Member Info for TheTrotsky

"All of my other O/G holdings are significantly up since January 1, DEC has declined ~30%". Are they producers, prospectors or mixed? A chalk and cheese comparison.

"The evidence has been provided and is very tangible. The DEC accounts disclose the huge amounts of cash foregone by DEC’s derivative trading; they also disclose the declining cash flow at the operating production level". DEC have always set out their hedging policy clearly. The one year that the spot price goes crazy and everybody cries wolf! Without the benefit of a crystal ball or hindsight, DEC was in no position to predict what the spot price was going to be in 2022 when it started building up its hedge position 4-5 years ago. Yes, DEC did forego c$900m of revenues but if the spot price had fallen through the floor DEC could just as easily have gained $900m. You can't cherry pick. You have to take the rough with the smooth. I disagree with your comments about the cash flow. Under IFRS working capital adjustments are included in operating cash flow and, as a result, there can be significant cash flow swings from one period to the next depending on the timing of trade receipts/payments (between 1H21 and 1H22 there is a circa $200m swing). Also, it should be noted that in FY22 DEC paid $134m in hedge modifications (about $124m more than FY21) "... primarily assocated with elevating the Group’s weighted average hedge floor to take advantage of the high price environment experienced in 2022 over a longer term ..." (Note 14). I.e. DEC paid to modify existing future hedge contracts to take advantage of the higher spot price in FY22 and thus secure higher prospective revenues in future years (the cost, but not the revenues, being recognised in FY22).

"I have never seen such disproportionate hedging originated value destruction as has been disclosed by DEC; well Enron maybe". Firstly, DEC is a mid-sized producer with no downstream investments (refining, processing, retailing etc. - like BP, Shell etc - which might enable it to offset any potential production losses). DEC is wholly reliant on its production revenues and, as such, I don't believe its hedging is so disproportionate to its direct competitors in the US domestic market. As for Enron, that's utter garbage. Enron did not only hedge its own production, it also entered into "naked" hedging and commodity trading. There is absolutely no evidence to suggest that DEC is hedging anything more than its own production other than idle speculation and hearsay.

Also the share price is fairly irrelevant in the short-term. The fact that the share price is currently languishing at 50% of NAV is more a reflection of investor concern. I'm not saying that the concern is necessarily unwarranted but simply because the "herd" is selling doesn't mean that the "herd" is right. In the real world a herd might flee from lions only to find themselves being devoured by crocodiles.

0715, Nobody really knows for certain how interest rates will perform over the next 15 months but there are predictions out there that suggest rates might fall by up to 1%, or more, next year. You could even see some fixed rates falling below base rate if the longer term trend is seen as falling further. Whether rates will go up another 0.25% this year; my best guess would be 50:50. I think that the government's energy support grants in the UK have rather scewed our inflation (inflation in the UK didn't rise quite as fast as it might have done and, likewise, didn't fall quite as fast because of the government intervention and it's rather messed up some of the predictions to date). I think the BofE was right to pause until more data is available on inflation, wage inflation etc. The BofE has also got to factor in the impact of its own fiscal tightening (reducing the bonds on its balance sheet); that coupled with further interest rate rises could tip the economy into recession. It's become a balancing act now and nothing is certain.

As regards NAV continuing to fall at 2-3% per annum, I think that needs further justification on your part (just because the base rate might remain relatively static for the next 12-15 months does not automatically mean the NAV will contnue to tumble month after month). As Inglis indicated in his presentation, rents are rising (it's not just down to falling NAVs) and will continue to do so as rents are progressively adjusted upwrds for recent inflationry rises; so it's not all one way traffic.

We're all agreed that Inglis has got to do the ground work but selling property in the current market (particularly large ticket properties) is going to be difficult and will take time (in similar circumstances unit trusts would probably close the funds to withdrawals). The indicators are that there is still demand for office space, certainly in the regional markets, as distinct from London. There does not appear to be a glut of surplus office space and also you've got to factor in replacement cost.

My view certainly isn't rose tinted. It's based on the fact that property markets have always moved in cycles and hindsight often shows that markets bottom out long before anyone realises (often when things look the bleakest). I'm not suggesting that Inglis should be second guessing the market; he's got to find tangible evidence but a large ticket sale will probably take time to come to fruition.

0715, I think the likelihood that RGL will sell £150m of properties in the stated timeframe is, currently, unlikely. It's a two-edged sword; RGL is unlikley to be able to realise £150m from just selling properties in the range up to £10m and is going to struggle to sell properties worth more than £10m (and get asking price) if commercial interest rates remain at, or above, current levels. We should not forget that the need to sell is currently being driven by falling market valuations but if interest rates start to fall, as currently predicted, from early next year then we ought to start seeing a commensurate improvement in market valuations and a corresponding reduction in LTVs.

