SUN - $72.51 - Sunoco ** Stop Loss $65 **
Sunoco has refining capacity of nearly 1 mbpd spread over five refineries and controls 4500 miles of pipeline and sells through 4528 retail outlets. They would make a very nice takeover target for Valero with a market cap of only $10.4 billion compared to $33 billion for Valero. Net income rose +61% in Q4 to $974 million. Valero made $1.35B for the same period.
Sunoco, Inc. operates through its subsidiaries as a petroleum refiner and marketer, and chemicals manufacturer with interests in logistics and coke making. Sunoco's petroleum refining and marketing operations include the manufacturing and marketing of a range of petroleum products, including fuels, lubricants and some petrochemicals. Sunoco's chemical operations consist of the manufacturing, distribution and marketing of commodity and intermediate petrochemicals. The Company's operations are organized into five business segments: refining and supply, retail marketing, chemicals, logistics and coke.
Buy 2007 $80 LEAP VUN-AP currently $8.70
Insurance put: none today
Entry $72.51 (2/12)
COP - $59.31 - Conoco Phillips ** No Stop **
Conoco hit our trigger of $60 on Wednesday and continues to hover in the $58-$60 range. This should be support as the acquisition of Burlington Industries approaches. The companies expect it to conclude in the first half of 2006. Burlington reported earnings that nearly doubled the prior year in Q4 and Conoco reported earnings that rose more than +50%. Together they should receive some synergistic benefits and increase shareholder value. Conoco is the most aggressive integrated oil company when it comes to adding reserves. They are not afraid to pay for them and they are clearly planning for the future.
Conoco Phillips is an integrated energy company. The Company's business is organized into six operating segments. The Exploration and Production segment primarily explores for, produces and markets crude oil, natural gas, and natural gas liquids on a worldwide basis. The Midstream segment gathers and processes natural gas produced by Conoco Phillips and others, and fractionates and markets natural gas liquids. The Refining and Marketing segment purchases, refines, markets and transports crude oil and petroleum products. The LUKOIL Investment segment consists of the Company's equity investment in LUKOIL, an international, integrated oil and gas company. The Chemicals segment manufactures and markets petrochemicals and plastics on a worldwide basis. The Emerging Businesses segment encompasses the development of new businesses, including new technologies related to natural gas conversion into clean fuels and related products, technology solutions, power generation and emerging technologies.
2007 $65 LEAP OJP-AM @ $5.00 (2/08)
Insurance Put: March $55 PUT COP-OK only if COP trades at $57.50
Entry $60.00 (02/08)
SU - $72.64 - Suncor Energy ** Stop loss $63.50 **
Suncor is very active in the Canadian oil sands and has a strong plan to ramp production for the next decade. This is a very strong company in charge of their own fate. There are no OPEC concerns, no terrorists and no problems like Hugo Chavez. With the new government in Canada their business problems will likely ease instead of get worse.
I ate lunch with the Vice President of Suncore a couple months ago and he answered my questions very positively and with lots of confidence. I strongly believe this will be a good company for a long time. That does not mean profits cannot be hurt if we suddenly end up with an oil glut but that is not likely.
Suncore spiked up on Monday hitting our breakout trigger at $80.50 and then rolled over with the price of oil to hit our breakdown target at $72 and close at $72.64. I am recommending adding an equal number of contracts on Monday at the current price of $7.70 to dollar cost average the current position.
Suncor Energy Inc. (Suncor), formerly Suncor Inc., is a Canadian integrated energy company that explores for, acquires, develops, produces and markets crude oil and natural gas, transports and refines crude oil and markets petroleum and petrochemical products. Periodically, the Company also markets third-party petroleum products. Suncor also carries on energy trading activities focused principally on buying and selling futures contracts and other derivative instruments based on the commodities the Company produces. The Company has four principal operating business units: Oil Sands; Natural Gas; Energy Marketing and Refining, Canada, and Refining and Marketing, United States of America.
2007 $85 LEAP OYX-AQ @ $10.40 2/06
Put: Not today, premiums need to shrink
CCJ - $69.99 - Cameco ** Stop loss $62.50 **
We were triggered on the breakout at $72.50 on Monday and again on the $67 breakdown target on Wednesday. Each trigger was for a 1/2 position giving us a full position with an average cost of $9.80 each. That turned out to be the closing price on Friday so if you missed either opportunity you did not miss anything. We are going to add another full position after CCJ splits on Feb-23rd. I will email everyone with confirmation at that time.
