Malcy31 Jan 2023 19:25
“Yet again Diversified has demonstrated its ability to deliver trading results in-line with best market expectations and at a time when adverse conditions in energy markets make that a very solid achievement.
Production numbers speak for themselves, FY 2022 was 135 Mboepd (119) with the 4Q number being 134 but hit slightly by Storm Elliot but still exiting at 141 Mboed, a very solid figure. Full year cash margins were yet again some 50% which were aided by the hedging book, with over 85% of 2023 at $3.63/Mcf, a substantial premium to end 2021 and c.3% above 2023 strip prices.
These numbers translate into a very strong free cash flow which of course leads to the ability to pay out regular and increasing dividends to shareholders, something I addressed in my note a couple of weeks ago.*(Malcys blog 9th Jan 2023 see malcysblog.com archive.) Here I suggested that the chart in the current presentation to my eyes says it all and when I first saw it I understood why the company have coined it as ‘the Money Slide’.
It illustrates that even when the long term commodity price environment is being more ‘conservative’ the large amount of FCF generation from the aforementioned business model not only pays down the debt, retires all 72K wells (and retires some of those that are still economic) but also has the ability to pay the target base dividend for over 50 years AND still have ~$2bn of cash left over that can also be paid to shareholders. So it really does come back to FCF generation as that is ~7X the current market cap.
The hedge strategy shows that when Natural Gas prices fall they are offset by the higher hedged production portfolio( c.90%+) and as a result steady, reliable cash flow which delivers ~50% cash flow and that in itself pays a meaningful and growing dividend at the moment giving shareholders a 20%.
So, finally what I like most about DEC is that it gives investors a certain strength and a unique offering through its model which does not mimic E&Ps and accordingly is not exposed to large capex inflation and no notable service cost inflation for the company.
This ‘exceptional’ year to quote the CEO has again delivered and I see no reason why it can’t repeat the process. The team keep a tight rein on costs, deliver to the environment and investors alike. It seems that there has been a while since an acquisition so maybe the teams have been on the move on that front, it would certainly help the further generation of revenue, cash flow and dividend payments to shareholders, three cheers for that.”
https://www.malcysblog.com/2023/01/oil-price-diversified-energy-and-finally/
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