Bright Enterprises is a "Family Office" consisting of a significant group of privately held businesses headquartered in Summersville, West Virginia. Founded in 1959, Bright Enterprises' investments and businesses are owned by William T. Bright, his family, family trusts and management.
Much of the original capital for Bright Enterprises evolved from the sale of coal and manufacturing assets in 1989 and 1990. Current Bright Enterprises holdings include Winterplace Ski resort near Beckley, WV; substantial royalty interests in coal, oil and gas properties; a 55 million gallon per year ethanol production facility in Michigan; oil exploration and production businesses in Alberta, Canada; a chain of 24 hour personal fitness centers; Adventures on the Gorge, a whitewater rafting and other adventure activities business in Fayette County, WV; and, The Elk River Railroad, an 80-mile shortline railroad.
In addition, Bright Enterprises maintains a significant portfolio of domestic and international passive investments including hedge funds, private equity and real estate partnerships, common stocks and other passive investments.
Other recent holdings, which have been sold, include a 300 well coalbed methane business; a natural gas processing plant and pipelines in Michigan; Glade Springs Resort, a 4,400 acre golf and convention resort along with a 3,000 homesite master planned community; and, a large real estate development project in Florida.
Bright Future For Cabot Oil & Gas
Summary
Cabot Oil & Gas has corrected by 20% in the last five months and this is an excellent buying opportunity.
Along with prized assets in Marcellus and Eagle Ford, the company expects strong production growth in 2014 and 2015.
Valuations are attractive and a PEG of less then one suggests that there is upside potential for Cabot Oil & Gas as it grows strongly.
With 55% production growth and 42% reserves growth in 2013 coupled with some strong plans for 2014 and beyond, Cabot Oil & Gas (NYSE:COG ) is certainly a stock worth considering. This article discusses some of the key investment positives related to the stock that can make the company a long-term value creator.
Key Investment Positives
Correction, a Buying Opportunity
On May 1, 2014, Cabot Oil & Gas was trading at $39.4. The stock has corrected by 20% in the last five months to current levels of $31.5. In my opinion, this correction is an excellent opportunity to buy Cabot Oil & Gas. The discussion below will elaborate on the reason for this conclusion. However, it is important to note that the correction in the stock has been driven by decline in energy prices and not due to negative factors related to the company. I am of the opinion that energy prices will bounce back soon as global geo-political factors support high prices. The correction is therefore a good buying opportunity for this star performing stock.
A Big Marcellus Play
Cabot Oil & Gas is a Marcellus play and the company has done exceedingly well in the Marcellus in terms of production and reserves growth. Just for 2013, the company's Marcellus production jumped by 70% to 356.5bcf from 209.3bcf in 2012. For the same period, Marcellus proved reserves increased to 4,752bcf as compared to 3,044bcf in 2012.
The key factor here is the impact on margin and Cabot Oil & Gas has done exceedingly well to reduce the finding and development cost to $0.4 per mcf in 2013 from $0.73 per mcf in 2009. Considering the current drilling rate, Cabot Oil & Gas has a 25 year drilling inventory in Marcellus and this means that reserves growth will continue to be strong as it was in 2013. In 2014, the company plans to drill 110-120 wells in Marcellus alone and this will provide a strong reserves and production growth platform. Further, reserves addition will be at a low cost and this will keep margins strong for Cabot Oil & Gas.
Growth from Eagle Ford
Cabot Oil & Gas has 200,000 net acres in Marcellus and a much lesser 53,000 net acres in Eagle Ford. However, the potential is big in Eagle Ford as well and the company already has three rigs in Eagle Ford with a plan to drill 40-50 net wells in 2014.
There is a gradual acceleration in activity in Eagle Ford as Cabot Oil & Gas drilled 23.2 net wells in 2012, 33.2 net wells in 2013 and the net wells drilled will be even higher in 2014. I am very positive on this prospect as the company's Eagle Ford acre is located in the oil-rich window of South Texas.
