The company’s growth over the last three years has been explosive.
After a long period of exploration and drilling, it has been able to ramp production and dramatically increase its margins through scale.
It has also made a number of brilliant “bolt-on” acquisitions, gaining additional reserves and pipelines.
Here are the numbers:
In 2019 the company was producing $250 million in free cash flow – profits that can be distributed to owners.
Then, in 2020, the company virtually doubled to $495 million in cash flow. And in 2021, free cash flow grew 22% to $607 million.
But the real growth is still coming…
In the first half of 2022, the company returned $1.3 billion in capital to investors. And it raised its free cash flow estimate for the full year by 50% to $2.35 billion.
And that was before its most recent deal!
In early September the “Gods of Gas” announced another incredible deal to acquire about 15% more production, 11 years’ worth of additional reserves and miles and miles of valuable pipelines.
The company didn’t add any debt, buying the assets for cash on hand and some stock.
On the heels of this latest deal, the company projected its share buyback for this year would double.
We expect the company to produce more free cash flow over the next four years – $5 billion a year – than the value of the entire company today.
How’s that possible?
How did these brothers from Pittsburgh take a small, regional, “also-ran” shale gas company and turn it into an economic engine that produces tens of billions of free cash flow and is the largest producer of natural gas in the U.S.?
The brothers didn’t merely cut costs — they also struck a deal with an oil major.
A huge deal.
In the fall of 2020, the pandemic sent oil and gas prices to decade lows. The oil major wrote off its entire Marcellus investment. In fact, it took an $8 billion write-off.
So, the “Gods of Gas” paid only $735 million for the Oil Major’s entire Marcellus operations.
They stole it.
The deal worth 800,000 acres assures the brothers’ publicly traded company will remain the dominant provider of Marcellus natural gas for decades.
If the world wants to have reliable electricity without burning coal, natural gas is the only proven energy source that’s reliable enough (and affordable).
There is no other real-world solution.
(Don’t tell the snowflakes.)
How much gas could the “Gods of Gas” eventually produce?
The company currently claims 23 trillion cubic feet of natural in “proven” reserves.
But the truth is, no one really knows for sure how much more natural gas will be recovered because as drilling technology improves, the amount of gas that’s recoverable continues to grow – a lot.
Scientists from Penn State University now claim up to 400 trillion cubic feet of gas is recoverable in the Marcellus basin.
However, these same estimates have been increasing over time, from 2 trillion 20 years ago to 84 trillion 10 years ago to 97 trillion most recently.
These increases aren’t related to how much natural gas is in the rocks, but instead the growth comes from technology’s ability to extract it profitably.
And in that regard, this company has always been a market leader.
The company’s proven reserves have doubled since 2016. And it owns over a million acres in the Marcellus. It’s a safe bet that the company’s reserves will continue to grow for decades.
To put this into context, the Marcellus probably contains more natural gas than all the other natural gas producing areas in the U.S., combined.
And probably more natural gas than every other producing nation except Russia, Iran, and Qatar.
The Marcellus isn’t merely a big gas field.
It’s one of the largest reservoirs of energy in the world. And this company is the best operator, with the most production, and the biggest reserves.
Its development will not only change the U.S. economy, but it will also reshape the global energy map for the rest of our lives.
No one will produce more natural gas from the Marcellus, or in America for the next 30 years, at least.
What does this mean for you, in dollars and cents?
A company like this one, that’s producing reliable free cash flows of $5 billion annually with a proven growth strategy, should be worth at least $100 billion – or four times more than the stock’s current price.
But that projection is extremely conservative.
It is based on an average price of gas below $4 per mcf, despite current prices over $8 per mcf. It’s also based on the company not doing any more attractive acquisitions, which it almost certainly will do.
And there’s the possibility of vastly more profits if, as the company has said it will, it invests in building its own LNG facilities and pipelines to reach the global markets for natural gas, where prices are typically well above $10 per mcf.
That’s why I wouldn’t be surprised to see the “Gods of Gas” earn returns of 10x investors’ money over the next 10 years.
This is a great investment – as good as an investment as I have ever found in my 25-year career.