Occidental's Anadarko Bid Wasn't Enough to Support Oil & Gas ETFs

Occidental Petroleum Corp. (NYSE: OXY) upped the ante on Anadarko Petroleum Corp. (NYSE: APC), triggering a potential bidding war for a key shale driller in the Permian Basin after the Chevron Corp. (NYSE: CVX) offer, but it wasn’t enough to lift oil and gas exploration sector-related exchange traded funds.

On Wednesday, the VanEck Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK) fell 0.7%, iShares U.S. Oil & Gas Exploration & Production ETF (Cboe: IEO) dropped 0.9% and Invesco Dynamic Energy Exploration & Production Portfolio (NYSEArca: PXE) declined 1.1%.

Occidental Petroleum offered to buyout Anadarko Petroleum for $38 billion, out bidding Chevron’s previous agreed purchase price of $33 billion, the Wall Street Journal reports.

Anadarko shares surged 12.0% on the revelation. APC makes up 6.6% of FRAK’s underlying portfolio, 5.2% of PXE and 4.6% of IEO.

According to a letter Occidental Chief Executive Vicki Hollub sent to Anadarko’s board, the company has been making offers to Anadarko since late March, with two price tags that were higher than what the shale driller agreed to with Chevron.

“We were surprised and disappointed that your board did not engage with us on that proposal,” Hollub wrote in the letter.

Occidental put a cash-and-stock deal on the table that targeted $76 per share, or $11 per share more than the value Chevron announced.

Anadarko holds assets from Texas to Mozambique, and Occidental sees the deal as a way to expand its footprint in the booming Permian basin where it is already one of the largest operators.

Earlier in April, Chevron stated it would acquire Anadarko in a cash-and-stock deal valued at $33 billion.

Anadarko agreed to pay at $1 billion breakup fee with Chevron if that deal doesn’t go through.

“It is unfortunate that Anadarko agreed to pay a break up fee of $1 billion, representing approximately $2 per share, without even picking up the phone to speak to us after we made two proposals during the week of April 8 that were at a significantly higher value to the transaction you were apparently negotiating with Chevron,” Hollub said in her letter.

For investors looking for continued upside in U.S. cyclical sectors over defensive sectors, the Direxion MSCI Cyclicals Over Defensives ETF (NYSEArca: RWCD) offers them the ability to benefit not only from cyclical sectors potentially performing well, but from their outperformance compared to defensive sectors.

Conversely, if investors believe that U.S. defensive sectors will outperform cyclical sectors, the Direxion MSCI Defensives Over Cyclicals ETF (NYSEArca: RWDC) provides a means to not only see defensive sectors perform well, but a way to capitalize on their outperformance compared to cyclical sectors.

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