Clear the DEC?

Nothing happening at Diversified Energy - or is it?

Dear reader

There’s really nothing happening at DEC said a reader this week.

My own experience of DEC is far from “nothing is happening”. Here we go again mutter the detractors. Obsessed with DEC. I think there are a number of reasons why you might be missing what’s happening.

Do neither insiders nor investors see any value? What of the value of the dividends? As an investor I see those quarterly. Last seen 30th June. Next seen 30th September.

Over nine years (that’s 36 quarters) since June 2017 investors have received an astonishing $21.84 of dividends per share. Currently the yield is 8.06% per annum so ~2% per quarter. The end of a quarter always puts a smile on my face as my DEC-hand payments feed through. $21.84 per share of dividends and a $13.35 share price means $36.19 of proceeds so the argument that DEC has not “paid for itself” grows flimsy.

Of course there were detractors who were foolish enough to buy DEC right at the top of the market - you could have done the same for Thungela, and many other energy shares too. That foolish timing turned them into embittered harrumphers, like soured lemons. Diddums. In this adjusted chart where the pre consolidation 20:1 is in yellow paying over £1 a share in old money (pre-consolidation) is $26.60 in this adjusted chart. Unlucky, and badly timed.

Much of that ill fortune was driven by the US Nat Gas price spike which reverted later in 2022 and continued downwards in 2023 - see below.

At $13.35 per share today, DEC is around the same share price as it was in early 2024, when HH prices were below $2 per MMBtu (so 35%-40% lower than today) and when Snowy shorters were talking it down, Bloomberg had leaked out a documentary about a single leak filmed at a single well at a newly acquired site (insinuating that all 70,000 wells must be as rusty as err… never mind). Honorable Pallone was writing to Rusty, the CEO, demanding Frank answers. After receiving a reply he was never heard of again.

$2.89 per MMBtu is today’s price of US Natural Gas on the Gulf of America (and it’s priced even lower in most other regions). That’s the price at the peak of summer and solar is working hard and has displaced a lot of Nat Gas power gen it’s true - in summer. And days slowly shorten in the northern hemisphere.

The EIA forecast that prices will not remain at $2.89 and $4+ is coming (back). Winter is coming - again. Notice the price of gas is much higher than in late 2023 and early 2024 when DEC was priced the same as today.

It’s true that supply of US natural gas is growing - for now. But demand of nat gas for power generation and LNG export is rapidly growing too. The arbitrage opportunity is enormous for power-hungry Europe and Asia. If the vast plenty of US nat gas supply slows then prices could respond - after all $2.89 MMBtu is $17.40 per Barrel of Oil equivalent…. super cheap. A UK reader doesn’t pay $17.40 per BOE, the decimal place is in the wrong place.

LNG demand - and it’s not just a USA story, where interconnected Mexico and Canada are ramping up their LNG exports too.

Where Oil leads Nat Gas follows with a lag. Oil extraction is slowing at the Permian and rolled over at most of the US onshore fields.

Where AI exposed tech leads will Natural Gas follow? We know that Gas Turbines order books are at four-year waits, and Eletrolysers have been pressed into service to convert Nat Gas instead of their original purpose of converting Hydrogen. Companies like Bloom are in a boom. Fellow co Ceres too.

Power Gen is only part of the story. Billions is now being spent reshoring Urea production after core Trump voters (Mid West Farmers) suffered record prices earlier this year. Urea production could add 450 BCF of demand per year, or 1.3 bcf/day, growing 5% a year.

Nat Gas demand hasn’t yet seen the impact of the AI-investment macro. While there’s talk of SMRs longer term, the reality is Nat Gas is a tried-and-tested technology and a base-load fuel and with carbon capture can be net zero. US Combined Cycle Gas Turbine CCGT demand has increased 1000% between 2023 and 2026.

In my opinion to buy DEC at the same price as early 2024 is incredible.

Apart from the price of gas being higher since late 2023 DEC has expanded a great deal. Doubled its PDP, increased the percentage of Oil and NGLs from 14% to 28% in 1Q26, and acquired a series of deals Sheridan, Canvas, Maverick, Summit, East Texas II, Crescent Pass and the other 50% of Oaktree’s holding…..

Yes, but DEC’s share price is barely up in price mutter detractors. That’s proof of its failure.

Despite this failure DEC has been a highly profitable share for me. How so? The 2025 Fun Runner Mr Mad One made me think about this. Trading DEC up and down. He said it was a highly successful strategy for him - far more than his single stock idea for the fun run Touchstone which lost 72% of its value. Mega ouch.

It’s your responsibility to time your buys and sells reader. If you’d timed DEC buys and sells as below then in just over six months you could have more than doubled your money. This is purely based on the closing price for DEC (ignoring intraday movement) and assuming a $5 buy or sell charge, and a $0.10 spread (e.g. $12.44 means $12.49 to buy and $12.39 to sell).

An imaginary $10,000 on 1st Jan would be $22,345.19 on the 17th July. Ain’t hindsight a wonderful thing?

That’s before dividends, which at 1,632 shares would add $950 more over the six months.

Wait, what?

With 16 trades in just over 6 months DEC could have more than doubled your money, and holding DEC for nine years would have meant receiving $21.84 per share of dividends plus hold a share worth $13.35 - and in my opinion worth a lot more.

What else is happening to “nothing-happening” DEC?

How about Camino due to close in 3Q26? Is that nothing?

It’s the second largest acquisition (behind Maverick) and the economics and synergies are strong, and boosted due to the off-balance sheet financial support from Carlyle. It also explains why DEC “can’t do a buyback” right now. Although they’ve bought back plenty of shares in 2026, and no doubt shall again in the future as part of its capital allocation.

Conclusion

It’s 25 days until we get the 1H26 interim report, on 11th August.

25 are also the years that DEC has been stepping up as some investors step away believing nothing is happening. Look closer - there’s a high yield, cash monster, hiding in plain sight. Whether you trade it or hold it, clearly it’s returning far more than some people give it credit for.

The long-term thesis is that wells that are classed as liabilities could become assets since geothermal is gaining ground, DEC is no longer just natural gas with 28% liquids this is an oil producer too. The low-decline, asset optimisation approach was a unique strategy in the market - now proven and being copied - that has served DEC, and its shareholders.

DEC also runs a large and successful decommissioning business. There are 2m orphan wells and DEC can earn $150k-$200k per well which currently offsets the cost of its own ARO (decommissioning). It has value as a stand alone business.

Finally, if you believe a day will come when stewardship of declining resources will make DEC’s particular set of skills very valuable then DEC is uniquely positioned for this future.

There are those who say demand for Nat Gas will turn into a knife fight by 2029?

Regards

The Oak Bloke.

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