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Diversified Gas & Oil insulated against gas price drop suggests broker

Snapshot

  • Plans to move from AIM to the main market
  • Portfolio of thousands of relatively simple, mature wells
  • Production was 94,800 barrels per day in most recent results
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Quick facts: Diversified Gas & Oil PLC

Price: 90 GBX

AIM:DGOC
Market: AIM
Market Cap: £578.52 m
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How is it doing?

An update in February ahead of full results statement due in March, revealed 2019 ‘exit’ production rates of 94,800 barrels oil equivalent per day (boepd) for its consolidated asset base.

The average production rate measured around 96,300 boepd for the fourth quarter, the company said.

This marked a 5.7% improvement on the preceding quarter.

The consolidated rate comprises some 70,800 boepd for the group’s ‘legacy assets’ – all wells prior to the 2019 acquisition of HG Energy & EdgeMarc Energy -  and it includes a portfolio of thousands of wells subject to the company’s “Smarter Well Management programme”.

The company began 2020 with some 85% of its natural gas production hedged at an average price of nearly US$2.70, reaffirming its commitment to protecting cash flows and dividend.

Borrowing rating confirmed

DGOC had its borrowing base reviewed and its credit limit set at US$650mln, and, presently, it has drawn borrowings of US$437mln from the facility. The redetermination of the borrowing base comes shortly after DGOC’s US$200mln securitisation financing, completed in November.

At the same time, the company noted that Credit Suisse, Goldman Sachs and Morgan Stanley have joined the lending syndicate which now includes a total of 17 banks.

“In addition to their lending capacity within the credit facility, these banks further enhance the suite of services available to DGO including long-tenor hedging capabilities suited to the Company's long-life, low-decline asset base,” DGOC said in a statement.

What the boss said: Rusty Hutson, chief executive

"As DGO actively monitors both the macro-economic and industry landscape for factors influencing the commodity price environment, it remains focused on opportunistically increasing its hedge protection in 2021 and subsequent years to increase the percentage of production hedged."

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Inflexion points

  • More more shale deals in Appalachia by DGOC
  • 135p target price from broker Mirabuad
  • Any perceived tightening in the wider US gas market, triggered by an impending price-driven supply response. The EIA is forecasting L48 supply declines Jan-Dec, continuing into 2021.
  • Asset valuations have tumbled in Appalachia due to weak gas prices. With few well-capitalised buyers around, DGOC is well-placed to add value through fresh acquisitions.
  • The move to the Main Board (scheduled for March / April, after 9 March results) from AIM and associated FTSE index tracker buying.

 

What the broker says: Mirabaud

"Our analysis shows the company to be in excellent shape, despite headwinds in US gas markets, thanks to its solid balance sheet, low-cost business model (asset manager, not driller) and CF (cashflow) protection afforded by a LT hedge book.

"Even if NYMEX prices hold at ~US$2/mmbtu through FY22 – a bear case that would leave much of the shale gas industry fighting for survival – DGOC will generate ~US$435m of cumulative FCF (FY20-22), enabling it to pay its 14c/shr annual dividend (11.7% yield) and allocate >US$160m of excess capital to buy-backs, debt reduction & acquisitions".

 

 

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Watch

Full interview: Diversified Gas & Oil boosts production by 10% in third quarter

Diversified Gas & Oil PLC (LON:DGOC) CEO Rusty Hutson tells Proactive New York that the company has flagged up third-quarter production growth of 10%, at 91,100 barrels oil equivalent per day (boepd) compared to its 2Q. Hutson says growth is being driven by its current hedge program,...

on 14/11/19

3 min read