check out this insane graph of expected electricity demand https://twitter.com/mrmwisc/status/1793334820614938758/photo/1 Remember that 40% of US electricity is produced via nat gas. That is not even taking crypto mining and electric cars into account...Wells Fargo can be taken seriously but it still looks unimaginable. Grids would break down and they would have had to start building new power plants years ago. It is so exponential that bureaucracies won't be able to handle this kind of growth.
Hi OB, I think a part in the Oak tree circular may pique your interest, if you run your numbers on the quoted abs obligation they are taking on as part of the deal, against the original VI loan amount, and the time expiry since start. My quick look suggests that ABS VI is being paid at a VERY accelerated rate, and if a consistent application across all ABS's bodes well for holders
Rusty believes that DEC will be part of the Russel 2000 after the upcoming regular reconstitution...
Market cap-wise I think it would fit into the 750-1000th position according to https://www.marketbeat.com/types-of-stock/russell-2000-stocks, i.e. somwehere on page 4, so some decent level of weighing and associated volume should be coming soon simply from this index inclusion
Nice write up oak! I will admit after buying high and selling low with DEC (£14-£9), my usual trick, I somewhat regret my timing. However, I completely lost confidence in Rusty after the cutting of the div and the Oaktree acquisition, this was not signalled. Their shareholder comms are terrible, not to mention their inability to operate a share buyback. I understand that for new buyers the div cut made sense and the acquisition as you explain above does make sense, but I feel the company mislead investors in constantly reiterating that the dividend was paramount. I agree a 30% was ridiculous, but the shorts took advantage of this betting that it would be cut, ensuring more PI's cut their losses. Real shame as I feel they could be a really solid long term hold given all the reason you list in their articles, but at the end of the day you need to feel that you can trust management and honestly I don't trust Rusty!
I view DEC as a short term hold with the possibility of getting back to $15.50+-. The quarterly numbers all looked good and give the illusion of sustainability. However, the long term math in asset retirement obligations continues to tick away: 72K wells @ 50 year life = 1400 wells a year.
The re-announced buyback program has been a drop in the bucket and is hardly worthy of mention with respect to the promised shareholder returns. Having put DEC's finances on a more solid basis, I have to think that Rusty is getting ready for an exit.
DEC did a round of visits/presentations which, as far as I can tell, failed to elicit favorable reports and buy ratings. I think there is a message there and it likely relates to the ARO issue.
After taking my tax losses on my LSE shares and some modest gains on my NYSE shares, I continue to hold a modest position waiting for the expected $15.50, then I am out.
Thank you for the response. Makes complete sense. Sadly DEC’s comms should be explaining this strategy rather than a meaningless buy back strategy which achieves nothing. Hopefully we get SP growth so disgruntled PI’s like myself can at least get my investment back and move on. I was a believer in Hutson but no more. He royally screwed us for believing in the dividend . C’est la vie
I would appreciate your views on the dysfunctional buy back programme with Peel Hunt. The whole buy back programme imo has been a PR disaster that failed to support the SP decline. Why oh why a measly 3750 shares bought back daily by PH. Where is the logic in that ? Any ideas and no explanation from DEC ?
I'll answer the question numerically and verbally. The verbal reason for the limited buy backs is Oaktree. The $368m acquisition takes the borrowing to a point where paying down debt to remain within 2.5X covenant is important. Moreover the acquisition is more earnings accretive than buy backs. Also buying the 48.75% holding made a great deal of strategic sense (Gulf pricing) and zero marginal overheads. It would have been daft for a competitor to control 48.75% of their assets - and Oaktree had to offer DEC first refusal.
Numerically it makes sense too. They've bought something at 3.1X EBITDA and sold something at 5.7X EBITDA. On the $200m element there is a 2.6X EBITDA difference which equates to $77m of accretive per annum earnings. If they'd instead spent $200m on buy backs then that would equate to 16.66m shares (assuming $12/share average). The dividends "saved" on those would be $18m dollars a year (16.66m shares x $1.08). So the acquisition is $59m a year better.
I hope that makes sense both from a strategic but also from a mathematical perspective.
