2024 but it now needs to deliver on those promised contracts (one assumes that if those contracts do materialise it'll have to come back to the market again to fund its working capital requirements albeit the next fundraising might be above 17p if the contracts are material).

I also had a look at Digital 9 in the middle of last year and decided that it was best avoided like the plague despite it being tipped by Ian Cowie, the ST columnist; at the time the dividend looked very attractive but when you had a rummage around you realised that it had a committed capital spend of c£500m-£1bn over the next 12 months, little or no cash and liitle or no prospect of borrowing or raising the cash (it was already highly leveraged). Since then it's had to sell Verne Global, one of its prize assets. Unless, and until, Digital 9 can raise additional cash and improve its capital base, it looks very sketchy (it was a huge mistake on its part to expand using borrowed cash) even if the industry sector looks very promising.

I'd say be wary of filters. You can always skip someone's post if you don't care for their comments but sometimes they can surprise e.g. I think it was GG (with much gloating) who flagged the letter from the congressional sub-committee to DEC. It took DEC another 24 hours to acknowledge the letter (after the share price slid the following day); if I'd been more awake to the sp implications (the market had not, as I mistakenly thought, been aware beforehand) I might have saved myself a few £thousand!

GG, You actually read someone's post rather than responding to what you thought they said. That's a first ;-)

GG, You're being obtuse again. The reference to 50+ years comes from DEC's accounts, as you well know. I also pointed out that, without new wells, production would correspondingly fall as an inevitable consquence of the gush to trickle over the lifetime of the well. In principle it might take hundreds of years for a well to become fully depleted, if ever, but they cease to be economic to run and maintain long before they become fully depleted (hence the need for plugging). I'm not conjuring up new recoverable reserves out of thin air (as production rates fall, recoverable reserves last longer all other factors being equal) nor is this unique to DEC. VistaMan's comment was equally valid, if one assumes constant production rates.

Scrwal, That's not how IFRS works. As you said yourself, DEC has only provided for c25% of its ARO costs to date and you can't conjure up the remaining c75% from thin air by simply amortising your existing provision. The ARO costs are not an asset to be depreciated/amortised over their expected lifetime. Under IFRS, you estimate your future ARO costs, discount them to present value and then "unwind the discount" over the relevant period. Each year you repeat the exercise and deduct any costs incurred during the year from your provision.

In simplistic terms, and assuming that you incurred all of your plugging costs at the end, if your estimated plugging costs were (say) £1bn in ten years time and the present value of those costs was currently (say) £370m, you'd charge the P&L with £370m in year 1 and then charge the P&L with (say) £70m each year between years 2 and 10 (under IFRS, this is termed as unwinding the discount) all other factors remaining equal. You'd then offest your £1bn of plugging costs against your £1bn provision in year 10. Under the old accounting rules you'd progressively build the provision each year over its lifetime; so in our example you'd have charged the P&L with £100m each year between years 1 and 10. IFRS prefers to kitchen sink it from the start; so there tends to be a mismatch between income arising and expense being recognised.

Simplyme, Ignore GG, he seems to have an axe to grind with everyone these days.

It would seem that you are looking at the implications of investing outside an ISA or a SIPP. The current dividend (following consolidation) is now $3.50 per share or c£2.76 at the current exchange rate so, if the share price did fall by 10% per annum as you suggest (not forgetting that it's fallen by c10% today!) then, in theory, you'd have a capital loss of (say) £1 per share (based on tonight's closing price of £10 per share) and receive net income of c£1.93 per share after withholding tax (WHT) at 30%. For income tax purposes you'd declare gross income of c£2.76 per share. Higher rate tax payers (40%) currently pay 33.75% tax on their dividend income, so you'd be liable for c93p of UK tax per share against which you'd be able to offset the US WHT of c83p per share, leaving you with an additional c10p per share to pay i.e. your net income after UK tax would be c£1.83 per share. Assuming that you can't use the capital loss of £1 per share, that would give you net income of c83p per share. Hope that helps.

Of course it's not that simple in reality (if only it was). DEC's existing reserves will not be depleted over 12 years (indeed they are projecting their existing reserves to remain economically viable for at least the next 50 years+). In principle the reserves decline on a reducing balance, rather than a straight line, basis. It's my understanding that wells start with a gush and end with a trickle over their lifetime (as the natural pressure within the well reduces). If DEC doesn't purchase any more wells then, in theory, the depletion rate of its wells will slow over time as the flow and production rates decline correspondingly. I believe that a lot of DEC's operational wells are "nodding donkeys" so measures to increase flow rates may be limited. If my understanding is incorrect, I apologise.