At the moment we have a case of the tail wagging the dog. REITs, because of gearing, tend to underperform markets when property prices are falling and outperform markets when property prices are rising. Selling properties just when the market starts to recover could prove foolhardy, especially if the only rationale for selling the properties is to meet investors current short-term concerns.

Inglis is walking a tightrope at the moment. He needs to ensure that RGL does not break any of it existing covenants and needs to lay the groundwork in preparation to sell if forced. At the moment RGL is meeting its interest costs and the only reason to sell is investor sentiment. Investors are currently panicking and clamouring for short-term sales but that might not be the right long-term strategy. It's a watching brief. Clearly selling properties which are no longer even covering their interest costs (like the recent sales) makes sense but a wholesale clear out may not. Inglis needs to be prepared to sell but that doesn't mean that he should necessarily execute if (hopefully) markets do start to improve later this year, beginning of next year. In the meantime, we will probably see more opportunistic sales of small properties where appropriate.

I wouldn't be surprised if property sales fall short of the £150m if interest rates start to fall next year. In the longer term I think RGL needs to do a capital raising (that's not currently a prospect with the share price languishing at a significant discount to NAV). It's clear that RGL has too much debt and, property sales aside, the best way to resolve that would be to raise fresh capital.

I would suggest the fact that you can currently get a risk free return of c6% compared to less than 3% 12 months ago has played a part.

Some people have been pontiifcating about DEC's risky derivative trading and production issues without providing any tangible evidence. Derivatives are a broad church and comparisons with Enron (which traded naked derivatives) are, IMHO, just scaremongering (it's the "no smoke without fire argument"; the share price has dropped so there must be a problem even if we can find no evidence to that effect).

People seem to be ignoring the fact that the whole UK market (and much of the US market if you ignore the FAANGs) is in turmoil and has been for, at least, the last 18 months.

Hedging was around long before the term "derivative" ever became mainstream and is the backbone of the oil/gas and farming industries (amongst others) but some people are now bandying it around like it's a dirty word because it's now termed to be a derivative type contract (and we know ALL derivatives are bad - they're not, but that's become the public perception since the 2008 financial crisis). Derivatives is simply an umbrella term for complex financial securities - it does not mean that all of these products serve the same purpose or share the same risks.

IFRS accounting is not helping matters either with its "kitchen sink" philosophy of hitting the P&L with every potential liability, however remote (it's a benefit adverse form of accounting and takes no account of probability). DEC's accounts have taken a pummelling from IFRS.

The only known risk that everybody can agree upon is the cost of capping DEC's wells. The capping costs remain disputed but they do tend to act as a bit of a deadweight on DEC's share price and, if DEC has significantly under-estimated the costs, could have a material impact on DEC's value.

** accelerate ** Doh!

It's not the store roll-out that's the real problem. It's the lack of franchisees that's really been holding DPP back. Unlike DPUK, most of DPP's stores are corporate (c93% at 31 December 2022) and this has hampered its growth. There isn't a franchise culture in Poland and, outside of Warsaw, I don't believe DPP has any sub-franchised stores. However, DPP has now got to a size where rolling out half a dozen new corporate stores each year should be sustainable from its existing resources. I think the addressable market in Poland is probably c250-300 stores and, ideally, DPP should be looking to try and sub-franchise half its existing corporate stores over the next few years so that it can excelerate its growth.

PHNX has brought a 5% interest in Hambro Perks. PHNX's investment is not large enough to have any undue influence on the day to day management and would not have given the CEO any cause to leave and/or had any bearing on the decision. It's just a coincidence.

"Markets directionless in wake of central bank decisions".

The opening market bulletin on LSE today about sums it up!

It reminds me of the song I'm H-A-P-P-Y from Only When I Laugh (I know I am, I'm sure I am, I'm H-A-P-P-Y) ;-)

The market is constantly flip flopping from a glass half full to a glass half empty. One minute it's screaming for interest rates to stop rising and, when they do, it starts asking "Who are they kidding?"! It seems that these days the markets just can't get any satisfaction ;-)

GG, Rusty sold 2 million shares thus realising £2.76m before taxes. Not to be sniffed at but hardly enough to warrant the level of malfeasance you are suggesting.

As regards, the Share Offering, companies can't win. They don't offer it to retail investors; they get slammed. They do offer it to retail investors; they get slammed 9after the event if the price subsequently falls). It's called caveat emptor! Investments can go up and down in value; there is no absolute guarantee. Hindsight is a wonderful thing!

