Diversified Energy (DEC) is a £1bn company with a price/earnings ratio of 7, positive cash flows and a dividend yield of over 10 per cent. It’s listed in London but operates in the US where, so far, it has bought about 69,000 small marginally productive oil and gas wells that previous owners found uneconomic.
Its strategy is to buy more and use better technology and better management to make these wells more productive. Its focus is on gas, which it extracts and transports through the 17,000 miles of pipes that it owns or controls, and it claims that this business model reduces the need for others to explore and drill for new reserves elsewhere.
Last month, two Bloomberg journalists (Zachary Mider and Rachel Adams-Heard) challenged Diversified’s business model. They checked 44 rusting wells and found that about half were leaking. This is serious because natural gas consists mostly of methane and if just 3 per cent escapes between the well head and the power plant, electricity generated by natural gas damages the environment more than coal. They claimed that leakages from old wells in Appalachia, where Diversified mainly operates, could equate to up to a fifth of the overall gas production there. A third of US methane emissions come from the oil and gas sector and the impact of methane on global warming is over 80 times that of carbon dioxide over a 20-year period.