This is my best single play in the list. Cameco just announced record earnings and raised their forecast for 2006 and beyond. They projected a +40% rise in revenue and a rise in margin from 23% to 28% for 2006. At the same time they announced a 2:1 split for Feb-23rd on the NYSE. They also raised the dividend to 32 cents from 24 cents payable on April 13th.
They also announced they were buying Zircatec for $108 million. Zircatec is a maker of nuclear fuel bundles for Canadian designed heavy water reactors. They said the acquisition would moderately boost 2006 earnings assuming no material changes in operations.
The combination of events including the purchase of Zircatec caused the stock to plunge from its all time high of $82.15 on Feb-1st to close at $69.97 on Friday Feb-3rd. That level remained support for the entire week through Feb-10th.
2:1 Split scheduled for Feb-23rd
Plan on doubling up with some $40 2008 LEAPS once the split occurs.
Cameco Corporation is engaged in exploring, developing, mining and milling uranium ore to produce uranium concentrates. The Company is also a commercial converter of uranium concentrates (U3O8) to UF6 (uranium hexafluoride), as well as a supplier of services to convert uranium concentrates to UO2 (uranium dioxide). Cameco, through its subsidiaries, has a 31.6% limited partnership interest in Bruce Power Limited Partnership, which operates six nuclear reactors in Ontario, Canada. Cameco also owns 53% of Centerra Gold Inc. (TSX: CG), a growth-oriented gold mining and exploration company engaged in the acquisition, exploration, development and operation of gold properties in Central Asia, the former Soviet Union and other emerging markets.
Breakout target $72.50
Breakdown target $67.00
Split target: ADD another full position
Put insurance: None today
HAL - $73.24 - Halliburton ** No Stop **
Halliburton weathered the drop in oil fairly well but we still got caught in the Monday spike to enter the position. The drop then set us back about -$2 on the LEAP. While I believe HAL will resume its upward trend once oil firms I am not recommending adding to the position to dollar cost average. Let's just sit on it and wait for a bottom to form.
Halliburton is planning on spinning off KBR, its construction and engineering unit. This should produce a significant bounce in HAL stock. (KBR stands foe Kellogg, Brown and Root)
Halliburton Company is an oilfield services company, and a provider of engineering and construction services. The Company provides services, products, maintenance, engineering and construction to energy, industrial and governmental customers. Its six business segments are Production Optimization, Fluid Systems, Drilling and Formation Evaluation, Digital and Consulting Solutions, collectively the Energy Services Group, and Government and Infrastructure, and Energy and Chemicals, collectively known as KBR. In August 2004, the Company sold its surface well testing and sub-sea test tree operations to Power Well Service Holdings, LLC. In January 2005, the Company emerged out of the chapter 11 proceedings and can operate the businesses without Bankruptcy Court supervision.
2007 $85 LEAP Call VHW-AQ @ $9.80
Insurance Put: Not today, we will sell calls next week.
Entry $79.00 (2/06)
KMG - $100.07 - Kerr Mcgee ** Stop Loss $91.50 **
We were triggered on the breakout on KMG and it was not pretty. KMG declined -$7 before the week was over but retained much of its value contrary to massacres like SUN and VLO. I am not recommending averaging down on KMG. I am planning on selling a covered call against our LEAP next weekend. Insurance puts are too expensive today given the week's decline.
Kerr-McGee Corporation (Kerr-McGee) is an energy and inorganic chemical holding company whose consolidated subsidiaries, joint ventures and other affiliates (together, affiliates) have operations throughout the world. The Company's core businesses include exploration and production, and chemicals. Kerr-McGee's oil and gas exploration and production areas are onshore in the United States, in the Gulf of Mexico, the United Kingdom sector of the North Sea and China. In addition, the Company has exploration programs in Alaska, Brazil, Morocco, Bahamas and Benin. Kerr-McGee affiliates engaged in chemical businesses produce and market inorganic industrial chemicals, lithium-metal-polymer batteries and heavy minerals. On June 25, 2004, the Company completed a merger with Westport Resources Corporation. On March 8, 2005, the Company annonced its decision to proceed with the proposal to pursue alternatives for the separation of the chemical business, including a spinoff or sale.
