EOG - $60.42 EOG Resources ** No stop **
EOG blasted out of the gate on Tuesday and triggered our breakout entry at $59. It continued higher with a new all time high on Friday at $61.39 before easing into the close on profit taking. I am going to suggest an insurance put but only if EOG trades at $55.50. There is strong support at $56.
EOG is engaged in the exploration, development, production, and marketing of natural gas and crude oil, primarily in major producing basins in the U.S., as well as in Canada, Trinidad, the United Kingdom North Sea and, from time to time, select other international areas. At December 31, 2004, EOG's total estimated net proved reserves were 5,647 billion cubic feet equivalent (Bcfe), of which 5,047 billion cubic feet (Bcf) were natural gas reserves and 100 million barrels (MMBbl), or 600 Bcfe, were crude oil, condensate and natural gas liquids reserves. At such date, approximately 50% of EOG's reserves (on a natural gas equivalent basis) were located in the United States, 25% in Trinidad, 24% in Canada and 1% in the United Kingdom North Sea. EOG's operations are all natural gas and crude oil exploration and production related. (source EOG)
Joe Allman, natural gas analyst at RBC Capital Markets said EOG and companies like them generate a 30% to 50% rate of return on assets. Sometimes even 100% on certain projects. EOG grew +30% in 2004.
2007 $60.00 LEAP Call OAC-AL @ $9.50
Insurance put: AUG $55 PUT EOG-TK @ $1.15 - Enter only if
Entry $59.00 (7/05)
ECA $43.50 Encana Corp ** Stop Loss $38.00 **
Like EOG the Encana rocket too off on Tuesday and never looked back touching a new all time high on Friday at $44. I am not using an insurance put on ECA due to the low price on the call option.
ECA owns the largest independent gas storage network but that is not the primary focus of its business. ECA has been divesting itself of non-core assets in an effort to focus on its main business. It will divest itself of the gas network either through a competitive bid or IPO by early 2006. This represents a major cash generation point for ECA and they will use the cash to acquire more reserves. This is the kind of story we want in our LEAPS portfolio. Unfortunately ECA does not have leaps and we will have to use the Jan-06 calls. That should get us through the Fall demand cycle and allow us to take profits ahead of the spring dip.
With an enterprise value of approximately US$44 billion, EnCana is one of North America's leading natural gas producers, is among the largest holders of gas and oil resource lands onshore North America and is a technical and cost leader in the in-situ recovery of oilsands bitumen. EnCana delivers predictable, reliable, profitable growth from its portfolio of long-life resource plays situated in Canada and the United States. Contained in unconventional reservoirs, resource plays are large contiguous accumulations of hydrocarbons, located in thick or areally extensive deposits, that typically have low geological and commercial development risk, low average decline rates and very long producing lives. The application of technology to unlock the huge resource potential of these plays typically results in continuous increases in production and reserves and decreases in costs over multiple decades of resource play life. (source Encana)
Encana does not have leaps so we are going to use the January-06 calls. The demand cycle runs through November giving us plenty of time to rotate out and reenter on the spring demand dip.
JAN 2006 $45 CALL ECA-AI @ $2.70
Entry $42 (7/05)