Hi tbona, I've revisited the model and can't remember the reason for factoring out the tax and the hedge gains/losses. The best estimate of net profit is what we are interested in for this model, so I've now included in all columns and updated the article accordingly. Thanks for spotting.
Corporate decline less than 10%, Appalachia assets at 5% per trading statement. I would assume the new assets in the mid-continent have very high decline rates and the newest wells completed even higher decline rates. These declines should flatten out some in the next few years.
60% of production declining at 5% leaves the other 40% at a 17% +/- decline rate. If the 17% decline rate drops to a 14% average this year then company decline would likely drop by a full percentage to under 9% for 2024.
You’re not alone in talking about a 30% dividend as though all shareholders receive such a high return on their investment.
However, long-term shareholders like myself, who paid over £20 per share, are receiving considerably less and are getting increasingly fed up with hearing about how much new investors will receive.
Many of us also pay 15% withholding tax on dividends from DEC, others will be paying 30% tax.
Your suggestion of cutting dividends would be the catalyst for many of us retired investors (who rely on dividends to buy food, heat the house and keep the lights on), to crystallise losses and seek a more reliable source of income.
Creating a flood of sells when the share price has already fallen so far, would be playing into the hands of short sellers. The resulting share price collapse will very possibly cause recent investors to move on too, further exacerbating the situation.
The exit rate at the end of the 3rd quarter was 135.7 MBOED to which I applied a 2.5% depletion (10%+- annual) for an estimated 4th quarter exit rate of 132.3 MBOED. The actual exit 4Q exit rate was 129.2 MBOED which represents a 5% decline. But, DEC transferred producing assets to the SPV which brought its debt down by 15%. They don't tell us how much production was transferred but it was certainly a great deal more than the 5% decline. In fact, the 5% Q over Q decline does not comport with a 10% decline rate so it is not clear to me what is happening here.
Given the price action, especially in the last 2 weeks, do you believe ditching the UK listing makes sense - swap everyone into the US. seems to me a lack of understanding of the O&G scene in the US and the generally lower multiples you see in Europe could be holding back a more appropriate valuation.
But DEC already has a US listing and most days it only trades slightly higher than in London. so what is the rationale that DEC will have substantially higher valuation if solely listed in US?
I think the reason the NY listing does not influence the London listing is that there is arbitrage available in the U.S.
The London shares can be traded over the counter as DECPF and someone smarter than me can use the difference between the markets to buy and sell without much in the way of fees.
I have noticed that DEC on the NY tends to drift up in price after it loses the price anchor to London shares when the exchange closes. Way more shares traded on the London exchange currently.
As a side note DEC bought back 12000 shares yesterday. Near 7% of the volume in London.
Hey Oak, can you clarify how you came up with values in the "Net Profit" column in your model?
For the first line of your table (Q323) summing up columns starting with the "TOTAL" column
144 + 27 - 21.80 - 40.80 - 6.50 - 57.50 = 44.40 Net Profit (not 58.65)
Hi tbona, I've revisited the model and can't remember the reason for factoring out the tax and the hedge gains/losses. The best estimate of net profit is what we are interested in for this model, so I've now included in all columns and updated the article accordingly. Thanks for spotting.
Thanks for clarifying!
Corporate decline less than 10%, Appalachia assets at 5% per trading statement. I would assume the new assets in the mid-continent have very high decline rates and the newest wells completed even higher decline rates. These declines should flatten out some in the next few years.
60% of production declining at 5% leaves the other 40% at a 17% +/- decline rate. If the 17% decline rate drops to a 14% average this year then company decline would likely drop by a full percentage to under 9% for 2024.
You’re not alone in talking about a 30% dividend as though all shareholders receive such a high return on their investment.
However, long-term shareholders like myself, who paid over £20 per share, are receiving considerably less and are getting increasingly fed up with hearing about how much new investors will receive.
Many of us also pay 15% withholding tax on dividends from DEC, others will be paying 30% tax.
Your suggestion of cutting dividends would be the catalyst for many of us retired investors (who rely on dividends to buy food, heat the house and keep the lights on), to crystallise losses and seek a more reliable source of income.
Creating a flood of sells when the share price has already fallen so far, would be playing into the hands of short sellers. The resulting share price collapse will very possibly cause recent investors to move on too, further exacerbating the situation.
That’s a valuable insight - thank you for sharing.
This morning LSE:GRID provided a timely example of what happens when a dividend is replaced with a buyback scheme.
Not sure if this Youtube video has been seen. Lots of good info that makes DEC well plugging subsidiary potentially a very good business.
https://youtu.be/-nVsXNZL4Os?si=Gp1A6JLmU4C1ZLDN
The exit rate at the end of the 3rd quarter was 135.7 MBOED to which I applied a 2.5% depletion (10%+- annual) for an estimated 4th quarter exit rate of 132.3 MBOED. The actual exit 4Q exit rate was 129.2 MBOED which represents a 5% decline. But, DEC transferred producing assets to the SPV which brought its debt down by 15%. They don't tell us how much production was transferred but it was certainly a great deal more than the 5% decline. In fact, the 5% Q over Q decline does not comport with a 10% decline rate so it is not clear to me what is happening here.
Given the price action, especially in the last 2 weeks, do you believe ditching the UK listing makes sense - swap everyone into the US. seems to me a lack of understanding of the O&G scene in the US and the generally lower multiples you see in Europe could be holding back a more appropriate valuation.
But DEC already has a US listing and most days it only trades slightly higher than in London. so what is the rationale that DEC will have substantially higher valuation if solely listed in US?
I think the reason the NY listing does not influence the London listing is that there is arbitrage available in the U.S.
The London shares can be traded over the counter as DECPF and someone smarter than me can use the difference between the markets to buy and sell without much in the way of fees.
I have noticed that DEC on the NY tends to drift up in price after it loses the price anchor to London shares when the exchange closes. Way more shares traded on the London exchange currently.
As a side note DEC bought back 12000 shares yesterday. Near 7% of the volume in London.
https://youtu.be/ihuKAWilXDw?si=1qhZqZofyHLcrDkp
Rusty in a very recent video talking financing/buybacks/getting possibly some oil wells.
I am not a big fan of moving into oil as the futures curve can be more difficult to hedge margins compared to natural gas.