The Lemon Fool

New name : Diversified Energy Company

New ticker : DEC


New First Berlin research note on DEC

http://www.more-ir.de/d/22580.pdf

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Couple of recent acquisitions, things looking pretty healthy.

Just one thing to be aware of... divis are subject to WHT, so 30% without a W8-BEN or 15% with, but should be nil in a SIPP.

V8

Latest Cenkos research here for download

(Basically re-issued after they jumped the gun last week)

Bloomberg report today, DEC on the naughty step.
Methane leaks. As we all know, methane is an egregious climate gas.
Down 20% today.
https://www.bloomberg.com/features/diversified-energy-natural-gas-wells-methane-leaks-2021/

Hutson is the founder and chief executive officer of one of the strangest companies ever to hit the American oil patch and the reason for our four-day visit to the Appalachian region. While other oilmen focus on drilling the next gusher, Hutson buys used wells that generate just a trickle or nothing at all. Over the past four years his Diversified Energy Co. has amassed about 69,000 wells, eclipsing Exxon Mobil Corp. to become the largest well owner in the country.

Somewhere, I think HYPP, I described DEC as akin to a Ponzi, propped up by new capital raisings to fund new acquisitions.
If you believe in their model and think this is just a passing cloud, here's an entry opportunity at an 11% yield.
Or perhaps the wheels will now come off.

Anyway, there it is.

V8 (hold, not in size, not adding.)

From the linked article from 88V8 above.

"This may explain why Diversified frequently determines the wells it’s buying are worth far more than what it paid—so much so that it books the difference as profit upfront. Since 2014 the amount Diversified has made from these accounting gains is more than its cumulative reported profit. In its statement the company noted its books are reviewed by outside engineers as well as independent auditors at PricewaterhouseCoopers."

This is an extremely risky business practice imho...chickens before they're hatched scenario. This immediately puts me off. Hardly prudent trading. PwC....how come they're playing along with this practice? I would imagine that the environmental issues and potential costs to US taxpayers will bite...especially when paying large dividends.

( a recent addition by Simon Gergel to his Merchants IT .....mmmm, seduced by the yield? Fortunately the value is a low % of the MRCH holdings).

monabri wrote:This is an extremely risky business practice imho...chickens before they're hatched scenario. ( a recent addition by Simon Gergel to his Merchants IT .....mmmm, seduced by the yield? Fortunately the value is a low % of the MRCH holdings).

Yes, chickens from the Carillion playbook.

Merchants have a long divi record to defend in a difficult market, hope they and other Heroes don't get too Woodfordish.
Is cold fusion still a thing?

V7

Here is the accompanying video from Bloomberg

Here is the company's response via RNS

For those who have been here for a number of years it's pretty much a re-hash of former 'news' of a long time ago which DEC went to great lengths to explain; but since investors have the memory of a goldfish it all appears a bit new and amazing to them. Somewhat of a yawn moment but unfortunately it has implications for shareholders in terms of valuation. (A bit like being accused of drilling for oil in a mountain; ref Soco history).

It's about time companies stop pandering to the few and maximise profits to the hilt because there is precious little reward in being a good corporate citizen.

A company that has to issue an RNS like that needs to ask itself why the press and indeed other investors are not very enthusiastic about them. A persistent yield of around 10% is telling investors something. Either it is the steal of the century or the business is less than secure.. Probably one reason is that, as has been said earlier in this thread, this is actually a US business quoted in London. You need to ask why.

The market seems to be worried though about the cost of decommissioning many of their aging wells, and because of its assets, it does not give the impression of a dynamic forward looking company. Like others with a similar business profile, they can throw off great dividends but often pay for them with a less than dynamic share price.

Definitely not one for me.

Dod

I smell more than methane....

Trades very imprudently ( dangerous! ).

viewtopic.php?p=449610#p449610

That's MORE than enough reason to bargepole it.

You highlighted "determines the wells it’s buying are worth far more than what it paid—so much so that it books the difference as profit upfront."

Factually incorrect. You cannot make a profit or loss from a change in asset valuation. You can do lots of other things with changes in the carrying value of an asset but making a profit is not one of them. It's basic accounting.

Having read the Bloomberg report on them, in the words of the analyst's report on Mirror Group all those decades ago:
Cannot Recommend A Purchase

Well, after reading the report again, and the RNS, and some commentary in 'other places', I did top up after all.
They have a sort of 'moat'.

V8

The SP is back near a quid.
Hooha about climate change and methane leakage from wells and DEC's capping rate. Extensive discussion on ADVFN where John Hemming has migrated.
I bought a few more today.

V8

I've held these for a while, largely, I must admit, for the very gratifying lumps of dollar denominated dividends that keep landing, entirely tax-free, in my SIPP account. Over the past year these dividends, already more than 10% p.a., have been further boosted by the strength of the dollar.

However, I'm always very suspicious of a company with such a high yield, so I recently watched this investor presentation, and although it's an hour long I felt it was very reassuring, to the extent that I've bought some more.

For any fellow investors I hope you may find it interesting - https://presentations.investormeetcompa ... 1049947b72

Clitheroekid wrote:II recently watched this investor presentation, and although it's an hour long I felt it was very reassuring, to the extent that I've bought some more.

Yes, it does seem too good to be true. But gas demand is not going to fall.

I also topped up, again, last week. I now have more in DEC than in BP, but less than in Shell.

V8