This Canadian Value Investor is Quietly Investing in Natural Gas

Brookfield Asset Management has been quietly picking up natural gas assets.

| More on:
The Motley Fool

The team at Brookfield Asset Management (TSX: BAM.A) (NYSE: BAM) is one of the best when it comes to finding value where no one else sees it. Brookfield has been known to buy out of favour assets, refocus the business and then, hold it through times of trouble. It will only sell when prices recover. It’s a process that has created amazing value for its investors.

Betting on gas

Brookfield’s latest target is natural gas. The commodity is currently out of favour due to America’s shale gas and oil boom. However, with solid long-term fundamentals, Brookfield sees gas being a great long-term investment as it can pick up assets at rock bottom prices.

That has the company quietly picking up coal bed methane assets through its private equity arm. Two years ago it led an investor group to take Ember Resource private. Since that time it has used Ember to snap up additional natural gas properties in Canada.

A natural gas fueled winner?

It made its biggest move this past October as the company scooped up C$220 million in coal bed methane assets from Apache (NYSE: APA). The assets were adjacent to Ember’s existing properties in Alberta. The deal enabled Apache to continue on in its efforts to move away from dry gas in order to focus on its oil and liquids-rich plays in America.

At the time, Apache was the second-largest coal bed methane producer in Canada after EnCana (TSX: ECA) (NYSE: ECA). That mantle now moves over the Ember, which is buying natural gas assets at real fire sale prices. In fact, its CEO noted that it was, “buying it at less than we can drill it and we can drill it real cheap.”

Because it’s buying so cheaply, it can make money even at today’s low natural gas prices. In fact, Brookfield noted in its last earnings release that the company already is profitable, meaning it has excellent upside once natural gas prices

The company also has a lot of running room to grow as it has few competitors looking to buy natural gas assets these days. EnCana, for example, is joining Apache and focusing on its liquids rich resource plays. It likely will be a seller of natural gas assets and it is actively pursuing non-strategic asset sales while allowing its natural gas production to decline. If it does put its coal bed methane assets on the block, Brookfield would be a logical buyer.

Investor takeaway

Most investors want to buy what’s hot. However, as Brookfield has shown time and again, what’s not can yield terrific long-term returns. Brookfield is one of the few investors with a long enough time horizon to make this bet pay off.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt DiLallo owns shares of Brookfield Asset Management.  The Motley Fool does not own shares in any of the companies mentioned.

More on Investing

Redwood trees stretch up to the sunlight.
Dividend Stocks

2 TSX Growth Stocks Set Up for Outsized Gains in 2024

Considering the growth prospects that these two TSX stocks offer, I would keep a very close eye on them as…

Read more »

movies, theatre, popcorn

3 Things You Need to Know if You Own CGX Stock Today

Cineplex stock remains in the doghouse, trading at 2.6 times earnings, but there are clear signs of an upcoming rebound.

Read more »

Growing plant shoots on coins
Dividend Stocks

3 Strong Dividend Stocks I’d Add to My Portfolio Right Now

Given their solid underlying businesses, stable cash flows, and high yields, these three dividend stocks are an excellent addition to…

Read more »

Bank Stocks

1 Dividend Stock Down 20% to Buy Right Now

This dividend stock provides investors with more growth towards all-time highs, as well as a superior dividend yield over 6%.

Read more »

ETF chart stocks
Dividend Stocks

Got $500 to Invest in Stocks? Put It in This Index Fund

This ETF is one of the best options for those with a bit of cash, who don't want to worry…

Read more »

Tech Stocks

Nvidia Stock Is Making History: Will It Make New Investors Any Money?

Nvidia stock (NASDAQ:NVDA) continues to surge past all-time highs, with shares up 265% in the last year alone! But can…

Read more »

data analyze research
Stocks for Beginners

3 Reasons to Buy Dollarama Stock Like There’s No Tomorrow

Dollarama (TSX:DOL) stock has seen massive growth this last year, but more could be on the way -- not just…

Read more »

warning or alert
Dividend Stocks

Help! How Do I Get Rid of My Stock Duds?

Stock duds can prevent you from making really big returns and using that cash to fund future investments. How do…

Read more »