FTSE 250 movers: Diversified Mining rallies on Snowcap rebuttal; Tullow Oil in favour
FTSE 250: 19,141.11, +0.78%
Diversified Energy hit back on Wednesday after activist investor Snowcap Research said the company may not have enough funds to cover the costs of plugging its inactive wells and that a dividend cut was imminent, sending its shares tumbling.
Diversified, which is the largest owner of oil and natural gas wells in the US, said it was "aware of a recent opportunistic report published by a short seller which repeats previously stated claims that the company has already transparently and proactively addressed with investors and other stakeholders".
It said the report "contains numerous inaccuracies, ignores specific financial and operational results and sustainability actions, and is designed for the sole purpose of negatively impacting the company's share price for the short seller's own benefit".
In the 39-page report released on Tuesday, London-based Snowcap, which is short the stock, said 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 Diversity’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 said on Wednesday that it "continues to focus on delivering long-term shareholder value, prioritisation of outstanding debt reduction, and evaluating strategic growth and accretive value-additive opportunities".
"Diversified is an important part of the solution amid the energy transition to consolidate, and retire existing US energy infrastructure assets, drive economic growth and deliver emission reductions, and remains committed to the responsible ownership and operation of our assets," it said.
The company’s year-end trading statement is due by the end of January.
Tullow Oil on Wednesday said the start-up of the Jubilee South East operation off Ghana helped to drive production and lifted 2023 cash flow ahead of expectations.
The oil and gas explorer on Wednesday said it was on track to deliver around $600m in free cash flow over the next two years to achieve its stated target of $800m from 2023 to 2025.
Five Jubilee wells were expected to come onstream in 2024, concluding the activity planned at the start of the drilling programme approximately six months ahead of schedule with excellent drilling performance.
Year-end net debt was reduced by about $250m to $1.6 bn.
Hochschild Mining held annual guidance as 2023 production came in at the top of its target range, although full-year gold and silver output was lower than the prior year.
The company reported production of 186,091 ounces of gold last year, compared with 206,013 ounces in 2022, and 9.5 million ounces of silver, down from 11.0 million.
Gold-equivalent basis production was 300,749 ounces, at the top end of Hochschild’s guidance range of 289,000-303,000, driven by slightly higher-than-expected production from its Inmaculada and Pallancata mines in Peru.
The Mara Rosa project in Brazil is scheduled for first production next month, and would contribute between 83,000 and 93,000 gold ounces to 2024 output, the company said in an update published on Wednesday.
Hochschild said it still expected overall attributable production of 343,000-360,000 gold-equivalent ounces.
Market Movers
Diversified Energy Company (DEC) 927.50p 9.76%
Tullow Oil (TLW) 32.60p 7.95%
Centamin (DI) (CEY) 99.10p 6.50%
Hochschild Mining (HOC) 94.45p 6.36%
AJ Bell (AJB) 312.60p 5.25%
International Distributions Services (IDS) 273.70p 4.51%
PureTech Health (PRTC) 198.20p 4.32%
W.A.G Payment Solutions (WPS) 91.60p 4.09%
Helios Towers (HTWS) 82.20p 4.05%
Drax Group (DRX) 499.20p 3.87%
FTSE 250 - Fallers
Senior (SNR) 160.00p -6.43%
Close Brothers Group (CBG) 579.00p -3.90%
Watches of Switzerland Group (WOSG) 375.60p -3.49%
TBC Bank Group (TBCG) 2,770.00p -3.15%
Greggs (GRG) 2,642.00p -2.00%
Mitchells & Butlers (MAB) 260.00p -1.66%
BH Macro Ltd. GBP Shares (BHMG) 360.50p -1.64%
North Atlantic Smaller Companies Inv Trust (NAS) 3,730.00p -1.58%
Tyman (TYMN) 295.50p -1.50%
Jupiter Fund Management (JUP) 74.25p -1.33%