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This ETF Could Benefit From Energy M&A

ETF Professor

Chevron Corp. (NYSE: CVX), the second-largest U.S. oil company, set the energy sector buzzing Friday when it announced a billion deal to acquire Anadarko Petroleum Corp. (NYSE: APC). Some market observers believe Chevron's acquisition of Anadarko could send other oil majors shopping for deals.

What Happened

“The Chevron deal, valued at a total of about $48 billion with debt, pushes energy sector merger activity to about $200 billion for the year, its highest level ever, according to Refinitiv,” reports CNBC.

A slew of exchange traded funds could benefit from increased consolidation in the energy patch. One that stands out is the VanEck Vectors Unconventional Oil & Gas ETF (NYSE: FRAK). On Friday, FRAK jumped more than 6 percent on volume that was more than 16 times the daily average.

The fund was helped by a 6.54 percent weight to Anadarko entering Friday and fought off an almost 3 percent decline in shares of Occidental Petroleum Corp. (NYSE: OXY). Occidental, FRAK's second-largest holding at a weight of 7.7 percent, made a failed attempt to acquire Anadarko.

Why It's Important

FRAK is relevant in the energy mergers and acquisitions conversation because several of the funds 44 holdings are believed to be takeover targets in the wake of the Chevron/Anadarko news.

Among the exploration and production names receiving renewed attention as takeover candidates are Pioneer Natural Resources Co. (NYSE: PXD) and Concho Resources Inc. (NYSE: CXO). Pioneer and Concho surged 11.36 percent and 8.99 percent, respectively, on Friday. Those stocks are the third- and fifth-largest holdings in FRAK, combining for about 13.5 percent of the ETF's weight.

Oil majors with deep pockets, such as Chevron, Occidental and Exxon Mobil Corp. (NYSE: XOM), are looking to expand their footprints in U.S. shale formations, such as the Permian Basin, making acquisitions of mid-cap exploration and production companies with domestic shale holdings more attractive.

What's Next

Another name being tossed around as a possible takeover target due to its shale exposure is Noble Energy, Inc. (NYSE: NBL). Shares of Noble surged 7 percent on heavy volume on Friday. That stock accounts for 3 percent of FRAK's weight.

With Friday's pop, FRAK is up 18.9 percent year to date, but still needs gain another 24.44 percent to reclaim its 52-week high.

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