As activity increases in this oil rich window, the company's oil sales will get a boost over the next few years and so will the EBITDA margins. In 2014, the company has allocated 25% of the capital expenditure to Eagle Ford and according to the company's latest presentation, the Eagle Ford activity will be accelerated further. Therefore, focus on this oil rich asset is yet another positive stock trigger.
Strong Growth For 2014 and 2015
On the back of 110 net wells to be drilled in Marcellus Shale and 40-50 net wells to be drilled in Eagle Ford, the Cabot Oil & Gas is expecting strong production growth to come in 2014 and 2015. According to company's estimates, production growth in 2014 is expected to be in the range of 28%-41%. For 2015, the production growth is expected to be in the range of 20%-30%.
Further, reserves growth is also likely to be robust on high exploration activity. Just for Marcellus Shale, reserve growth for 2013 was 70%. It is very likely that strong reserve growth continues in 2014 and 2015.
The production growth will translate into strong earnings growth and analyst estimates suggest that earnings growth for 2014 and 2015 is likely to be 72% and 26% respectively. The forward five year earnings growth is expected to be 39% and this means that strong growth will continue for Cabot Oil & Gas over the long-term.
Attractive Valuations
The 20% correction in the last five months has resulted in attractive valuations for Cabot Oil & Gas. Therefore, investors can consider exposure to the stock at these levels.
Cabot Oil & Gas is currently trading at a forward 12 month PEG ratio of 0.75 and this is suggestive of the undervaluation. Further, the company is trading at an attractive TTM EV/EBITDA of 10.7. With strong growth ahead, the valuations are tempting and I expect the stock to move higher over the next 2-3 years.
Conclusion
Cabot Oil & Gas has assets in two big plays and the company's reserves and production growth has been strong. With a large number of net wells to be drilled, the company's growth will be robust and I believe that the company is one of the most attractive investment options in the oil & gas exploration sector.
Oil rich Eagle Ford will also provide a strong boost to margins over the next few years as the company accelerates exploration activity in Eagle Ford. Cabot Oil & Gas has a low dividend yield of 0.2%, but I expect the dividend payout to increase over the next few years along with an increase in cash profits. Overall, the company can prove to be a long-term value creator and the current correction is an excellent buying opportunity.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. (More. )
Next year does look bright for oil and gas space: Rakesh Arora, Macquarie Capital Securities
(В It is just starting and…)
In an interview with ET Now, Rakesh Arora, Managing Director and Head of Research, Macquarie Capital Securities, shares his views on the oil and gas space, global volatility and some other sectors. Excerpts:
ET Now: There are big-bang reforms in the oil and gas space. Are you enthused about owning these stocks and if one already owns them, do you continue to ride the wave?
Rakesh Arora: There is no hurry to really get out of these names if you already own it and, maybe, you start buying them now if you do not own them because I do not think the reform process is ending here. It is just starting and next, we are going to hear about the direct benefit transfer for cooking gas, kerosene, etc. So, all these things are going to add up to the reduction in subsidies going further. So, for oil and gas, the next year does look really bright.
ET Now: If you were to talk to an oil marketing company, what would be the biggest clarification that you would want from an OMC which will enable you to take a medium-term or long-term call on these stocks?
Rakesh Arora: The only worry for OMCs is competition coming in given the deregulation of diesel. The last time when we had deregulation in 2003, we saw private companies coming in and taking 10% to 15% market share in diesel retail market. OMCs are going to increase their competitive advantage in the field. Obviously they have a first mover's advantage, they have locational advantage. So are they preparing for the onslaught of all these private companies coming back.
ET Now: The global volatility has impacted us as well, but what is it that you are sensing?
Rakesh Arora: One is that Europe is not recovering as expected earlier and China is also growing at a slightly slower pace despite the stimulus. This has actually helped the US push out the possible interest rate hikes, which earlier we were thinking would come in the Q1 of 2015. Now we think it is more like Q3-Q4.
