DGOC looks to be in for a great 2019 growth in oil output

16th Jan '19 by lightningtiger

28 comments 4057 reads

DGOC has a good track record of increasing revenues from $7.36M in 2014 to an estimated $421M in 2019. Net profit last year was $40.7M and estimated for 2019 is $99.3M, whoch is more than double.
What really stands out is the sales growth of a massive 452.4%.
Operating margin is shown at 38%.
StockRank is currently 45 with a Momentum 99 with all MA's positive in green.
The dividend is shown at 8.55%.
It joined the AIM market just over a year ago.

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About the Author

Lightningtiger

Premium Member

700 club gold member. Anniversary yesterday 1/10/2013. Recently returned from New York with a wish to see Wall Street for myself as a bit of a satisfying accomplishment. I first got interested in investments when I was a financial advisor for 14 years. I learned a lot & went to quite a few investment seminars. The one I remember particularly was with Fidelity. They visited the companies that they invested in and held them for a long duration in their portfolios. The other thing was with different currencies that they could buy a particular stock with and of course sell it if it was favourable with another currency. This was potentially more risky of course. It was not long before I realised that all the money from the insurance premiums had to be invested and who was doing it. We used to sell investment bonds where 5% was allowed to be taken tax free once a year on the anniversary of the policy which could run for 20 years.There was a choice of Managed, Property, or Equity to invest into. It was at this point of time that the Property fund went up 40% in less than a year. A simple comparison with the Managed and Equity funds showed the difference. I was soon taking a keen interest in unit trusts and shares, looking for things that were going up and the highest that they had been and bought them. I bought a software package with Up-data which enabled me to be much more efficient, putting stop losses in. Drummed into my head was cut your losses and sell when a stock breached the stop loss and let the profits run. Another stepping stone was to buy myself a Rolls Royce silver shadow that was chestnut brown in colour. The reasons were threefold. 1. That I could afford it. 2. The two managers for the insurance company that I was working for were called Douglas & Rolls. 3. I was still single. As well as doing the insurance business I joined an investment club in Basingstoke and became their chairman. We closed it this year sadly because of ill health with some of the members. Now I have a portfolio that I am able to take out (if & when I want to some cash) just like the insurance bonds but much more flexible. I enjoy the technology stocks and have taken profits several times from Arm Holdings which is the only share that I have held for many years now. Having just got this Stockopedia yesterday (first saw it at an investment seminar in London earlier this year) when I noticed Dart Group (DTG) so that is now in my portfolio too. I suppose you could say I am an analyst & a chartist. It was good to see my portfolio already has Globo, , Blinks, Clingen ,Dart, Wanddisco, opay,Easyjet ,LLoyds Arm Telicom Plus(which has doubled and a bit more but then started to drop so I have just sold almost half and re invested the proceeds into ASOS.) In conclusion I hold about 20 shares, and have just INCREASED my holdings in Globo about two weeks ago, and noticed someone has reduced their holding with Globo to 3%.I hope they are not still holding the poor pawnbroker shares (guess who) -40% in one day followed by further catastrophic drop. A good case for a stoploss . Join the 700 club and put some money to work I say. more »

28 comments

lightningtiger

30th Jan '19

Hi Edward, thanks for the interesting graphs.With "the heating season" in the US now into the grips of really cold weather to such as -30c which means that salt will not met the snow and ice according to Pat Robertson of the 700 club yesterday, and the UK news today.
There is certainly an interest in the shares today with 1.6M trades compared with an average of 809k.

The Stockopedia report shows the graphical history of Revenues, net profit and dividends all increasing.

Regarding Wilkonz comment "looks a good punt so long as the price of oil holds up" is fair comment, but personally I think production could well double, which would still show both good profits and more dividends to come. We will just wait and see.

It is worth looking at their website to keep up with the progress.

alterego

31st Jan '19

trading update today:
"the Company confirms that trading in the final weeks of 2018 remained strong and that the results for the year to 31 December 2018 are expected to be in line with expectations, as revised following the trading update issued on 3 December 2018."
Also announced that full year results to 31/12/18 will be published on 28 Feb.

https://www.investegate.co.uk/diversified-gas---38-oil--dgoc-/rns/trading-update-and-notice-of-results/201901310700116486O/

Albertos

28th Feb '19

Excellent results today.

Presentation:-

https://ir.dgoc.com/presentations

Expecting the SR to increase somewhat from the current level when the figures are updated and no longer being classified as a momentum trap.

Somewhat muted response from the market this morning - anyone got any comments?

