Investors will soon be able to play the energy sector with the Market Vectors Unconventional Oil & Gas Exchange Traded Fund (ARCA:FRAK), an ETF designed to track the performance of an index of companies involved with the unconventional oil and gas segment. (To know more about oil and gas, read Oil And Gas Industry Primer.)
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Unconventional Plays
The ETF is being sponsored by Van Eck Global, which also sponsors the Market Vectors Gold Miners ETF (ARCA:GDX), as well as dozens of other ETFs. The ETF tracks the Market Vectors Unconventional Oil & Gas Index, which is composed of 43 companies that are involved with the exploration, refining, extraction or production of oil and natural gas from unconventional plays.

Van Eck Global defines a play as unconventional if it produces from coal beds or coal seams, shale oil or gas, tight natural gas, tight oil and tight sands. This puts most of the most popular onshore plays into this category.

To be included in the index, a company must have a majority of its revenues from these plays, or the potential for it, and have a minimum market capitalization of $150 million. Van Eck Global also utilizes minimum trading volume and share requirements to ensure liquidity. The index is dominated by U.S.-based companies, which comprises 71% of the index, with Canadian companies at 28%.

Largest Members
The top five companies comprise approximately 25% of the Market Vectors Unconventional Oil & Gas Index, so an examination of these companies and assets seems warranted.

Occidental Petroleum (NYSE:OXY) is 8.49% of the index and is one of the largest operators in the Permian Basin, with production of 198,000 barrels of oil equivalent (BOE) per day in 2011.

Occidental Petroleum is also a large acreage holder and producer in California and has several promising unconventional plays that are being explored and developed by the company in that state. The company plans to drill approximately 140 shale wells in the first half of 2012 in California.

Although Canadian Natural Resources Ltd (NYSE:CNQ) is not well known to many Americans, the company is one of the largest energy companies in Canada, with a market capitalization of $40 billion. The company reported production of 613,000 BOE per day in the third quarter of 2011.

Canadian Natural Resources Ltd has a major position in various unconventional natural gas fields in Western Canada, with an estimated 6 Tcfe of proved and probable reserves. The company represents 7.60% of the index value.

EOG Resources (NYSE:EOG) and Devon Energy (NYSE:DVN) comprise 7.4% and 6.42% of the index, respectively. Both these companies are well-known domestic producers with positions in all the major domestic unconventional plays in North America.

Hess Corp (NYSE:HES) is 5.1% of the index and has established positions in the Bakken, Eagle Ford Shale and Utica Shale. The Bakken in North Dakota will be the main focus for the company in 2012, and Hess Corp plans to operate 16 rigs on its 900,000 net acre position during the year.

The Bottom Line
The Market Vectors Unconventional Oil & Gas ETF is an intriguing method of investing in companies involved with North American shale and unconventional oil and gas development. The sponsor might want to consider another ETF that tracks the performance of oil service companies involved with these plays. (For additional reading, check out A Guide To Investing In Oil Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    7 Best ETF Trading Strategies for Beginners

    Exchange-traded funds are ideal instruments for beginning traders and investors. Learn the seven best strategies for trading ETFs.
  2. Savings

    Do Natural Gas Prices Always Follow Oil Trends?

    Prices for oil and natural gas are highly correlated. But investors should be aware of different factors affecting the prices of these commodities.
  3. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  4. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
  5. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  6. Investing Basics

    Why do Debt to Equity Ratios Vary From Industry to Industry?

    Obtain a better understanding of the debt/equity ratio, and learn why this fundamental financial metric varies significantly between industries.
  7. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  9. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
  10. Mutual Funds & ETFs

    ETN Analysis: Rogers Intl Commodity Energy Total Return

    Learn more about the Rogers International Commodity Total Return, which is an exchange-traded note that tracks a broad index of commodity futures.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  5. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!