Billynm, Why don't you tell Oak Bloke that?! He's the one positively sallivating at all the extra profits DEC are raking in from charging 5x its own costs! Just check out his latest post where he's suggests that the extra c$36m of profits DEC will have made in the six months ending 30 June 2023 is just another reason why the writers of the Ohio River Valley Institute report not having a clue what they are talking about (he may be correct in that assertion for other reasons).

You make a very interesting, cogent point but would you care to advise where you got that information from and why DEC didn't refer to this once in its rebuttal letter (I've checked and there is no reference to "horizontal wells")? Clearly DEC didn't think it was relevant to point it out to the members of the congressional sub-committee. Seems odd to me (bonkers in fact).

I'm not disputing what you're saying is correct. I'm just questioning why DEC didn't think that it was pertinent to mention it in their rebuttal letter or address the fact that it's average plugging costs in the six months ending 30 June 2023 were 19% higher than their ARO estimate ($25k vs $21k) or that they appear to be making no internal plant recharges. I accept that none of this proves the Ohio River Valley Institute assertions (I've already said that their stated figure seems a bit bizarre, in as much that it doesn't appear to be an estimate of DEC's average plugging costs albeit that's how it's oft quoted) but IMHO DEC is currently doing a really bad job of refuting their claims in the public domain.

PS. I'm happy to accept any rational explanation to bridge the gap between the $25m and the $125m. The supposed profit margin didn't make any economic sense. However, I do think that DEC's average plugging cost estimates are beginning to look a bit light unless it can exact significant economies of scale in the future e.g. if it can reduce the amount of downtime for crews travelling between different wells and thereby increase the average number of wells plugged per week, all other costs being equal.

Clued, Mea culpa. I forgot to multiply Rusty's dividends by 20 following the consolidation. Should have read c$4.56m not $211k per annum. Perhaps he is Rockerfeller after all ;-)

GG, Don't be a P R A T all your life. I referenced the four (presumably) Democrats because of previous posts labelling them simply as trouble makers. I've already said in previous posts that the problem won't (or shouldn't) just go away simply because DEC has regurgitated in its rebuttal letter information that was, for the most part, already in the public domain. Actually, read what I posted!

The EPA is a bit of a red herring, in as much that it potentially effects all producers, not just DEC and, as you will no doubt be aware if you've actually read the EQT case, the plaintiffs have dropped the methane emissions from their case. I'm sure that you are going to tell us otherwise but DEC does appear to have made real strides to reduce its methane emissions. There are always background emissions and, in Appalachia in particular, it's often difficult to distinguish between normal background levels and man-made emissions. I think the EPA will want to see producers make real efforts to monitor all of their wells on a regular basis (which DEC had certainly improved) and will then monitor levels over and above current, agreed base levels.

Blackrocktrader, VistaMan estimates that the current annual interest charge is c$950m (about 6.1% of its $1.56bn debt). He's suggesting that after allowing for normal repayments plus the $200 from the assets sales, the debt should fall to circa $1.22bn and that the interest might therefore be expected to fall proportionally to c$740 i.e. 1.22/1.56 x $950m (I think he's rounded the interest figure down a bit on the assumption that DEC is likely to try and repay its more expensive debt first)

Hi Clued, I sold in mid-December after the congress debacle (I call it a debacle because there was no prior warning from DEC and then only decided to notify shareholders late in the following day's trading after the share price had already collapsed - UK shareholders were left completely in the dark about what was happening). Now I watch with interest from the sidelines.

I'm trying to be even handed in my comments (I'm still in truth on the fence). I'll admit that part of me wants the share price to collapse if only to justify me selling at a low five figure loss (too often I've hung on to shares believing the directors, only to be proven wrong; it would be nice to be right just for once) but, on the other hand, if I've got it wrong, I'm big enough to admit it.

Do I honestly believe that Rusty is trying to pull off a fraud? If I'm honest, I struggle to see how Rusty benefits. He currently owns c1.2m shares and earns about $211k a year in dividends; hardly Rockerfeller. On the other hand, the questions being raised by the EQT case and the four (presumably) Democratic members of the congressional sub-committee aren't going away. The rebuttal, in my view, didn't do enough to quell concerns about DEC's provisioning for its ARO or the fact that DEC hasn't (as far as I'm aware) revised its projections in the event that gas usage might fall off a cliff from 2050 onwards (some may consider this unlikely but it would be useful to know the potential downside scenario given the continued pressure to redice CO2 emissions and reach net zero - don't forget that DEC can't significantly increase its production and if gas usage is phased out by 2050, or shortly thereafter, there is the risk that DEC will be left with untapped reserves).

