Gassing on about DEC Part 2

Now for the reveal....

Photo by Ricardo Gomez Angel on Unsplash

Now it’s time for the analysis:

Comparing cash flow doesn’t tell us much. Except that EQT seems to have suddenly increased their cashflow in 2023. If you watched the video - they are having a succesful year and are similar to DEC in terms of plugging wells, driving down per unit cost - and Q3 was a doozie for EQT. Is that read across not positive for DEC, Jeff?

What do these numbers mean?

Comparing Net Equity as a ratio of mar cap (which means how many assets do I have per £1 invested the answer is about the same between DEC and EQT about 1.5X. What does that mean? Well, you will have heard of a balance sheet so let’s demystify that: ASSETS - LIABILITIES = EQUITY.

So for every dollar I invest in DEC I get about 66p of net assets (net of liabilities - assets minus liabilities, yeah?). I also get the same amount of assets if I invest in EQT. But I get fewer assets per $ with LNG.

Now if we ignore Jeff and buy DEC anyway, we do that not because we like owning gas wells. Probably. We buy because of future cash flows (aka dividends) and earnings (aka EBITDA)

So comparing Operating Cash as a ratio of mar cap (which means how much cash do I earn per £1 invested the answer is DEC 47p vs 19p for EQT so well over double or almost double of LNG.

Wow. Suggests the Target Price of DEC should be a higher percentage than the others, don’t you think Jeff? Is double the cash a good reason to halve the target price?

Next up adjusted EBITDA. EBITDA per BOE is around the same between the pair, EQT on this metric is 1% higher (but see below), although I also note that EQT have op. costs 25% cheaper than DEC per BOE. How have equivalent profits they must calculate adjusted EBITDA slightly differently (or calculate Op Costs differently). Not sure.

But when you compare adjust EBITDA per £1 invested…. there’s the MEGA WOW moment…..

DEC earns Adj EBITDA of 69p per £1 invested versus 16p at EQT. Jeff, go and hang your head in shame. Target price of 80p a share! Are you having a giraffe?!

Now please note I’ve used the DEC H1 2023 numbers and doubled those (so for example I’m saying DEC $283m adjusted EBITDA times 2), versus the EQT YTD (inc Q3) numbers and increased by 1.33. I appreciate that’s a guesstimate but it gives a reasonable “full year” comparison. In fact given that we don’t yet have DEC’s Q3 numbers if anything the other 2 show a stronger Q3. Note too, I’ve also had to convert McFe and TBtu into BOE as everyone reports differently.

Have I finished with poor Jeff? Poor Jeff who gets paid far more than the Oak Bloke to understand this stuff. Jeff earned $785m in 2022 reader.

No, there’s a final insight.

But Jeff this time we can both hang our heads in shame because I only spotted this today. Page 49 of the interim report. Now we know Tanos II and Conoco were accretive to earnings don’t we?

Can you see in DEC’s interim report Page 49 the words Pro Forma TTM Adjusted EBITDA?

What does that mean? Well TTM is trailing twelve months so it means July 2022 to June 2023. Pro Forma means let’s pretend as if the acquired assets had belonged to DEC between July 2022 to June 2023. So ACTUALLY on that basis

DEC earns Adj EBITDA of 77p per £1 invested, not 69p on a comparable basis. Still vs 16p. That’s nearly 5x more!

ALSO THAT DEC IS OVER 10% MORE PROFITABLE THAN EQT PER BARREL OF OIL EQUIVALENT ($12.33/BOE vs $11.17/BOE)

(I am using a DEC Q3 2022 - Q2 2023 comparison vs a EQT Q1-Q3 * 1.33 times to make that statement - it’s up to you whether you consider that fair - I think it is - the Adjusted EBITDA takes account of higher HH prices netted off against hedge losses)

So comparing DEC to EQT has been an interesting exercise and confirms my belief that DEC is one of the best value opportunities right now. It’s not going to surprise you reader that this is my #2 largest position.

Is Stifel at 170p (2.5X) actually a little conservative? I leave you to ponder that.

I write this to affirm my own investment thesis. You are welcome to read and enjoy my writing but please make your own investment decisions, this as always is not advice. Go to Jeff if you want advice.

Have a good weekend.