Fantastic write up thank you. One thing not mentioned anywhere (they I've seen) is whether any Canvas production is hedged? Or is that a dim question? 😕
Hi Bill, that’s a great question. I would hope not. Why? Have you seen the Nat Gas future prices? $3.86 for next July for example, think it’s $4.70 for Jan 27. https://www.marketwatch.com/investing/future/qgn26 Thanks for the feedback! OB
Great analysis (and nice video yesterday), as always.
On the Canvas debt, I am not sure that DEC shoulders it:
DEC had 2.6x leverage to adj EBITDA of 850M, i.e. 2.21B. The pro-forma also has 2.6x leverage of adj EBITDA of 1,005M = 2.613B. The difference between the two is pretty exactly 400M, which is the amount of the Carlyle ABS notes. Thus, I believe the 98M are not taken on by the combined entity.
Hi Mr Schmidt, it sounds like you’ve the proof point that it is in fact excluded. I recorded a youtube video on this article a few days ago saying there’s a potential $98m upside to this whole thing if the $550m price tag is the EV price - not $648m. I simply erred on the side of caution.
For another great analysis of #DEC. I hold a small amount, so it’s always good to see them keep progressing. I think Rusty is very shrewd and knows what he’s doing! It’s everyone around him that doesn’t. Maybe they are the reason why the SP and PE is so low is because it’s too difficult for most folk to work out? So they walk away and leave it alone.
So thanks again for your forensic analysis and also thanks to those who’ve spotted some possibly missed details!
Hi. The thing that worries me with DEC is they trumpet cash flow & EBITDA, but when final accounts come out they usually post a loss. I know those figs are distorted by adjustments for hedging contracts but this should even over time if those contracts are profitable. At the same time, their debt structure is complex, always being rolled over and renegotiated. All in all, I just can't reconcile the apparent fantastic cash generation with ever increasing debt on the BS.
In short the impenetrable (at least to me!) complexity of hedging and debt, combined with YE losses (bar 2023) in the statutory accounts, just makes me uneasy. Possibly I'm missing a trick, but I can't shake the old WB adage of “Never invest in a business you cannot understand.” every time I look at this share .
Old adage is stay in your lane however OB does a great job at seeing through the "noise" and complexity...this is the OB "edge"...understanding where others do not and finding the value. Doomberg suggesting natural gas is where the action will be at in regard to power generation in the US. Futures suggesting higher gas prices so this looks a well timed takeover.
Certainly fairing better than SQZ...the perennial jam tomorrow.
Great detailed analysis. Far better than I have seen from “the street”(as always)…the intriguing question is how many more of these deals can Rusty put together with the ‘Bank of Carlyle’!..
It's a great question. Given that DEC pay owners (see https://www.div.energy/owner-relations/), I don't think it is mineral rights. I think it is leasing rights i.e. a right of usage. Build a well, build a wind farm, build a house. Whatever, but you pay the land and/or mineral rights owner for that lease (NB land and minerals are separately owned in the USA)
Fantastic write up thank you. One thing not mentioned anywhere (they I've seen) is whether any Canvas production is hedged? Or is that a dim question? 😕
Hi Bill, that’s a great question. I would hope not. Why? Have you seen the Nat Gas future prices? $3.86 for next July for example, think it’s $4.70 for Jan 27. https://www.marketwatch.com/investing/future/qgn26 Thanks for the feedback! OB
Hi OB,
Great analysis (and nice video yesterday), as always.
On the Canvas debt, I am not sure that DEC shoulders it:
DEC had 2.6x leverage to adj EBITDA of 850M, i.e. 2.21B. The pro-forma also has 2.6x leverage of adj EBITDA of 1,005M = 2.613B. The difference between the two is pretty exactly 400M, which is the amount of the Carlyle ABS notes. Thus, I believe the 98M are not taken on by the combined entity.
Am I overlooking something?
Hi Mr Schmidt, it sounds like you’ve the proof point that it is in fact excluded. I recorded a youtube video on this article a few days ago saying there’s a potential $98m upside to this whole thing if the $550m price tag is the EV price - not $648m. I simply erred on the side of caution.
Thanks for spotting that!
OB
Yes, I noted that, better to be safe than sorry :)
Thanks OB,
For another great analysis of #DEC. I hold a small amount, so it’s always good to see them keep progressing. I think Rusty is very shrewd and knows what he’s doing! It’s everyone around him that doesn’t. Maybe they are the reason why the SP and PE is so low is because it’s too difficult for most folk to work out? So they walk away and leave it alone.
So thanks again for your forensic analysis and also thanks to those who’ve spotted some possibly missed details!
Graham.
Hi. The thing that worries me with DEC is they trumpet cash flow & EBITDA, but when final accounts come out they usually post a loss. I know those figs are distorted by adjustments for hedging contracts but this should even over time if those contracts are profitable. At the same time, their debt structure is complex, always being rolled over and renegotiated. All in all, I just can't reconcile the apparent fantastic cash generation with ever increasing debt on the BS.
In short the impenetrable (at least to me!) complexity of hedging and debt, combined with YE losses (bar 2023) in the statutory accounts, just makes me uneasy. Possibly I'm missing a trick, but I can't shake the old WB adage of “Never invest in a business you cannot understand.” every time I look at this share .
Old adage is stay in your lane however OB does a great job at seeing through the "noise" and complexity...this is the OB "edge"...understanding where others do not and finding the value. Doomberg suggesting natural gas is where the action will be at in regard to power generation in the US. Futures suggesting higher gas prices so this looks a well timed takeover.
Certainly fairing better than SQZ...the perennial jam tomorrow.
Great detailed analysis. Far better than I have seen from “the street”(as always)…the intriguing question is how many more of these deals can Rusty put together with the ‘Bank of Carlyle’!..
Glad I hold this. Had forgotten how small the mkt cap was.
I have always been confused by the land owned. Is it actually the land that's owned or is it the mineral rights that are owned?
John
It's a great question. Given that DEC pay owners (see https://www.div.energy/owner-relations/), I don't think it is mineral rights. I think it is leasing rights i.e. a right of usage. Build a well, build a wind farm, build a house. Whatever, but you pay the land and/or mineral rights owner for that lease (NB land and minerals are separately owned in the USA)
Then as DEC extracts minerals there's a further payment to the owner. They send monthly "revenue checks" for "land, minerals, royalties, or oil and gas leases that are the bases for payments from oil and gas well(s)" as defined in this document https://www.div.energy/wp-content/uploads/2024/07/DGO-Transfer-Requirements-2024.pdf
OB
Thanks that's cleared it up.