Expert share tips MIDAS

RUSTY Hutson, another oil veteran, is co-founder of Diversified Gas & Oil, which buys unwanted gas and oil wells from shale specialists.

When Midas first recommended Diversified in June 2017, the shares were 71p and the company produced the equivalent 11,000 barrels of oil a day. Today, following a series of acquisitions, daily production has surged to about 70,000 barrels and the stock price is £1.13.

The stock has done well but not well enough, according to Hutson and his co-founder Robert Post.

They already owned 20million shares each but recently bought another 450,000 shares between them, when the price was £1.10. Other directors followed in their wake.

Existing – and new – investors should take note. Diversified reports 2018 results at the end of this month and sales are expected to rocket from $42million (£33million) to $276 million, rising to $451million in the current year.

Profits are soaring too and the company is highly focused on generous dividends so brokers forecast a pay out of 11.1 cents (8.6p) for 2018, rising to 13.5 cents for this year.

Dividends are declared in dollars but paid out in sterling and the stock is now yielding about 7.5 per cent.

Diversified is based in the Appalachian Basin, a centre of America’s shale revolution. Including states such as Ohio, Tennessee and Virginia, the area produces more natural gas than any Opec country – and estimates of oil reserves are increasing fast as well.

Drilling for shale gas and oil is costly and specialist explorers and developers are often strapped for cash. This is where Diversified comes into its own.

The group buys wells that already produce gas and oil – frequently by conventional drilling – but they have often been neglected. With a little care and attention, Diversified can increase production, improve efficiency and drive profitability.

Looking ahead, Hutson is very ambitious. Shale firms remain keen to offload wells and the more Diversified buys, the more it achieves economies of scale. Institutional shareholders are supportive too, so Hutson knows he can raise funds from them, provided acquisitions are well priced and make strategic sense.