Can you please highlight which shorts are melting away? They all look pretty constant to me, still at almost 6% of the company. Seems like lots of professionals do not agree with your thoughts.
Let's see who's still there in due course - and let's see who melts away. You can see what I can see - so do you not see some already trimming their shorts?
Today DEC joins the Russell index. Shorts have just lost another 2.4% through the Q2 dividend on top of a 6.9% loss in the Q1. That's 9.3% YTD. How much longer will the 6 cling on?
A net $120m of institutional investors have invested into DEC in Q4 and Q1 going by inflows (and outflows).
For example Jim Donnelly, Bridgewater's short is melting away - reduced by 0.13% yesterday. So now we are at 5.83%, and the share has broken through $15.
I've gone through each short and their dates not found a single short of those 5.83% whose short is old enough to actually be in profit - they are all at a loss - so I maintain they will melt away - and cover their short.
When you wrote the article shorts were NOT melting away. Some 3 plus weeks later one has reduced by a tiny amount. If you think they’re going to melt away in the future then use words that make it obvious it’s an opinion rather than writing it as a fact.
I don’t disagree that DEC have turned around (I hold over £100k worth), just think you should differentiate between facts and opinions.
And I do try to draw those distinctions between fact and opinion, so thank you for pointing out and I'm happy to correct what I wrote to better reflect my opinion.
I actually looked at the notification date history not the last update to see if any shorts were "long term", but I do appreciate there could be a slight difference between the buy date and the notification dates - not much I can do to accommodate for that.
Very good write-up. well done. I have a decent holding in DEC and have suffered through the share pice decline. This write up gives me some confidence to top up
check out this insane graph of expected electricity demand https://twitter.com/mrmwisc/status/1793334820614938758/photo/1 Remember that 40% of US electricity is produced via nat gas. That is not even taking crypto mining and electric cars into account...Wells Fargo can be taken seriously but it still looks unimaginable. Grids would break down and they would have had to start building new power plants years ago. It is so exponential that bureaucracies won't be able to handle this kind of growth.
Hi OB, I think a part in the Oak tree circular may pique your interest, if you run your numbers on the quoted abs obligation they are taking on as part of the deal, against the original VI loan amount, and the time expiry since start. My quick look suggests that ABS VI is being paid at a VERY accelerated rate, and if a consistent application across all ABS's bodes well for holders
Thanks for the update Oak,
One interesting tidbit from the proactive investors Q1 results: https://youtu.be/jfR9wzPB9VU
Rusty believes that DEC will be part of the Russel 2000 after the upcoming regular reconstitution...
Market cap-wise I think it would fit into the 750-1000th position according to https://www.marketbeat.com/types-of-stock/russell-2000-stocks, i.e. somwehere on page 4, so some decent level of weighing and associated volume should be coming soon simply from this index inclusion
this seems to be the schedule: https://www.lseg.com/en/media-centre/press-releases/ftse-russell/2024/russell-reconstitution-2024-schedule
Nice write up oak! I will admit after buying high and selling low with DEC (£14-£9), my usual trick, I somewhat regret my timing. However, I completely lost confidence in Rusty after the cutting of the div and the Oaktree acquisition, this was not signalled. Their shareholder comms are terrible, not to mention their inability to operate a share buyback. I understand that for new buyers the div cut made sense and the acquisition as you explain above does make sense, but I feel the company mislead investors in constantly reiterating that the dividend was paramount. I agree a 30% was ridiculous, but the shorts took advantage of this betting that it would be cut, ensuring more PI's cut their losses. Real shame as I feel they could be a really solid long term hold given all the reason you list in their articles, but at the end of the day you need to feel that you can trust management and honestly I don't trust Rusty!
I view DEC as a short term hold with the possibility of getting back to $15.50+-. The quarterly numbers all looked good and give the illusion of sustainability. However, the long term math in asset retirement obligations continues to tick away: 72K wells @ 50 year life = 1400 wells a year.
The re-announced buyback program has been a drop in the bucket and is hardly worthy of mention with respect to the promised shareholder returns. Having put DEC's finances on a more solid basis, I have to think that Rusty is getting ready for an exit.