Phil

willhampson

28th Feb '19

Hi Edward, I agree - I thought the results were excellent. They are also ahead of the recently upward revised broker estimates. Edison, for example, were projecting $277.7m revenue and $145.3m in EBITDA for 2018 year end; actuals were $289.8m and $161.9m, respectively.

The muted share price reaction, I suspect, is related to the fact that a deal still hasn't been done with Pennsylvania state, which pertains to a large chunk of possible decommissioning costs. This was flagged back in the 10 August trading update, which caused a bit of a sell-off at the time. While they have done deals with other states to cover approx. 60% of assets, its clearly taking a long time for the Penn deal to be flushed-out. I can see how this gives the market some jitters.

Disc: I hold shares in Diversified Gas & Oil (LON:DGOC).

shanklin100

28th Feb '19

will

In terms of Pennsylvania, today's results contain...

"In final discussions with the Commonwealth of Pennsylvania regarding an agreement covering wells in the state, with signature expected in the near-term"

which does sound more certain than prior utterances on this front.

Specifically in the TS on 04-Dec-18, the text on this front was:

"As affirmed with the Agreement, DGO remains committed to being a good steward of the environment within the states in which it operates. The Company has an existing multi-year agreement for plugging of non-producing wells in the state of Ohio and, building off the success of completing this agreement with West Virginia, is actively engaged in discussions with the states of Pennsylvania and Kentucky to complete similar long-term agreements for the benefit of all stakeholders. DGO develops its plugging programmes to comply with all state requirements, and is quickly building the scale of its plugging operations to demonstrate its commitment to decommissioning non-productive wells responsibly."

Cheers, Martin

willhampson

28th Feb '19

Thanks, Shanklin. Hopefully something will come through in the not too distant future re a deal with Penn state!

I see there was huge sale volume today, over 20 million shares. The last time that happened was in 12/13 December when Trive Capital sold much of its holding through a placing. It will be interesting to see which II has sold and who the buyers were. I bought a tiny extra amount today.

Best, Will

Carcosa

1st Mar '19

I have been flip-flopping between holding/selling my DGOC shares since the Finals were issued yesterday.

Some key features were that the declared EPS was 52c versus forecast of 15.2c. Which I think lead some investors to expect a huge share price increase rather than the 3.5% decline on the day. At 52c that would result in a P/E of 3.

Perhaps the discrepancy was largely the result of a Gain on bargain purchase of $173.4m (A bargain purchase involves assets acquired for less than fair market value or negative goodwill). That number represents around 60% of $290m Total Revenue and clearly that $173.4m is a non recurring revenue representing around 38c EPS and that becomes a lot closer to the analyst forecasts. So a true PE of around 10. That's reasonable.

But of course its all about the future. With the current assets then the only reliable indication of what we can expect 12 months from now in terms or production can be based on the 4th quarter numbers only due to the timing of acquisitions.

For example, revenue Q1 to Q3 was $150m but revenue from Q4 (post acquisitions) was $140m. A simple 4x140 = $560m* revenue for next year which more than makes up for the one-off "Gain on bargain purchase"

* Okay this is simplistic as it comprises things such as:
Commodity price remaining stable
Production remaining stable (highly likely as remediation work kicks in)
Financial instruments working favourably
Realisable prices being maintained/improved

However there will be further aquistions on the way in 2019 do we can expect more of those Bargain Purchase Gains.

A few other observations:

Capex (maintenance) is around $20m
New drilling is going to be minimal
Finance costs are around 5%
Net debt/Adj EBITDA below ~2.0 to 2.5x; presently 1.8x and falling
Obtained $1.6bn assets for $1.0bn
All acquisitions must be positive for cash flow and dividend increase
Only a third of the cash realisation price improvement is attributable to better commodity pricing
Change in hedging strategy is designed to take advantage of better pricing for later in the year
Decline rates in 2019 expected to be flat due remedial work

The 'problem' with DGOC is that although their reporting is extensive, it's almost like reading the results of a large bank. I find it difficult to find what I would term the 'real numbers'. Some financial ratios make no sense to me because the company is an entirely different beast to what it was 12 months ago.

I come away with the feeling that things are going in the right direction though and as a dividend share it's a good one to have around as clearly, that is what the Board are very focussed on. This presentation is worthwhile reviewing: http://webcasting.buchanan.uk.com/broadcast/5c4b2d8ca0c50933d27109d1

So expected newsflow will be: Pennsylvania decommissioning programme and further acquisitions

shanklin100

1st Mar '19

Carcosa

Thank you for the link to the webcast of the presentation. I had already reviewed the presentation carefully but the voiceovers still added to them.

