When I think of gas and oil exploration and production company, and LNG specialist BG Group (LSE: BG) (NASDAQOTH: BRGGY.US), two factors jump out at me as the firm’s greatest strengths and top the list of what makes the company attractive as an investment proposition.
1) Track record
Oil and gas exploration can be an unforgiving game. Some companies seem to struggle along drilling one dry hole after another and burning investors’ cash at an alarming rate for years, while other companies seem to have a magic touch with the drill bit and strike one find after another for a sustained period.
It’s perhaps unfair to polarise exploration companies as either winners or losers like that, as there will always be the middle ground where previously losing companies make a strike and a long-time good performer hits a string of duffers; however, from what I’ve seen, it seems hard for any firm to suddenly reverse its fortunes, and performance trends tend to extrapolate forward.
BG Group has an excellent record of exploration success. Since becoming a standalone company in the nineties, the firm has made 15 big discoveries around the world adding an average 1 billion boe (barrels of oil equivalent) to its resource reserves every year for a decade. The reserves replacement ratio ran at almost 200% over that period and reserves now stand at about 18 billion boe. Such a record isn’t everything, but it does give me confidence that the firm has the right touch to go on to achieve further exploration success.
2) Diversity
BG doesn’t have all its hopes pinned on oil and gas exploration. The company also runs a large liquefied natural gas (LNG) business and reckons that by 2017 it will be the largest contracted supplier to China, the world’s fastest-growing LNG market, as well as 25 other LNG-importing countries around the world.
Around 40% of the firm’s revenue comes from its LNG operations with the remaining 60% coming from oil and gas exploration and production activities. Although short-term challenges centred in Egypt are affecting the company’s LNG operations, the diversity of the BG’s business activities adds to the longer-term attraction of the firm as an investment proposition. Recent share-price weakness could end up looking like a decent buying opportunity for investors with an eye on BG.
What now?
BG Group looks like a well-balanced and successful company in the resources sector with its growth potential still intact despite recent operational setbacks.