DEC did a round of visits/presentations which, as far as I can tell, failed to elicit favorable reports and buy ratings. I think there is a message there and it likely relates to the ARO issue.
After taking my tax losses on my LSE shares and some modest gains on my NYSE shares, I continue to hold a modest position waiting for the expected $15.50, then I am out.
Thank you for the response. Makes complete sense. Sadly DEC’s comms should be explaining this strategy rather than a meaningless buy back strategy which achieves nothing. Hopefully we get SP growth so disgruntled PI’s like myself can at least get my investment back and move on. I was a believer in Hutson but no more. He royally screwed us for believing in the dividend . C’est la vie
I would appreciate your views on the dysfunctional buy back programme with Peel Hunt. The whole buy back programme imo has been a PR disaster that failed to support the SP decline. Why oh why a measly 3750 shares bought back daily by PH. Where is the logic in that ? Any ideas and no explanation from DEC ?
Hi John,
I'll answer the question numerically and verbally. The verbal reason for the limited buy backs is Oaktree. The $368m acquisition takes the borrowing to a point where paying down debt to remain within 2.5X covenant is important. Moreover the acquisition is more earnings accretive than buy backs. Also buying the 48.75% holding made a great deal of strategic sense (Gulf pricing) and zero marginal overheads. It would have been daft for a competitor to control 48.75% of their assets - and Oaktree had to offer DEC first refusal.
Numerically it makes sense too. They've bought something at 3.1X EBITDA and sold something at 5.7X EBITDA. On the $200m element there is a 2.6X EBITDA difference which equates to $77m of accretive per annum earnings. If they'd instead spent $200m on buy backs then that would equate to 16.66m shares (assuming $12/share average). The dividends "saved" on those would be $18m dollars a year (16.66m shares x $1.08). So the acquisition is $59m a year better.
I hope that makes sense both from a strategic but also from a mathematical perspective.
Oak Bloke
Voleon have just increased their short today - think that’s the exact opposite of melting away. Facts - not opinions!
Can you please highlight which shorts are melting away? They all look pretty constant to me, still at almost 6% of the company. Seems like lots of professionals do not agree with your thoughts.
There's 6 totalling 5.96% that don't. Is 6 "lots"? There are no notifiable shorts on the NYSE.
https://shorttracker.co.uk/company/GB00BQHP5P93/
Let's see who's still there in due course - and let's see who melts away. You can see what I can see - so do you not see some already trimming their shorts?
Today DEC joins the Russell index. Shorts have just lost another 2.4% through the Q2 dividend on top of a 6.9% loss in the Q1. That's 9.3% YTD. How much longer will the 6 cling on?
A net $120m of institutional investors have invested into DEC in Q4 and Q1 going by inflows (and outflows).
https://www.marketbeat.com/stocks/NYSE/DEC/institutional-ownership/
So *if* you're being fair, there's also professionals who do agree too.
For example Jim Donnelly, Bridgewater's short is melting away - reduced by 0.13% yesterday. So now we are at 5.83%, and the share has broken through $15.
I've gone through each short and their dates not found a single short of those 5.83% whose short is old enough to actually be in profit - they are all at a loss - so I maintain they will melt away - and cover their short.
When you wrote the article shorts were NOT melting away. Some 3 plus weeks later one has reduced by a tiny amount. If you think they’re going to melt away in the future then use words that make it obvious it’s an opinion rather than writing it as a fact.
I don’t disagree that DEC have turned around (I hold over £100k worth), just think you should differentiate between facts and opinions.
It's a fair point and duly noted.
And I do try to draw those distinctions between fact and opinion, so thank you for pointing out and I'm happy to correct what I wrote to better reflect my opinion.
The dates you use are the dates of the last change to short not the dates earlier percentages were taken out. There’s a big difference.
I actually looked at the notification date history not the last update to see if any shorts were "long term", but I do appreciate there could be a slight difference between the buy date and the notification dates - not much I can do to accommodate for that.
Very good write-up. well done. I have a decent holding in DEC and have suffered through the share pice decline. This write up gives me some confidence to top up