Entry $107.00 (2/06)
UPL - $59.05 - Ultra Petroleum ** Stop Loss $54.00 **
Ultra was one of the few that did not get hit on Monday. The breakdown target at $62 was our trigger on Tuesday but unfortunately it was followed by a -$7 drop on Thursday. They announced earnings on Tuesday that beat the street but they were hammered on Thursday after announcing they entered into a pipeline agreement with Rockies Express Pipeline (REP) for $70 million a year for ten years starting in 2007. REP is obligated to build pipelines to southwestern Wyoming and transport 200,000 MMBtu per day of gas to connecting hubs for Ultra.
Ultra's finding and development cost for 2005 was $0.56 per MCFe and reserve replacement was 773%, both the best in the industry. Ultra has 17 years of drilling planned with 160 wells planned for 2006 in Wyoming alone. They produced 73.4 Bcfe of gas in 2005 which suggests the 200,000 MMBtu capacity being contracted above is only a portion of their expected Wyoming production. With Wyoming gas selling for more than $8 per MMBtu in January that represents $1.6 million in gas production through the pipeline per day or roughly $584 million per year. I would gladly pay $70 million for pipes to carry $584 million of gas to market.
Ultra ended 2005 with no debt. Their profit per MCFe was $6.94 in Q4. Net profit increased +111% in 2005, ROE was 55%. Proved reserves in Wyoming at the end of 2005 were 2.022 TCFe of gas, a +32% increase over 2004. Proved and probable reserves were 6.29 TCFe. This represents better than a 2000% increase in reserve growth since 1999. Ultra has more than 2877 scheduled wells to drill in Wyoming over the next 17 years.
Ultra Petroleum Corp. is an oil and gas company engaged in the development, production, operation, exploration and acquisition of oil and gas properties. The Company's operations are focused in the Green River Basin of southwest Wyoming and Bohai Bay, offshore China. During the year ended December 31, 2004, it owns interests in approximately 166,974 gross (92,997 net) acres in Wyoming covering approximately 260 square miles. The Company owns working interests in approximately 241 gross productive wells in this area and is operator of 41.5% of the 241 gross wells. Through Pendaries Petroleum Ltd., it is active in oil and gas exploration and development in Bohai Bay, China. The Company also owns interests in 15,518 gross (14,652 net) acres in Pennsylvania, as well as interest in approximately 720 gross (320 net) acres and interests in three productive wells in Texas.
2007 $70 LEAP Call OZH-AN @ $10.70
Insurance Put: Not today
Entry $62 (2/08)
HOC - $63.95 - Holly Corp ** Stop Loss $56.00 **
Holly spiked into our $71 breakout trigger on Monday and then collapsed to close at $63.95 on Friday. $64 was the breakdown target and I am recommending we add a full position at the current level of $4.40 to average down our $7.20 cost in the first position.
Holly is a very strong company despite its small size. It has a huge cash pile and no debt. The ratio of cash to equity is currently 67% and Holly is trading at only a 9 PE. The $2B company is a huge takeover target given its inland refineries and pipeline capacity. Forbes named it one of America's best managed companies with a five year annualized return of 80.7%, the best in the oil and gas industry.
Earnings are due Feb-13th
Holly Corporation (Holly) is an independent petroleum refiner that produces and distributes high-value light products, such as gasoline, diesel fuel and jet fuel. As of December 31, 2004, the Company, through its principal subsidiaries, operated and managed three refineries located in Artesia and Lovington, New Mexico (operated as one refinery); Woods Cross, Utah (Woods Cross refinery), and Great Falls, Montana (Montana Refinery). Holly also holds ownership interests in Holly Energy Partners, L.P. (HEP), a limited-liability company that owns and operates pipeline and terminally ailing assets, as well as 70% interest in the Rio Grande Pipeline Company (Rio Grande). Rio Grande owns a 249-mile pipeline that transports liquid petroleum gases (LPGs) from West Texas to the Texas/Mexico border. During the year ended December 31, 2004, gasoline, diesel fuel and jet fuel (excluding volumes purchased for resale) represented 59%, 26% and 5%, respectively, of the refinery's sales volumes.
Add a full position on Feb-13th
Insurance Put: Not today