A Better Bet Than BP or Shell?

LONDON -- When you think of safe but profitable oil and gas investments in the FTSE 100 (INDEX: ^FTSE  ) , you probably think of Royal Dutch Shell (NYSE: RDS-B  ) or BP (NYSE: BP  ) -- I know I did. But you may have been missing an impressive alternative.

Powered by gas
BG Group's
(OTC: BRGYY) share price has risen by 20 times since 1992. In comparison, the FTSE 100 is currently just 2.1 times than it was in May 1992.

BG Group's long-term record puts most other big-cap oil and gas companies in the shade, as these figures show:

Company

10-Year Growth

10-year Avg. Total Return

BG

374%

17.5%

Royal Dutch Shell

29%

4.6%

BP

(25%)

1%

 

 

 

FTSE 100

11%

4.8%

Source: Morningstar; Digital Look.

BG Group is not a big dividend payer, typically yielding just over 1%, but its capital growth has more than compensated for this over the last decade. Indeed, anyone who bought BG shares 10 years ago at 306 pence will now be enjoying a yield of 4.9%!

End to end
One of the keys to BG Group's long-term success has been its ownership of the whole production cycle.

It has carefully built up its asset base so that it owns exploration activities, production assets, transportation, terminals, and long-term gas supply contracts all over the world. By doing this, it can take a slice of profits at any stage of the chain -- and still make money.

First-quarter profits up
BG Group's Q1 earnings were released today, and they make pretty good reading for BG shareholders. Operating profit rose by 21% to $2.4 billion, while cash generated by operations rose 47% to $2.6 billion. Earnings per share rose 54% to $0.37 per share.

The company's production output rose by 5% to 60.9 MMboe -- million barrels of oil equivalent -- while liquid natural gas operating profit reached $812 million -- up 42%, thanks in part to a post-Fukushima surge of demand in Japan.

BG has also been busy on the exploration and production side, with new gas discoveries in Tanzania and additional production starting up in Norway, Thailand, Egypt, and Bolivia.

According to BG Group chief executive Sir Frank Chapman: "These new sources of production will, at plateau, add around 50 000 barrels of oil equivalent per day net to the Group's production; helping to keep us on track to deliver our 6% to 8% annual average growth rate through to 2020."

Global reach
BG's global diversity means that it produces gas all over the world. This means it can take advantage of regional price differences for gas, which are much greater than for oil, due to transportation difficulties.

For example, while an oversupply of shale gas means that natural-gas prices averaged just $2.74 per million British thermal units in the U.S. over the last quarter, the average was $9.35 per MMbtu in the U.K. and $16 per MMbtu in Asia.

Too late to buy BG?
A look at BG Group's share price might suggest that it is too late to get in on the action. Yet I'm not sure it is. The market for gas is growing worldwide as countries increasingly switch from coal and nuclear generation to gas-fired power stations, which provide a happy compromise in terms of cost, pollution, and disaster risk.

What's more, this trend is likely to be replicated in the coming decades in India and China, and emerging economies all over the world will drive a general increase in energy consumption.

I think there is still some mileage left in the BG Group juggernaut -- and I am seriously considering adding some shares to my portfolio.

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Further investment opportunities:

Roland owns shares in Royal Dutch Shell but does not own any other share mentioned in this article. The Motley Fool has a disclosure policy.
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