The impetus for this upgraded target was DGOC’s increase in its third quarter dividend.
In turn, the improved dividend was the result of greater production volumes thanks to acquired assets - in the Carbon Energy and EQT transactions – and the company’s stated policy for returning cashflow to shareholders.
“DGOC's target is that not less than ca. 40% of adjusted free cashflow, defined as adjusted EBITDA (hedged) less maintenance capex, interest expense and well retirement costs, should be paid out as dividends,” First Berlin analyst Simon Scholes said.
“On our forecasts the payout ratio on this basis at the current dividend level will be 44% this year and 48% in 2021.”
Scholes added: “Meanwhile fully loaded costs are likely to fall in the medium term as DGOC realises economies of scale. This suggests that the fully loaded cash margin is likely to remain above 40% thereby providing a strong base for future acquisitions and dividend increases.
“The strategic participation agreement with Oaktree announced in October will make it easier for DGOC to add further value through acquisitions. The Oaktree deal also validates DGOC's operational prowess.”
In early October, entered into a new partnership with Oaktree to work together to identify and fund future acquisition opportunities.
Oaktree pledged p to US$1bn in aggregate over three years for mutually agreed upon “proved developed producing” (PDP) acquisitions, with transaction valuations greater than US$250mln.