This energy growth monster has completely thrashed the BP share price
US-based gas and oil producer Diversified Gas & Oil(LSE: DGOC) is up 4% today after delighting investors with a strong set of results, including a near sixfold increase in revenues to $58m.
The AIM-listed £585m group, which has a focus on the Appalachian Basin, is up 52% in the past year, and today’s results for the six months to 30 June suggest the momentum could continue.
It has materially increased production through acquisitions, including Alliance Petroleum for $80.7m in March, $89.3m of conventional assets from CNX Resources in April, and $575m of gas, oil and midstream assets from EQT Corporation (the largest acquisition by an oil and gas company in the history of AIM).
Average daily production was 19.3 kilo barrel of oil equivalent (kboed) over the period, hitting 60 kboed in post-period July. It also revealed strong adjusted EBITDA margins of 40% and “significantly strengthened balance sheet and liquidity”, with $439m of new gross equity raised. It now has an enlarged credit facility of $1bn, with a $600m committed borrowing base. Overall, it has a strong liquidity position of $187m.
CEO Rusty Hutson hailed “a period of transformative growth” with acquisitions boosting production by more than 90% without risking the balance sheet. He said the real impact of the group’s “game-changing acquisitions” are still to come, in materially increased cash flow, lower costs and enhanced EBITDA margins.
Diversified will start paying dividends in September and City analysts forecast a yield of 7.4% for 2018, and 8.3% for 2019, alongside whopping earnings per share (EPS) growth of 28% this year, and 86% in 2019. A lot can go wrong with AIM-listed energy explorers but this looks an intriguing option.
Big and beautiful
At the other end of the size scale, £109bn energy titan BP(LSE: BP) has also been having a good year, its share price up 21%. It’s been given a fair wind by the recovering oil price, with Brent crude currently hovering around $80bn on latest Iran concerns and Hurricane Florence fears.
I was intrigued by a bullish report on Big Oil from analysts Berenberg yesterday, which hailed BP a buy with a target price of 665p, suggesting a 20% uplift from today’s 550p, if you trust in these things.
Lower costs, growing output and higher crude oil prices should all help drive BP’s free cash flow, while cost-cutting when crude dipped below $30 is now paying off handsomely. Don’t forget that BP quadrupled its second-quarter profit in the year at the end of July, and increased its dividend for the first time since 2014.
There are the inevitable strategic uncertainties as the world looks to shift away from fossil fuels, with a new report from the Carbon Tracker Initiative suggesting oil demand could peak as early as 2023. But you cannot set too much store on these arguments, as anyone who remembers the frenetic Peak Oil debate knows.
You can set store on BP’s 5.7% yield, though, combined with a forecast valuation of just 12.5 times earnings. EPS are forecast to rise to 222% this year, then 12% in 2019. I recently described BP as my ultimate FTSE 100 long-term buy and hold and see no reason to change that view today.
harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.