So that push out gives us a breathing space in India and at the same time, things are falling in place. By design or by luck, we have oil prices crashing and inflation has started to moderate at a much faster rate than what economists were talking about. Indian markets are currently getting back into a sweet spot and expectations were there that the government will act post the elections in Maharashtra and Haryana and they seem to have really acted pretty fast. If they can continue the momentum, I see no real reason why the Indian markets will not shore up.
ET Now: What would you essentially want to hear from an OMC if you want to take that long term call on the sector?
Rakesh Arora: Clearly, diesel has been one of the key things. We will look forward to more reforms on the gas and kerosene because that could be a big trigger for these OMC companies. IOC is a big player in gas supply. So probably we can really talk about the expectations from the government on further reforms on those two products.
ET Now: Can earnings be supportive if indeed the market were to go up further because we were talking to a lot of people about what earnings could do this quarter, and people expect cement to do well, they expect autos to do well. But the question mark still exists on what a couple of IT companies could do? TCS and HCL Tech have already shown that. What happens next to some of the benchmark sectors?
Rakesh Arora . Earnings prediction for this quarter is not really that great. After three-four quarters, revenue growth is expected to come back to single digits and for the Nifty per se, we are expecting around 11-12% earnings growth, which is a little bit subpar given the euphoria or the improvement in sentiment that we have seen in the market.
It is more to do with the government action like what we have seen over the weekend. Can the government continue with the good work? There is a lot to be done in the mining sector, specifically coal, etc. Can they come out with clear policies and kick start investments? Since the core sector is yet to pick up, that is where the worries are for the market that nothing much is happening on the ground despite the government talking of a lot of things.
ET Now: The last time we were chatting, you were talking about as to how you were negative on Bajaj Auto, Dr Reddy's, Tata Steel. Does that call still hold?
Rakesh Arora: Yes, even in the last quarter when two wheelers had done really well, Bajaj Auto has not really grown in line with the industry. Over a long-term period, we do prefer four wheelers because as prosperity improves in the country, people are moving towards four wheelers. Four wheelers over the next three-four years would grow at 12% to 15% whereas two wheelers will grow at around 8 to 10%. So there is a differential in the growth rate.
Coming to other names, in Dr Reddy's we are expecting a little bit of weak results for a quarter or two and that is the reason why we want to stay away.
Tata Steel has corrected quite a bit and things are starting to dissolve themselves probably on the iron ore side. We are waiting to hear from the Jharkhand government and allowing renewal of their iron ore mines. Almost 30% of their iron ore requirement is stuck at the moment. They have taken good decision in divesting some of their assets in Europe, that again will take six-seven months.
ET Now: A quick question then on the IT pack and post the earnings, what is your call - do you add on dips or rather I should say savage cuts that we have already seen in the IT sector?
Rakesh Arora: Given the lower growth profile of world economy, I am not really keen on adding IT names immediately. The expectations were high and as you would have noticed that some of the best performing companies in that sector - TCS, HCL Tech -- have actually missed on their guidance. So it is unlikely to expect some of the laggards to really move up to fill that space immediately.
Bright Future Not Certain for British Oil and Gas Production
LONDON — The vote to keep Scotland in the United Kingdom removed a cloud of uncertainty for the British energy industry. But the long-term challenges still loom.
Though Britain remains the largest oil producer in the European Union, a prosperous future is far from assured. Companies have scaled back exploration drilling in the North Sea in recent years and found little new oil and natural gas. Wood Mackenzie, the Edinburgh-based industry research firm, warned in a recent report that oil and gas production could fall below one million barrels per day by 2023, less than a quarter of the peak in the late 1990s.
Companies grouse that they are plagued by high operating expenses — which rose about 15 percent last year in their North Sea operations, because of rising maintenance requirements for aging equipment and higher costs of contractors — while achieving substandard returns on their oil and gas production.
The government of Prime Minister David Cameron has responded by agreeing to set up a new regulator, the Oil and Gas Authority, that would be based in Aberdeen, Scotland, where most companies have their oil operations. It would be independent of the London-based Department of Energy and Climate Change, which now oversees the industry but which critics say has too diffuse a focus.
The Cameron government is also reviewing the industry’s tax system, an important variable for investment decisions.
