The Bull/Bear Case For O&G (NYSEARCA: XOP)

Today’s ETF analysis covers the XOP, the SPDR S&P Oil & Gas Exploration & Production ETF.

Much of my writing on ThePeachPit has pertained to the energy industry at the company level, whether it’s oil and natural gas producers, or integrated oil companies (IOCs). Though investing in individual names comes with inherent risks beyond the commodity price, such as geography, infrastructure and transportation, and product quality, I believe strategically investing in producers and IOCs can realize significant gains to one’s portfolio if investing in the right region at the right time.

A good example of this is investing in Comstock or Southwestern Energy. Each of these firms is focusing heavily on developing the Haynesville/Bossier Basin in anticipation of increased export volumes in the Houston Ship Channel and Louisiana. Though it might be too early to expect huge capital appreciation in either of these stocks resulting from this catalyst, the theme is on the horizon and building a position in the low gas market will position an investor for a strong, long runway.

Another strategy is the development of the Stabroek Block off the coast of Guyana through Exxon, Hess, and now Chevron. This 11Bboe long-cycle oil field can drive significant cash flow for each of these firms as the play further develops. Investing domestically in the Permian Basin through Pioneer, Exxon, and Devon can take advantage of the short-cycle production that can be right-sized based on supply/demand.

Avid readers of ThePeachPit should have some baseline understanding of each of these strategies; however, each of these investments may not be appropriate for any given investor given the inherent risks. So today, we’re going to focus on XOP.