Hydraulic fracturing, or fracking, has become tremendously popular in the United States and Canada over the past couple of years. By pumping pressurized fluid into a wellbore the process enables companies to extract previously inaccessible hydrocarbons. The result has been a natural gas bonanza in many parts of the U.S., particularly in shale regions like the Barnett Shale Basin in Texas and the Bakken Formation in North Dakota, as well as in parts of Canada [for more fracking news and analysis subscribe to our free newsletter].
Below, we outline 10 ways to invest in fracking technology to help prepare your portfolio for what many feel is the next big thing in the energy world.
1. Market Vectors ETF Trust (NYSEARCA:FRAK): An exchange-traded fund targeting the unconventional oil and gas industry, including coal-bed methane (CBM), coal seam gas (CSG), shale oil, shale gas, tight natural gas, tight oil and tight sands. After starting in February 2012, the fund has attracted some $15.4 million in assets under management, with 75% of its positions in the U.S. and 24.7% of them in Canada in 88.3% large cap securities. With a net expense ratio of 0.54% and no positions worth more than 10% of its portfolio, the ETF represents a relatively cheap and diversified way to play the sector using a single security.
2. C&J Energy Services Inc (NYSE:CJES): The premier provider of hydraulic fracturing, coiled tubing and pressure pumping services to the fracking industry. Covering everything from equipment manufacturing to technically demanding well completions, C&J offers investors exposure to the industry’s growth with some 73% of its revenues coming from hydraulic fracturing services. But unlike many oil and gas plays, there is no direct crude oil or natural gas commodity risk associated with its business, while term contracts provide relatively stable long-term revenues streams for many of its operations.
3. Halliburton Company (NYSE:HAL): Halliburton is a pioneer of fracking technologies and a leading provider of pressure pumps and other services to the industry. While it doesn’t generate quite as much of its revenues from fracking as C&J Energy Services Inc (NYSE:CJES), Halliburton Company (NYSE:HAL) is a far larger player in the oilfield services industry, and the company has been around since 1919, which may offer greater diversification and a margin of safety. The company is also geographically diversified outside of North America, and has a three-year agreement with Chevron to develop natural gas assets in Poland and Thailand. Meanwhile, the company has posted strong growth rates and a 21% return on equity; however, investors should pay attention to the amount of debt Halliburton Company (NYSE:HAL) holds.
4. KBR, Inc. (NYSE:KBR): A spin-off of Halliburton that’s focused on engineering construction and related services for the energy markets, with a focus on natural gas projects. KBR, Inc. (NYSE:KBR) provides a full range of engineering, procurement and construction services for large and complex upstream and downstream projects, including LNG and GTL facilities. As of 2011, gas monetization accounted for the majority of KBR’s revenues, which increased 8% year-over-year to over $3 billion. Investors looking to play the infrastructure part of the fracking boom may want to consider this company, with its modest 19.5-times price-earnings ratio [see also Time To Buy Oil?].
5. Exxon Mobil Corporation (NYSE:XOM): One of the largest and safest energy companies in the world for investors. In 2009, the company purchased XTO for $31 billion and became the largest producer of natural gas in the U.S. In fact, approximately half of the company’s production and half of its reserves now come from the burgeoning commodity, which has contributed to its near-record profits projected for 2012 – second only to 2008. With a market capitalization of nearly $400 billion, a dividend yield of 2.64% and a price-earnings ratio of 9.13-times, the stock offers investors perhaps the safest bet on the rapidly growing industry.