“We are pleased that a fiscal review is being undertaken, and we hope that work will result in ensuring the regulatory environment provides a strong foundation” for future investments, Craig May, the head of European exploration and production at the big American oil company Chevron, wrote in an email on Friday.
Under the new regulatory setup, analysts say, Britain's oversight system might become more like Norway's, where the government is much more closely involved in the industry than in Britain.
Norway has had better exploration results than Britain of late, although companies operating in Norwegian waters complain that the government takes too much of the economic benefit from its oil and gas resources through the state-controlled oil company Statoil and direct government stakes in oil and gas fields managed by a company called Petoro.
The new British regulator is likely to press companies to drill on their leased tracts, or give them up. To reduce costs and speed development, the new overseer will probably also prod companies operating in Britain to more quickly share exploration and production data, and to cooperate in using costly infrastructure like pipelines and the expensive floating production platforms that will be used to develop Britain’s new deepwater exploratory region west of the Shetland Islands.
In re-examining the tax regime, the government may revise a system that now takes up to 81 percent of the revenue from oil and gas production, so as to encourage more output from aging fields as well as more spending on exploration.
The main question is whether the government is "pushing too hard on the tax regime and deterring investment," says Michael Tholen, economics and commercial director of Oil and Gas UK, an industry group. “If companies think they are not going to get enough of the cake to risk money to explore, they may look elsewhere."
Bright Future Not Certain for British Oil and Gas Production
By STANLEY REED
c.2014 New York Times News Service
LONDON — The vote to keep Scotland in the United Kingdom removed a cloud of uncertainty for the British energy industry. But the long-term challenges still loom.
Though Britain remains the largest oil producer in the European Union, a prosperous future is far from assured. Companies have scaled back exploration drilling in the North Sea in recent years and found little new oil and natural gas. Wood Mackenzie, the Edinburgh-based industry research firm, warned in a recent report that oil and gas production could fall below 1 million barrels per day by 2023, less than a quarter of the peak in the late 1990s.
Companies grouse that they are plagued by high operating expenses — which rose about 15 percent last year in their North Sea operations, because of rising maintenance requirements for aging equipment and higher costs of contractors — while achieving substandard returns on their oil and gas production.
The government of Prime Minister David Cameron has responded by agreeing to set up a new regulator, the Oil and Gas Authority, that would be based in Aberdeen, Scotland, where most companies have their oil operations. It would be independent of the London-based Department of Energy and Climate Change, which now oversees the industry but which critics say has too diffuse a focus.
The Cameron government is also reviewing the industry’s tax system, an important variable for investment decisions.
“We are pleased that a fiscal review is being undertaken, and we hope that work will result in ensuring the regulatory environment provides a strong foundation” for future investments, Craig May, head of European exploration and production at the big U. S. oil company Chevron, wrote in an email Friday.
Under the new regulatory setup, analysts say, Britain’s oversight system might become more like Norway’s, where the government is much more closely involved in the industry than in Britain.
Norway has had better exploration results than Britain of late, although companies operating in Norwegian waters complain that the government takes too much of the economic benefit from its oil and gas resources through the state-controlled oil company Statoil and direct government stakes in oil and gas fields managed by a company called Petoro.
The new British regulator is likely to press companies to drill on their leased tracts, or give them up. To reduce costs and speed development, the new overseer will probably also prod companies operating in Britain to more quickly share exploration and production data, and to cooperate in using costly infrastructure like pipelines and the expensive floating production platforms that will be used to develop Britain’s new deepwater exploratory region west of the Shetland Islands.
In re-examining the tax regime, the government may revise a system that now takes up to 81 percent of the revenue from oil and gas production, so as to encourage more output from aging fields as well as more spending on exploration.
The main question is whether the government is “pushing too hard on the tax regime and deterring investment,” says Michael Tholen, economics and commercial director of Oil and Gas UK, an industry group. “If companies think they are not going to get enough of the cake to risk money to explore, they may look elsewhere.”
First Published September 18, 2014 8:00 PM
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