I've offered you a smoking gun (capping costs) which is a known and disputed issue. You, instead, are making massive leaps without any shread of evidence. Can I produce the receipts from Nymex of the gas physically sold through the Henry Hub to show how much was pumped from DEC's wells last year? No, I can't but I would expect the auditors to review such records as part of their regulatory audit work and analytical review.

"... The thing is, DEC isn't producing the amounts of gas it says it is ..."

GG, You are making a very bold assertion but have provided no actual evidence (that I've read) to back up your claim.

IFRS accounting plays havoc with DEC's accounting disclosures. The opacity, or not, of DEC's accounts isn't down to DEC; it's down to IFRS. DEC goes to extraordinary lengths, and into extraordinary detail, to try and explain the figures because IFRS makes such a pig's ear it. DEC is damned if it does and damned if it doesn't. Too little detail and the accounts become unintelligible. Too much detail and one begins to question whether they've got something to hide. I understand. I get it. I'm sure that DEC would dump IFRS tomorrow if it could and revert to the old accounting rules. Under the old accounting rules DEC would be showing a profit each and every year. The potential future liabilities if DEC was unable to meet its production quotas would instead be relegated to the notes to the accounts; disclosed but not booked as if they'd already happened or were a foregone conclusion.

It's my understanding that wells don't just stop producing; they steadily decline until their output becomes uneconomic to collect (albeit that economies of scale may mean that the production point at which a well becomes uneconomic may have fallen). I accept that the actions taken by DEC to increase production may not lead to increases in proven/probable reserves but, unlike Saudia Arabia (whose supposed proven/probable reserves haven't fallen one iota for decades), DEC does show its reserves falling. Yes, certain assumptions are made based on past experience, accumulated knowledge and industry best practise because no oil/gas production company can accurately guage how much oil/gas actually remains in the ground; it's not like dipping a tank in a petrol station (and yes that can be rigged too). DEC builds its future hedges over a number of years, e.g. hegdes for 2025 have building steadily over the last 4-5 years, to allow for unexpected declines/new acquisitions and, even then, DEC isn't usually fully hedged (there's usually c10% headroom). Furthermore, DEC has expended money in new well head equipment to marginally reduce gas outflows (c10% if I recollect) when market conditions are unfavourable; those aren't the actions of a company that's short of production volumes (it might however give DEC the opportunity to buy on-market in the event that the spot price falls below its hedge price to meet its production quotas, at a profit, and preserve its own reserves; managing its reserves in such a manner would only be prudent).

Gg, I repeat, where are the (large) on-market purchases you suggest they've made being booked. Please point ou the figure in the accounts.

Sorry Gavster, I failed to read the whole of your reply. I saw the $1.8bn figure you quoted and assumed, mistakenly, that you were suggesting that they'd bought this amount of gas on-market (which appeared a completely ludicrous suggestion). Mea culpa

Gg, Their production costs have gone up because they've increased production voulmes. Their unit cost of production in 1H23 has actually decreased 10% from 2H22! In any event, their production costs in FY22 were only $445m and, having looked at the breakdown, there's no where to hide the $bns that Gavster has suggested.

The problem you've got is that IFRS gives you fundamental mitsmatches which makes the accounts very difficult to understand (albeit that the accounting bodies liek to insist that they make accounts easier to understand).

So, for example, DEC's 1H23 revenue has almost halved compared to 1H22 because revenue is recorded in the accounts at the spot price rather than the hedge price actually received whereas expenses are recorded are recorded based on what's paid i.e. you have one figure based on a theoretical receipt, rather than an actual receipt, and another based on the actual price paid. The excess of the hedge price received over the spot price is booked through the gain/loss on derivative financial instruments. Likewise the 1H22 revenues are based on the spot price rather than the hedge price which, in 1H22, was actually higher than DEC received. This is not financial shenanigans on DEC's part; it's entirely due to IFRS. IFRS does not make accounts easier to understand and actually, in my view, makes it easier to "hide" irregularties. I have looked at the 1H23 figures on several occasions and haven't been able to spot any irregularities but I'm not infaliable by any means and happy to look at any figures that give genuine concern.

Gg, I'm not denyingthat the share price has been falling. What I'm questioning is your conspiracy theory. Large on-market purchases are going to be difficult to hide. What's in it for Rusty? Why would Tanos sell supposedly valuable assets for zero consideration in expectation that they, or their management team, could buy back the assets from DEC on the cheap (it's far less risky to just keep the assets and not sell them in the first place). A CFO leaves and immediately there's a fraud; CFO's do leave companies all the time and if the CFO had been involved in a suspected fraud on the company he'd not be retained to help with the hand over process, however short. DEC have always bought a mixed bag of assets. It goes with the territory; the seller wants to offload all of their wells. They don't want the buyer to cherry pick and leave them with having to wind down and close unproductive wells when their income has ceased (they want a clean break); so they do a deal. I'm not saying that your brother-in-laws well wasn't a duffer; I'm just saying that you can't extrapolate from one example (because when DEC purchases the wells it gets the good with the bad and that is fully understood upfront).

