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Investing
Investors seeking more exposure to America’s growing gas sector may have the chance to add another highly-profitable Texan producer to their portfolio before the year’s end.
Fort Worth-based natural gas company Bounty Minerals registered for its initial public offering (IPO) with the Securities and Exchange Commission (SEC) on November 9, but has yet to disclose a finalized date for its launch. The company aims to raise $119 million from the deal, registering on the NYSE under “BNTY.” Bounty will specify the total number of shares and target price for the IPO at a later date.
The firm has been buying up acreage in the Appalachian Basin for the past decade, accumulating 61,000 net mineral acres stretching across West Virginia, Pennsylvania, and Ohio. It is almost exclusively a gas producer, with liquified natural gas (LNG) making up 76% of Bounty’s output, natural gas liquids (NGL) at 20%, and oil only making up the remaining 4%.
Bounty Minerals has been highly profitable over the past year, riding a surge in the Appalachian Basin, where gas production reached record heights in the first half of last year.
The company generated $111 million in revenue over the 12 months up to July this year, bagging $83 million in profits. Bounty’s topline revenue and margins have grown severalfold, as its 2020 annual revenues were just $30 million, with roughly $6 million in profits. It is also flush with cash, its free cash flow totaling $85 million in the twelve-month period ending June 30 this year.
A number of energy IPOs have hit the markets in the final months of this year, including fellow Fort Worth-based energy IPO Morningstar, (soon to be “TXO Energy”), which followed Bounty Minerals in filing with the SEC on November 17. Both firms were formed in 2012, led by veteran energy executives, and are aiming around the $100 million mark for their IPOs, yet their strategies differ somewhat.
Whereas TXO Energy is focused more on optimizing drilling techniques to extract greater value from its existing reserves, Bounty Minerals aims to acquire new lands to tap. Bounty Mineral is leaning on its track record of deft acquisitions, claiming to have conducted over 1,200 transactions across three states and 30 counties over the past decade to amass its vast mining assets. Bounty’s pitch to investors is that its team has the know-how needed to identify, negotiate, and acquire valuable assets in the booming Appalachian region and keep the profits flowing.
Appalachia Ascendant
The long-term outlook for gas through this decade remains promising. According to a 2019 McKinsey report, the “debottlenecking” and capacity additions of recent years will lead Appalachia production to grow at an average of 6% per year and ultimately supply 40% of the North American market by the end of the decade.
Bounty’s profitability going forward will hinge on strong demand for gas and market prices. Global demand for the commodity has soared since Russia’s invasion of Ukraine at the start of the year – a conflict that shows little sign of abetting for now. Yet the gas market remains highly volatile, often turning suddenly in response to unforeseeable global events or changes in domestic policy.
Investors will have to weigh up the price risks of LNG against the strong outlook for Appalachian gas production before making the call to jump into the upcoming Bounty Minerals IPO.
This article was produced and syndicated by Wealth of Geeks.