Option Investor

Weekly Newsletter, Saturday, 07/23/2005

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Table of Contents

  1. Commentary
  2. Changes in Portfolio
  3. Portfolio Listing
  4. New Plays
  5. Existing Plays
  6. Watch List

Leaps Trader Commentary

Oil's Well That Ends Well

I thought for sure that last weeks dip would trigger entries in several of our watch list candidates. Unfortunately, despite the severity of the drop only one candidate dipped low enough to be triggered.

The good news was the oil rebound on Friday. As painful as the dip was the rebound erased nearly all the profit taking in only a single session. Hopefully it was not just an oversold bounce and we will get some follow through and some new highs next week.

Earnings on energy stocks are beginning to flow and OXY led the list on Friday with nearly a +100% profit increase over Q2-2004. I expect this is the type of performance we will get from the companies in our portfolio with the exception of Valero. As a refiner they are immune from the new highs in oil prices but are guaranteed a profit in any market. VLO earnings are expected to grow by +13%.

Chevron raised its bid for Unocal and the board blessed it again ahead of the August 10th vote. CNOOC appears to have lost interest given the growing political opposition. They would have to bid much higher, give some strong guarantees and face a long grueling political fight. Chevron actually rose on the news of the elevated bid as investors saw the end of the battle approaching fast.

The end game for our current portfolio is also approaching. I am speculating that we will get one more really strong demand driven rally into the fall. Once it appears a heating oil crisis and a shortfall in inventories has been averted I expect prices to weaken in anticipation of the spring demand slump. This is when I expect to exit the majority of our oil positions. Depending on how the data flows it could be in the late September to November time frame. I still recommend adding to positions on any dip like we had last week but everyone needs to understand that there is a peak ahead and a planned exit. I will update everyone with my thoughts as we approach fall.

I suggest everyone read my weekend commentary in the Option Investor Newsletter this weekend. I quoted some more research on the eventual arrival of the Peak Oil crisis.

I can't tell you how nice it was to see my energy positions come rocketing out of this week's drop. I am sure everyone else felt the same. Once equities in general begin their anticipated summer decline into the Sept/Oct dip we should see energy stocks rally as a safe place to park money until Q3 earnings.

Hurricane Emily failed to cause any serious damage to the U.S. although Mexico lost a considerable amount of production while waiting for the storm to blow over. Franklin is now moving away from the U.S. and will not come anywhere close to the Gulf oil fields. This is a record for named storms this early in the season and we can bet that there are more headed our way. Just another profit opportunity in my opinion.

December Crude Chart - Weekly

December Natural Gas Chart - Weekly


Changes in Portfolio

New Plays


Dropped Plays


New Watch List Plays Triggered
KWK $43.01 Quicksilver

Portfolio Listing & Top Picks

New Plays

Most Recent Plays

KWK $43.90 Quicksilver ** Stop Loss $41.50 **

Quicksilver is a driller of unconventional gas. It dipped to $42.05 on Monday to trigger our breakdown entry at $42.50. The company has very low costs and earnings are expected to increase by 50%. I am not putting an insurance put on this play and we will go with a stop loss instead.

Earnings due Tue August 2nd after the close.

Company info:

Quicksilver Resources Inc. (Quicksilver) is an independent oil and gas company engaged in the exploration, acquisition, development, production and sale of natural gas, crude oil and natural gas liquids (NGLs) primarily from unconventional reservoirs, such as fractured shales, coal beds and tight sands. Quicksilver's operations are concentrated in Michigan, Indiana/Kentucky, Texas, the Rocky Mountains, and the Canadian province of Alberta. At December 31, 2004, Quicksilver had estimated proved reserves of 968 billions of cubic feet of natural gas equivalent (Bcfe). Approximately 92% of its reserves were natural gas, 77% were classified as proved developed. Approximately 62% of the estimated proved reserves are located in Michigan.

Breakdown Target
BUY Dec 2005 $45 CALL KWK-LI @ $3.50

No insurance put

Entry $42.50 (7/18)


Play Updates

Existing Plays

RRC - $29.42 - Range Resources ** Stop Loss $28.50 **

RRC rallied strongly from the dip and tacked on another +$1.50 from last weeks levels. RRC is somewhat insulated from oil as it is primarily a gas explorer/producer. I raised the stop to $28.50 based on the support from last week.

