Market Overview

Encana Corporation-Athlon Energy Inc Deal A Potential Boost To These ETFs

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A near-$6 billion deal involving Canada’s second-largest natural gas producer, Encana Corporation (NYSE: ECA), has the company expanding into a booming energy region in the United States.

The company has agreed to purchase Athlon Energy Inc (NASDAQ: ATHL) in an all cash transaction, which gives Encana exposure to the Permian Basin in Texas.

The purchase price is a 25 percent premium to Athlon's closing price last Friday and the stock is at a new all-time high. Encana is also trading higher Monday.

What Does The Move Mean?

The move highlights the potential that major energy producers recognize in the U.S.'s shale basins, indicating there could be additional M&A activity in the coming year.

Related Link: Encana To Acquire Athlon Energy For $5.93 Billion

While it's difficult to predict what specific companies will be involved, ETFs provide a nice alternative to investors looking for exposure to this space.

The Two ETFs

There are two ETFs, in particular, that focus on natural gas companies with exposure to the Permian Basin.

The First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG) tracks 31 publically traded companies that derive a large portion of their revenues from the exploration and production of natural gas.

Top individual holdings include Seventy Seven Energy Inc (NYSE: SSE) and Matador Resources Company (NYSE: MTDR), each with a 3.8 percent holding, and Noble Energy, Inc. (NYSE: NBL) at 3.7 percent.

The fund is down 3 percent over the last 12 months, though the recent market-consolidation involving Encana (which has a 3.4 percent holding in FCG) could boost the ETF.

Its net expense ratio is 0.60 percent.

The Unconventional Gas & Oil ETF (NYSE: FRAK), meanwhile, tracks 67 companies involved in the unconventional oil & gas industry, consisting of coal bed methane, coal seam gas, shale oil, shale gas, tight natural gas, tight oil and tight sands.

Top holdings include Occidental Petroleum Corp (NYSE: OXY) with 8.4 percent of the fund, Anadarko Petroleum Corp (NYSE: APC) with 8.2 percent, and Eog Resources Inc (NYSE: EOG) at 7.3 percent. The fund also maintains smaller holdings of Encana and Athlon, and is up 5 percent over the past 12 months with an expense ratio of 0.54 percent.

Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.

 

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