I agree with you that the financial results are virtually impossible to comprehend due to the fundamental changes to the company brought by four acquisitions.

However, the operational basis for investing in DGOC seems very well explained, with cash flow/share being the key focus of all they are doing reflected in a progressive and large dividend.

I am sure the various banks lending to DGOC are all over their numbers and DGOC do seem to be generating sufficient cash to fund significant operational improvements, pay a large and growing dividend and, as per slide 26, pretty aggressively pay down debt at circa $17m/month

N.B. There is an error on slide 26, as the debt reduction of $70m is over 4 months not the 5 indicated.

Albertos

27th Mar '19

Another major purchase - $400m this time - $225m placement.

https://www.investegate.co.uk/diversified-gas---38-oil--dgoc-/rns/proposed-placing-by-way-of-accelerated-bookbuild/201903271718312374U/

Initial read suggests a good deal.

Phil

Albertos

27th Mar '19

Company presentation:-

https://d1io3yog0oux5.cloudfront.net/_d9b0524f4bd1da6c70ce96b9e73ae302/dgoc/db/557/4307/pdf/DGOC+-+IR+-+Huckleberry+-+Acquisition+vF.pdf

Albertos

27th Mar '19

Interesting line from presentation:-

"Pro-Forma Market Capitalisation Exceeds FTSE 250 Threshold"

Wonder what they have in mind?

Phil

willhampson

27th Mar '19

Hi Phil, I suspect its a reference to the suggestion that they were evaluating a move to the main market that they made in the full year results presentation.

https://d1io3yog0oux5.cloudfront.net/_d9b0524f4bd1da6c70ce96b9e73ae302/dgoc/db/557/4296/pdf/DGOC+_IR+-+Earnings+Presentation+-+2018FY+Earnings+vFinal.pdf

Its on page 30. The BRR Media interview discusses this in more detail. All the best, Will

Albertos

27th Mar '19

Will

Thanks - I'd forgotten that.

Phil

CHRIS SELBY

2nd Apr '19

Worrying article in the F.T.

hTTps://www.ft.com/content/73acb030-537f-11e9-91f9-b6515a54c5b1?segmentid=acee4131-99c2-09d3-a635-873e61754ec6

Whilst I fully appreciate the gas prices being quoted ( or not being obtained might be more appropriate,) are in Texas, is this going to impact the Pennsylvania, Kentucky, Virginia gas market in due course

Carcosa

2nd Apr '19

This is a very localised regional issue, which is why DGOC keep informing investors that it avoids such regional issues and maintains multiple access to various pipelines. Now they also have 10400 miles of their own pipeline and are capable of taking other third party gas producers output. So in effect DGOC will not be in a position as those in Texas; which are after all suffering because gas is a bi-product and due to infrastructure issues they have no access to market.

In theory if this was to happen elsewhere with DGOC pipe distribution available then it would be a bonanza for DGOC. However the infrastructure is very robust simply because the gas production has been the primary source of output and not the secondary by-product.

The only 'real' issue imo is the rapid increase on overall gas production in USA affecting long term prices.

Btw, As I wrote elsewhere today, DGOC now has nil notifiable short positions against it's stock after Mangrove Partners gave up on it as notified 29th March 2019. This presumably is what was driving the share price up recently, as they closed their short

Rusty2

7th Jun '19

I noticed the share price has fallen considerably over the last 10 days, I presume this is tied in with the fall in NATURAL GAS (HENRY HUB) price fall? Only other news I can see is Miton fund manager has sold a fair amount and some directors have bought.

JohnEustace

7th Jun '19

Herbie,
There has been a bear attack underway. If you look at the ADVFN thread for DGOC you will see more details.
I notice the directors have been buying in decent volume in response.

ISAallowance

7th Jun '19

Hi herbie,

There is a bear report out that is probably at least partly responsible for the drop:

https://oarfishresearch.blogspot.com/2019/05/diversified-gas-oil-decommissioning.html?m=1

I don't hold either way.

Edit: John posted the same whilst I was writing that!

Rusty2

7th Jun '19

OK thanks, I don't frequent ADVFN. Looks interesting situation with bear attack and directors buying.

lightningtiger

20th Jun '19

StockRank now 85. Directors buying again & company transactions in their own shares. Revenues showing at $541.3M. Sales growth showing at a massive 650.5% and the EPS growth of 417.9%. The first 3 dividends this year have all passed the XD date , with the 2nd dividend to be paid on 28/6/19.
Share price currently @ 114.5p , up 6% at the time of writing.
Is the share price going to go above the 120p mark?

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DGOC looks to be in for a great 2019 growth in oil output

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Lightningtiger

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