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

Wednesday, Jan 16 2019 by
14

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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Diversified Gas & Oil PLC is a gas and oil producer. The Company is engaged in conventional natural gas and crude oil production in the Appalachian Basin of the United States. The Company owns and operates over 7,500 conventional natural gas and crude oil wells in Pennsylvania, West Virginia and Ohio. The Company's daily production is approximately 60,000 barrels of oil equivalent per day, which consists of approximately 26,000 million cubic feet (mcf) per day of natural gas and 475 barrels of oil per day. The Company operates over 3,000 wells in Ohio on approximately 164,000 leased acres in multiple counties along the I-75 corridor. The Company operates approximately 235 conventional wells in the West Virginia state and holds over 6,500 acres of leasehold. The Company operates over 4,000 wells and approximately 863,000 leasehold acres, in Pennsylvania, over multiple counties. more »

LSE Price
114.5p
Change
6.0%
Mkt Cap (£m)
739.8
P/E (fwd)
6.7
Yield (fwd)
11.0



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27 Posts on this Thread show/hide all

Edward John Canham 30th Jan 8 of 27
1

Hi Herbie

I presume you mean at the end of 2018?

The spike was caused by the US going into the "heating season" with very low stocks. This perversely seems to have been partially self-inflicted due to the increase in sales of LNG to the R-o-W - the normal build up of stocks before what was forecast to be a colder than usual winter didn't happen.

Seems to be unwinding now.

Phil

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lightningtiger 30th Jan 9 of 27

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.

 

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alterego 31st Jan 10 of 27

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/

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Edward John Canham 28th Feb 11 of 27

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

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willhampson 28th Feb 12 of 27
2

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).

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shanklin100 28th Feb 13 of 27
4

In reply to post #452923

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

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willhampson 28th Feb 14 of 27
1

In reply to post #452958

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

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Carcosa 1st Mar 15 of 27
9

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

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shanklin100 1st Mar 16 of 27
4

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.

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Edward John Canham 27th Mar 17 of 27
1

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

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Edward John Canham 27th Mar 19 of 27
1

Interesting line from presentation:-

"Pro-Forma Market Capitalisation Exceeds FTSE 250 Threshold"

Wonder what they have in mind?

Phil

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willhampson 27th Mar 20 of 27
2

In reply to post #462473

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

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Edward John Canham 27th Mar 21 of 27

In reply to post #462483

Will

Thanks - I'd forgotten that.

Phil

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CHRIS SELBY 2nd Apr 22 of 27

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

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Carcosa 2nd Apr 23 of 27
5

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

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herbie47 7th Jun 24 of 27
1

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.

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JohnEustace 7th Jun 25 of 27
2

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.

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ISAallowance 7th Jun 26 of 27
2

In reply to post #481881

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!

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herbie47 7th Jun 27 of 27

In reply to post #481891

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

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