Personally, until I'm given irrefutable, cogent evidence to the contrary, I'm more inclined to think that the ongoing concerns about DEC's cost of capping its wells is having more of a bearing on the current share price. This is an issue that is returned to in some quarters each and every year and the current costs in the P&L being circa 6x DEC's estimated costs are a concern that is difficult for DEC to shake. DEC has refuted the suggestions but has not really explained how and why it expects to be able to significantly reduce the cost of capping its own well estate; economies of scale should help but, nevertheless, it's a big discrepancy to bridge, even allowing for profits on external contracts.

Gavster, What planet are you living on? $1.8bn of gas. Really!

Firstly you need to understand the accounts. The non-cash derivative adjustment relates to all hedging contracts not just the current year. So, even if you're hypothesis was correct (that they've been buying gas on the open market to meet missed production quotas) they'd not be buying $1.8bn of gas now to meet all future production quotas.

Secondly, where is this on-market purchase recorded? Double entry requires DEC to recognise a corresponding debit to match the purchase. I don't see any $1.8bn increase in assets nor do I see $1.8bn expense in cost of sales. If they wanted to try and hide the purchase they'd have to debit the expense to sales i.e. the net loss would reduce actual sales. This would throw up all all sorts of analytical red flags that even Arthur Andersen in their heyday would have found hard to miss!

GG you are going to have to do better than that. Your thesis (based on your previous posts) seems to be based on the presumption that DEC and Tanos, or Tanos's management, are both in cahoots with each other and that Rusty would seemingly want to destroy the value of his own shares by going into Chapter 11 (his shares rank pari passu with the rest of us). Also, why would Tanos, or its management, take the risk of selling potentially valuable land at zero value to DEC? If DEC and Tanos were not in cahoots, there could be no absolute guarantee that DEC would sell it back to them and/or wouldn't do their own surveys. Wouldn't it be simpler to just carve out the land from the original deal in the first place? Plus, if DEC was not in cahoots with Tanos and Tanos had falsified its production data then DEC would have sued them under the terms of the original sale agreement and would not have bought a second tranche of wells from Tanos.

The fact is that DEC, in all its deals, has always bought a mixed bag of wells (in various stages of their useful economic life). The fact that your brother-in-law's well(s) were virtually dry does not mean all of the wells DEC bought were the same.

Where is your evidence that DEC has been buying any gas on the open market to fulfill its production quotas? Sure Rusty has been drawing dividends from DEC but if he was "building sandcastles" he would have been selling off large tranches of his shareholding to maximise his returns long before now.

I'm certainly not aware that DEC is doing any "gambling" on derivatives and it doesn't fit with their cautious, risk adverse approach. DEC has never been about second guessing the gas price; just ensuring that cash flows were sufficient to meet their expected outgoings and pay a dividend. Gambling on the gas price would be a complete divergence for their historic approach to risk management and totally unnecessary.

It's too early to read anything into the CFO departure. Executives leave companies all the time. The fact that he's been allowed to leave immediately would suggest that he's looking at opportunities in other fields, away from the oil business, otherwise DEC might look to put him on gardening leave.

We went ex-dividend today! The price fell 1.3p today, of which 1.2p related to the dividend. Financials have all generally performed badly today; you kow the market is clueless when the price drops if rates rise or rates remain the same. The market is just looking for any excuse to drop the price; if one scenario doesn't fit the facts then they come up with another, equally outlandish, scenaio to fit their primary hypothesis - we're doomed, we're all doomed (as if we hadn't ever been in a bear market before).

There's no simple fix to RGL's problems. Just selling properties to pay down the bonds only works if the properties it wants to sell are secured by the bonds. RGL hasn't broken its covenants, still has headroom and is not currently a forced seller. At this immediate juncture, banks are not likely to repeat what they did in 2008. It was a disaster which only made matters a lot worse before things became better (and made it difficult for UK banks to do business here in the UK for a number of years - there was a lot of business resentment towards the banks because many landlords were still covering their interest and capital repayments - they were only in technical default on their covenants). Banks are more likely to work with RGL than force it to sell; provided RGL continues to covers its interest payments.

Today's interest rate news is good for RGL. It may mean that interest rates have now peaked and that long term commercial interest rates may now start to fall.

Patience.

... 1.2p DROP was to be expected