Company info:

Range Resources Corporation (RRC) is an independent natural gas and oil company engaged in the exploration, development and acquisition of oil and gas properties, primarily in the Southwestern, Appalachian and Gulf Coast regions of the United States. As of December 31, 2004, RRC has proved reserves of 1.18 trillion cubic feet (Tcfe) of natural gas equivalent, of which 81% natural gas; 64% is proved developed reserves, and 77% operated with a reserve life of 14.9 years. The Company owns 2,428,000 gross (1,890,000 net) acres of leasehold plus over 400,000 royalty acres. RRC has a multi-year inventory of drilling projects that includes over 5,000 identified drilling locations. On June 23, 2004, RRC purchased the 50% of the remaining Great Lakes that it did not own. In December 2004, RRC also purchased additional Appalachian properties through the purchase of PMOG Holdings, Inc, a private company, or Pine Mountain.

Dec 2005 $30 CALL RRC-LF @ $2.90

Entry $30.50 (7/13)

APA - $69.90 - Apache ** Stop Loss $65.00 **

APA rallied strongly on Friday with an upgrade by Smith Barney to a buy from hold. The company shook off last weeks dip and returned to within a buck of a new high. APA had been weak after announcing a shut in of 82 mmcfd of gas due to Emily. We are still negative on the LEAP due to the prior drop but we are down less than a dollar.

Earnings Due July 28th before the open

Company info:

Apache Corporation is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. In North America, the exploration and production interests are focused in the Gulf of Mexico, the Gulf Coast, the Permian Basin, the Anadarko Basin and the Western Sedimentary Basin of Canada. The Company has interests in seven countries, such as the United States, Canada, Egypt, Australia, the United Kingdom, China and Argentina. Its segments are the United States, Canada, Egypt, Australia, North Sea and Other International. On August 20, 2004, Apache signed a definitive agreement to acquire all of Anadarko's Gulf of Mexico-Outer Continental Shelf properties (excluding certain deepwater properties). During the year ended December 31, 2004, the Company participated in drilling 1,913 gross wells, with 1,735 (90.7%) completed as producers.

JAN 2008 $75 LEAP CALL YWA-AO @ $13.70
(no 2007 $75 or $80 LEAP)

Entry $70.50 (7/12)

EOG - $63.53 EOG Resources ** Stop loss $57.00 **

EOG blasted out of the doldrums to another new high and a +3.30 gain on Friday. The positive comments about the oil sector from two majors OSX firms helped to punish any shorts and break overhead resistance.

Earnings are due July 27th before the open

Company Info

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.

EOG finished first in an investor relations survey by Greenwich last week. Rounding out the top five were Noble Corp, Carnival, Dell and UTX.

2007 $60.00 LEAP Call OAC-AL @ $9.50

No insurance put

Entry $59.00 (7/05)

ECA $42.01 Encana Corp ** Stop Loss $39.00 **

Encana rebounded from the majority of the sector loss and is less than $2 from a new high. Encana should not really be dependent on the price of oil but is guilty by association. I raised the stop based on last weeks support.

Earnings are due out July 28th

Company Description:

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.

Company info:

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)

MRO $57.44 Marathon Oil ** Stop Loss $53.50 **

MRO pulled within a buck of a new high after a -$5 dip on sector profit taking. MRO is expected to post earnings growth of +44%.

EARNINGS Due July-28th before open

Takeover speculation:

Only one company will end up with Unocal and that leaves the other hungry and looking for other targets. XOM also has nearly $30 billion in cash and needing to make an acquisition. Marathon is one of the largest remaining independents and a likely target due to its diverse operations. MRO has several large properties in Asia and within China's sphere of influence.

Company Info:

Marathon Oil Corporation (Marathon) is engaged in worldwide exploration and production of crude oil and natural gas. It operates through three segments: exploration and production (E&P), which explores for and produces crude oil and natural gas; refining, marketing and transportation (RM&T), which refines, markets and transports crude oil and petroleum products, and integrated gas (IG), which markets and transports natural gas and products manufactured from natural gas, such as liquefied natural gas (LNG) and methanol. The Company's principal operating subsidiaries are Marathon Oil Company and Marathon Ashland Petroleum LLC (MAP). During the year ended December 31, 2004, the Company's worldwide liquid hydrocarbon production averaged 170,000 barrels per day (bpd) and sales of natural gas production, including gas acquired for injection and subsequent resale, averaged 999 million cubic feet per day (mmcfd).

