Equities for Expanded Offshore Drilling

NEW YORK (TheStreet) -- In an attempt to increase the nation's energy independence, President Obama recently announced plans for an expansion of U.S. offshore oil and gas drilling.

The president openly stated that he would consider new areas for drilling off the shores of Virginia and Florida, parts of Alaska and in the Gulf of Mexico.

As for Virginia, the Interior Department estimates that the proposed leased area holds nearly 130 million barrels of crude oil and 1.14 trillion cubic feet of natural gas and will be the first new offshore oil and gas sale in the Atlantic Ocean in more than 20 years.

Although the U.S. uses roughly 20 million barrels of crude oil per day and these changes off the Virginia coast will not have too significant of an impact on the supply and demand forces of crude oil and natural gas, it is the beginning of an attempt to further tap our nation's own resources.

Two companies that are likely to benefit from this announced plan include XTO Energy(XTO) and Chesapeake Energy(CHK), the nation's two largest natural gas producers. XTO and CHK closed Wednesday at $47.18 and $23.64, respectively.

Oilfield services companies also are likely to reap the benefits. Some to watch here include Halliburton(HAL) and National Oilwell Varco(NOV), which closed at $30.13 and $40.58 on Wednesday, respectively.

Gains in the subsector could also help lift the iShares Dow Jones US Oil & Gas Exploration(IEO), which boasts XTO Energy and Chesapeake Energy in its top holdings and the Oil Services HOLDRs(OIH), which allocates nearly 37% of its assets to Transocean(RIG), Halliburton and Schlumberger(SLB).

Although the anticipated expansion of drilling is likely to support the prices of these equities, it is equally important to keep in mind the inherent risks and volatility involved with investing in equities that primarily generate their revenues through commodities. To help protect against these risks, investors should implement an exit strategy that relies upon price points at which an upward trend could potentially be coming to an end.

According to the latest data at www.SmartStops.net, an upward trend in these equities could come to an end at the following price points: XTO at $46.07; CHK at $22.72; HAL at $29.09; NOV at $39.34; IEO at $53.04; OIH at $118.50. These price points change on a daily basis as market conditions fluctuate and updated data can be found at www.SmartStops.net.

-- Written by Kevin Grewal in Laguna Niguel, Calif.

At the time of publication, Grewal had no positions in equities mentioned.

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