Today I am looking at why I believe BG Group (LSE: BG) (NASDAQOTH: BRGYY.US) is in great shape to provide gushing returns for shrewd stock investors.
Production levels ready to hit the high notes
The result of maintenance closures in Kazakhstan, reduced drilling work in the US and reservoir drops in Egypt caused total exploration and production volumes to fall 2% in March-June. Analysts expect falling volumes to weigh on earnings this year before rising strongly thereafter — broker Liberum Capital expects that, after a 4% decline in exploration and production volumes in 2013, for output to register a compound annual growth rate (CAGR) of 10% through to 2018.
Promisingly, the company is well on the way to get first production rolling at its gigantic Queensland Curtis LNG project in 2014, and has successfully drilled three-quarters of the wells needed to service the two trains at its Australian asset.
Elsewhere, BG Group’s fourth appraisal well at the offshore Iara field in Brazil has also yielded stunning results in recent months. Studies there have revealed possible recoverable reserves and resources comparable to those of the Lula basin. The company’s next two floating production, storage and offloading (FPSO) vessels due to start next year are showing good progress, it says.
Asset acquisitions to boost existing potential
Although BG Group has said that it remains focused on hitting its 2013 milestones for its existing projects — particularly in Australia and Brazil — it remains a shrewd player when it comes to picking out future star assets.
The oil giant announced in August that it had won operator rights for 10 blocks in the Barreirinhas oil basin off the northern coast of Brazil. BG Group has 100% ownership of six of these blocks, with the remainder part-owned with heavyweights Petrobras and Galp Energia.
BG Group says that it expects to spend around $1.8 billion per year through to 2016 on exploration activities, and plans to plough oodles of capital into “early stage origination, discovery and development” in order to maximise early-stage growth opportunities and underpin long-term expansion.
An affordable way to grab stunning production growth
Given that the firm’s production story is in great shape to explode in coming years, I believe that BG Group currently provides decent value for money at current price levels.
The oil specialist currently deals on a P/E rating of 15.7 and 13.5 for 2013 and 2014 respectively, far below an average reading of 20 for the complete oil and gas producers sector. And although City analysts’ expectations of a 5% earnings per share drop this year results in an invalid price to earnings to growth (PEG) reading, a figure of 0.8 for 2014 illustrates the firm’s position as a value stock — any reading below 1 represents excellent bang for your buck.
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> Royston does not own shares in BG Group.
