3 Ways To Profit From Consolidation In The Energy Sector

Consolidation in the energy sector is at record levels in some areas.

A recent article in The Wall Street Journal pointed out how private equity buying of natural gas assets is at its highest level since 2009.

For investors, there are three ways to profit from this enduring and lucrative trend.

The first is through the exchange traded funds (ETFs) for energy.

United States Natural Gas UNG, the exchange traded fund for natural gas, is up nearly 28 percent for 2014. The main exchange traded fund for oil, United States Oil USO, has risen nearly 9 percent just for the last quarter of market action.

Exchange traded funds like United States Oil and United States Natural Gas offer a broad exposure to the sector.

See also: Natural Resource Stocks For Income Value And Growth Investors

Big Oil firms will also gain from mergers and acquisition in the sector.

Much of the action in an industry group takes place from it being in favor or not. When there is consolidation taking place, prices will generally rise due to more demand.

That has certainly been reflected in stock prices for oil and natural gas firms.

As an example, Suncor Energy SU, a major Canadian oil concern that counts Warren Buffett as an owner, is up for the last week, month, quarter, six months, and year of market action.

Promising small caps are very appealing to buyers.

Small cap oil and gas companies with attractive assets like Mondial Ventures MNVN, Octagon 88 OCTX, and Americas Petrogas APEOF are tempting to those looking to purchase in the sector.

A major reason is that a smaller company is easier to buy. That Americas Petrogas, Mondial Ventures, and Octagon 88 operate in North America makes it even more alluring due to the premium being paid for American and Canadian energy holdings.

Due to the increasing global demand for energy, consolidation in the sector will most likely continue. For investors, there are many ways to profit from that activity.