Play The Shale Boom
Published on Wednesday, 15 February 2012 22:03 Written by Todd Shriber
New York, February 15th (TradersHuddle.com) – There are a lot of varying estimates regarding the various U.S. shale properties, but they all come to the same conclusion: Production of shale gas will keep on rising for years to come and could eventually be the source of the majority of U.S. natural gas output.
Natural gas naysayers might say "So what?" and who could blame as natural gas prices have been sliding for several years now. Well, there is plenty of oil in U.S. shale plays as well. The Bakken Shale has turned North Dakota into one of the most economically robust states in the U.S. The Eagle Ford Shale could be the next great Texas oil field,
Further west, there’s the Niobrara Shale, which is found in the Denver-Julesburg Basin in North Colorado South Wyoming, Nebraska, and Kansas, and the Monterrey Shale in California. And of course, the Utica Shale in the Midwest cannot be forgotten, as that play is believed to be home to billions of barrels of oil reserves.
With so many shale plays out there, there’s a dizzying array of stocks investors can use as shale proxies, but rather than owning 10, 15 or more stocks individually, a couple of ETFs will do the job just fine. Consider the following names.
iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (NYSE: IEO):
The iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund is fine of accessing just about any shale play in the U.S., but it particularly useful for the western shales, Monterrey and Niobrara. We say that because Occidental Petroleum (NYSE: OXY) and Anadarko Petroleum (NYSE: APC) combine for nearly a quarter of the ETF’s weight and those are the dominant Moneterrey and Niobrara players.
First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG):
While it’s unfair to call the First Trust ISE-Revere Natural Gas Index Fund "unknown," it’s certainly not a household name among energy ETFs and it gets a bum wrap because it appears to be a natural gas play. What FCG really is a shale ETF that offers exposure to just about any U.S. shale play you can think of a bunch of companies that are looking to increase their oil output and decrease their gas production.
SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP)
The SPDR S&P Oil & Gas Exploration & Production ETF belongs on just about every shale ETF list and that proclamation is warranted. The ETF is home to at least eight companies with direct Utica Shale exposure and several more such as Hess (NYSE: HES) that have major footprints in the Bakken Shale. XOP is helpful for the indecisive shale investor. If you can’t decide which shale property you want your ETF to have a slight bias to, access all of them with XOP.
Just be warned XOP is exceptionally volatile for a non-leveraged ETF and probably doesn’t have a place in a conservative investors portfolio.
Market Vectors Unconventional Oil & Gas ETF (NYSE: FRAK):
It should be noted that FRAK just made its debut on February 15, but the ETF was designed to be a shale/oil sands ETF. This fund is NOT a play on offshore oil drilling. In fact, Occidental, FRAK’s largest holding, does no offshore drilling. Devon, the new ETF’s fourth largest holding, doesn’t either. FRAK is home to 44 stocks and an expense ratio of 0.54%.
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