I appreciate that a lot of DEC shareholders think its great that DEC earns, potentially, 5x cost from plugging third party wells but IMHO it tends to raise more awkward questions than it answers, particularly when you consider that DEC has not yet as yet been able to leverage any particular economies of scale within its own operations. As I've said before, it might be better if DEC is found guilty of profiteering rather than having to explain why its own plugging costs are so low.

One point in the rebuttal did cause me to raise my eyebrows a bit and question whether plugging costs were being properly allocated i.e. the reference to DEC's ability to use of its own earth moving/construction equipment on its own wells. DEC only plugged six of its own wells in the period, so why would it be buying such plant if it wasn't using it on third party wells too? The implication seemed to be that the plant was being diverted from use elsewhere in its existing operations at little, or no, additional cost. However, in the future, as its production winds down and its plugging increases its going to need to source this plant just for plugging; it's not a negligible future cost. Again, more questions than answers.

Scrwal, Also, acoording to MarketScreener, "Investec maintains their buy recommendation and raises the target price from GBX 160 to GBX 1300". I suspect the original GBX 160 target price was pre-consolidation i.e. GBX 3200 in "new money"; so I can see why some would say it's a downgrade. That said, they're still recommending to buy despite the falls!

About sums up my views of brokers; they're generally as clueless as the rest of us! Methinks Investec are still looking at the accounting "fundamentals" and ignoring the less tangible headwinds. Either DEC is a complete bust (if plugging costs are $125k per well then it's a baskect case) or it's the bargain of the century with little or nothing in between.; you might get better odds on two-up today ;-)

Scrwal, I may be wrong but I think the provision works the "other way round" so to speak; it unwinds over time. In principle they're supposed to estimate their future costs, discount them to present value and then unwind the discount.

GG hasn't provided a shred of financial evidence to support his claims that DEC has been buying gas in the open market to meet production shortfalls (the hedging loss in 2022 proved nothing) but he did flag (unlike DEC) the congressional request for additional information. Likewise, from what I've read to date, the Ohio River Valley Institute's report on DEC does seem to be a bit flimsy; all of the Institute's analysis seems to be based on opinions expressed by external oil analysts who have had no access to DEC's own data and the Institute's estimate of DEC's plugging costs ($125k per well) doesn't appear to be based on average cost (costs per well vary depending on depth, fracking, geology etc) but rather an upper estimate.

That said, the Oak Bloke's analysis also leaves a lot to be desired too. DEC has not, as he suggests, set aside $445m to cover their asset retirement obligation (ARO). DEC may have provided for part of its ARO but it hasn't put any amount into escrow to cover its ARO, as "set aside" might suggest. He also seems to consider DEC's own estimated plugging cost ($21k per well) to be a "sacroscant" figure. It's not. Firstly, it's an estimate of the present value of DEC's future plugging costs per well. Secondly, he seems to have ignored the new "elephant in the room"; in 2022, the average cost of DEC plugging its own wells (per their rebuttal letter) were, supposedly, $25k. They are already spending more plugging their own wells than they are providing! The difference in absolute terms may not be significnant but it does represent c19% more than they are currently providing per well. The wells they plugged in 2022 may not be representative but DEC was using the $25k figure to justify why the $125k figure was excessive. I'd agree that with Oak Bloke's comments on the hedging cost up to a point; personally, I tried to do a "back of f a g packet" calculation of DEC's future theoretical losses (based on their disclosed future average hedges and the Henry Hub spot price on at the end of December 2022 as best as I could judge) a few weeks back and my estimate was very short of the mark (I'd accept that my calculations were very rough and ready and might have overlooked something but they weren't even in the same ball park; my figures indicated a much smaller future theoretical loss than that disclosed in the 2022 accouunts). Perhaps somebody else might like to repeat the exercise. Finally, the Oak Bloke's comments on bidding for external plugging contracts just defy economic logic. If DEC is able to charge 5x cost then either the economic model as we know it is broken or the market should be flooded with new plugging contractors (it's simple supply and demand; when demand exceeds supply and pushes up prices then new supply should come into the market to get the price back to equilibrium). An 80% profit margin is indeed very nice if you can get it but, without significant barriers to entry, should rarely, if ever, occur.