Market Overview

Four ETFs For More Shale Takeovers


BHP Billiton's (NYSE: BHP) announcement last week that it will acquire Petrohawk Energy (NYSE: HK) for $12.1 billion is just the latest sign that the world's mining and oil giants see value in North American shale plays.

To this point, global oil majors have been more apt to acquire shale acreage rather than commit to outright takeovers, but with global energy mergers and acquisitions expected to continue soaring this year and with shale takeovers cheaper and easier to execute than acquiring oil assets in unfriendly locations, BHP's deal for Petrohawk has the potential to be just the tip of the iceberg.

Keep an eye on these ETFs as possible winners if the shale M&A boom really does take place.

1) First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG): FCG is perhaps the most obvious of ETF candidates to benefit from increased shale M&A activity and Petrohawk accounts for 5% of this ETF, which explains its big move higher on Friday. There's more to like with FCG. Chesapeake Energy (NYSE: CHK), the second-largest U.S. natural gas producer, and Anadarko Petroleum (NYSE: APC) combine for over 7% of FCG's weight and both are major shale players.

Anadarko had been mentioned as a takeover target for BHP and there has been some talk Chesapeake could be a target as well. Range Resources (NYSE: RRC), FCG's third-largest holding, has also been the subject of takeover talk in the past.

2) iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (NYSE: IEO): Anadarko and Chesapeake combine for 12% of IEO's weight and while there hasn't been much talk about Devon Energy (NYSE: DVN) being a takeover target, it would be an attractive one for a cash-rich oil or mining major. Devon accounts for 6.2% of IEO's weight. EOG Resources (NYSE: EOG) has been on the receiving end of some takeover rumors in the past and the company's Bakken Shale oil exposure could prove alluring for a suitor.

3) SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP): We previously mentioned XOP as a play on the Eagleford Shale, but with over 70 stocks in its mix and almost equal-weight approach, the always volatile XOP represents a fine way for investors to get involved with both shale buyers and sellers. In terms of price action, you'll want to see XOP hold above $61 in the near-term, which would set the ETF for a run to the high 60s or low 70s by year-end.

4) Direxion Daily Natural Gas Related Bull 2X Shares (NYSE: GASL): GASL is kind of a forgotten trade when it comes to natural gas equities, a fact highlighted by average daily volume of less than 6,200 shares, but the ETF is essentially FCG's leveraged cousin, making it worth a look for short-term traders.

Posted-In: Long Ideas News Sector ETFs Short Ideas Specialty ETFs Rumors Commodities Asset Sales


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