LONDON -- There are things to love and loathe about most companies. Today, I'm going to tell you about three things to love about BG Group (LSE: BG) (NASDAQOTH: BRGGY).
I'll also be asking whether these positive factors make this FTSE 100 gas and oil group a good investment today.
Lean and agile
BG has been a great performer for shareholders. The company has delivered an annualized total return of 18% over the past 10 years, which is double the return of the FTSE 100 and even further ahead of the below-market returns of BP (8%) and Royal Dutch Shell (7%).
BG's success has been down to a great track record of finding and commercialising gas reserves. The company is big enough to explore the best frontier acreage, and its strategy going forward is to remain lean and agile enough to deliver the same industry-leading growth in shareholder value as in the past.
To this end, BG is aiming to have a focused portfolio of 10-15 high quality assets and to recycle capital into the kind of high-return, early stage opportunities that have previously served shareholders so well.
Analysts reckon BG's true net asset value could be nearer to £20 than the £12.30 the shares are currently trading at.
The company's strategy to remain lean and agile includes the "monetisation of up to 50% of discovered resources in the next 10 years, through production or disposal". If analyst asset-value estimates are right, the value should be reflected in the cash proceeds from disposals, which, in turn, should help drive the share price higher.
BG's focus on high returns has two arms. In addition to the high-potential areas in upstream oil and gas, the group has made a significant investment -- and continues to invest -- in liquefied natural gas (LNG) operations.
LNG demand is expected to grow twice as fast as overall gas demand, and BG is well placed to capitalise on this growth. Recent newsflow -- on the company's huge LNG project in Australia and long-term sales contracts -- has been uniformly positive.
A good investment?
The size of the discount of the shares to BG's true potential asset value and the company's focus on the high-return areas within its industry suggests there could be good upside for long-term investors.
There are certainly risks in oil and gas exploration, but success in early stage projects has been one of BG's great historical strengths, and the development of the integrated LNG business provides a more stable counterweight.
As BG's record of delivering value for shareholders demonstrates, companies in the oil and gas sector are capable of producing supersize returns for investors.
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