I’m adding BG Group (NYSE: BRG) to the Wildcatters Portfolio as a new buy recommendation. The company–formerly known as British Gas–is a leading exploration and production (E&P), power producer and gas utility based in the United Kingdom.

I like BG Group for a number of reasons. First and foremost, the company has some of the world’s most attractive E&P assets; production is about 70 percent weighted in favor of natural gas, although the company’s oil assets are also attractive.

As I outlined in the June 28, 2006 issue of TES, “A Look Ahead,” natural gas remains a regional commodity because most gas is still transported by pipeline over relatively short distances, giving regional inventories and demand an outsized effect on pricing. Right now, for example, the gas market in Europe is far tighter than in the US. The reason is that while the US enjoyed a record mild winter, Europe was bitterly cold; inventories of gas in storage are much higher in the US than in Europe.

Moreover, Europe–like the US–has experienced some very hot weather this summer. So hot, in fact, that political representatives in many countries are forgoing their usual August holidays. It seems that representatives are keen to avoid a repeat of the disastrous heat wave in 2003; back then, power failures and hot weather resulted in heat-related deaths in Germany and France just as many politicians were on holiday.

This is obviously not good for public relations. Several prominent politicians were severely scolded in the European press for their absence during the 2003 heat wave. Excessive heat is once again pulling record power demand; there’s a chance there’ll be another shortage this summer.

BG gets a little less than half its production from the UK’s North Sea gas fields. That gas is sold directly into Britain at attractive prices. UK gas prices are attractive because demand is high (due to new power plant construction), but supplies are diminishing, as domestic gas fields are no longer sufficient to meet Britain’s growing needs. This is one highly profitable market for BG.

Outside Europe, BG is one of the most interesting plays on liquefied natural gas (LNG). The company has gas fields in Egypt, Kazakhstan, Bolivia and Brazil. These assets are highly attractive due to their low production costs and large projected growth in production; because these are fairly immature fields, gas production can ramp up quickly. In fact, BG Group has some of the fastest gas-production growth of any major global E&P company.

Many of the company’s fields are so-called stranded gas fields, located miles away from existing pipeline infrastructure. But by liquefying the gas, BG can produce these fields and then ship the gas in the form of LNG to distant markets for sale at current sky-high prices.

And BG is a key player in US LNG, a market that’s set to grow rapidly in coming years. The company has a LNG re-gasification terminal near Lake Charles, La., that can handle a daily capacity of 1.8 billion cubic feet of gas per day.

The stock got hit earlier this year, partly due to general weakness in the energy space and partly due to its exposure to Bolivian and Nigerian fields. But the company is well-diversified internationally, so I don’t see that exposure as particularly troubling. And, with such attractive production growth, I see BG Group as a potential takeover target; any number of big, integrated producers would love to own BG’s asset base. Buy BG and set a stop loss order at 57.50 for now.

Second, most subscribers are well aware of the heat wave currently underway in the US. This is causing a spike in natural gas demand and prices; yesterday, gas had its best one-day rally of 2006. In addition, a new tropical storm has formed in the Caribbean and is headed toward the US Virgin Islands and Puerto Rico. In the middle of the Atlantic is another tropical wave that seems to have development potential. After a slow start, the Atlantic hurricane season may be getting started in a big way.

All of these factors support natural gas prices near term. I regard today’s dip in gas-focused E&P EOG Resources (NYSE: EOG) as an attractive opportunity to jump into the stock if you’re not already in EOG. EOG is already a member of the Wildcatters Portfolio.