- Diversified Energy Company Plc
- 23 January 2024 22:48:32
Source: Sharecast
London-based activist investor Snowcap, which is short the stock, said in a 39-page note that Diversified’s own reported production rates appear to indicate decline rates well in excess of the headline decline rates claimed by the company.
It also said the company’s self-reported "discretionary cash flows" are calculated using what it believes to be "a flawed and misleading methodology".
"By our adjusted calculation, discretionary cash flows in the last 12 months were just $3m (versus dividends of $162m)," Snowcap said, adding that a dividend cut looks imminent.
Snowcap said Diversified has marked down its asset retirement liabilities (AROs) by delaying well retirement as far out as 2095. It noted that the company says it can fund these long-dated costs based on its own 50-year cash flow projections.
"But these projections are highly sensitive to changes in DEC's long term assumptions, which appear to be overly optimistic," Snowcap said.
"Based on our own modelling using marginally more conservative assumptions than the company, we estimate that DEC's retirement costs may exceed the cash flows from its business as early as 2036, and that even with no future dividend payments to shareholders, DEC's cumulative cash flows may be insufficient to cover its ARO (asset retirement liabilities)," it said.
Snowcap also pointed out that a recent study using satellite measurements to estimate the methane emissions intensity of 25 oil & gas companies found that Diversified’s methane emission intensity was as much as 16 times higher than the company reports and "substantially above" the threshold for methane fees under new IRA rules due to start in 2024.
Diversified is the largest owner of oil and natural gas wells in the US, with 10% of the national total at 78,000.
Shares in the company ended down 13% on Tuesday at 839.08p.