On Thursday (June 30th) MRO completed acquisition of $3.7B in properties from Ashland Inc (ASH). Asland owned 38% in Marathon Ashland Petroleum (MAP) and two other businesses. ASH fell -$11.72 on the deal which represented the payment from MRO to Ashland and Ashland shareholders of stock and cash. Ashland applied $2.5B of the proceeds to payoff debt.

Current entry:

2007 $55 LEAP Call VXM-AK @ $7.90

No put insurance

Entry $54.74 (6/27)

CHK - $25.53 Chesapeake Energy ** Stop $23.50 **

CHK recovered very nicely from the dip and is only 50 cents from a new high. I raised the stop to $23.50 based on current support.

CHK is our low dollar entry into the energy market. With natural gas prices continuing to rise it means money in the bank for CHK. Much of the electricity generated over the summer for cooling the south will be produced with CHK gas.

EARNINGS Due Aug-4th after the close

Company Info

Chesapeake Energy Corporation is the third largest independent producer of natural gas in the U.S. Headquartered in Oklahoma City, the company's operations are focused on exploratory and developmental drilling and producing property acquisitions in the Mid-Continent, Permian Basin, South Texas, Texas Gulf Coast and Ark-La-Tex (including the Barnett Shale) regions of the United States.

Chesapeake Energy derives 90% of its revenues from natural gas. They are very aggressive about replacing reserves and will capitalize on the continued increase in prices. Gas prices have soared in the U.S. due to the addition and conversion of electric plants to the cleaner fuel. Several times over the last winter the gas levels supplying those plants dipped to dangerous levels. The demand is increasing faster than supply and the production peak is now estimated to be 2007. Prices are going to continue higher, much higher and Chesapeake is positioned to benefit.

This summer much of northern California will get its electricity from gas due to a drought in the northwestern hydro-electric grid. Generation levels will be below normal and natural gas is the fall back fuel.

2007 $20 LEAP Call VEC-AD @ $4.00

Insurance put:
July $17.50 CHK-SW @ 90 cents, expired worthless

Entry $19.00 (05/13)

APC - $88.41 Anadarko Petroleum ** Stop $83.00 **

EARNINGS Due July 29th before the open

APC regained nearly all of its losses for the week on Friday with a stunning gain of +3.46 for the day. I raised the stop to $83 and just under the current support.

Company Info

Anadarko Petroleum Corporation's mission is to deliver a competitive and sustainable rate of return to shareholders by developing, acquiring and exploring for oil and gas resources vital to the world's health and welfare. As of year-end 2004, the company had 2.37 billion barrels of oil equivalent of proved reserves, making it one of the world's largest independent exploration and production companies. Anadarko's operational focus in North America extends from the deepwater Gulf of Mexico, up through Texas, Louisiana, the Mid-Continent, western U.S. and Canadian Rockies and onto the North Slope of Alaska. Anadarko also has significant production in Algeria, Venezuela and Qatar, and exploration or production positions in several other countries.

Anadarko has just completed a restructuring program and raised estimates on May-2nd. They expect output to rise +5% in 2005 and costs to be below industry trends. S&P is estimating $8.55 for earnings in 2005 and a price target of $85.

APC signed a new pipeline deal in late June to accommodate 750 mcfpd from its Bear Head terminal currently under construction. APC announced last week it is on track to meet its annual production growth target of +5% to +9% per year through 2009. APC said it had identified 2.1 boe of additional resource potential. Half of the new resources are already on APC properties under development.

2007 $75 LEAP Call OCP-AO @ $10.10

Insurance Put
June $65 APC-RM @ $0.85, expired worthless

Entry $70.50 (5/04)

COP - $61.25 Conoco Phillips ** Stop $57.50 **

EARNINGS Due July 27th before the open.

COP finally delinked from the price of oil with the expiration of the August futures. COP is only 75 cents from a new high with earnings approaching.

Company Info

COP reported earnings of $4.10 that rose +80% over the year-ago period. Analysts had only expected $3.29. They said unplanned down time at refineries kept them from doing even better. They also said they were going to spend $3 billion between 2006-2010 to increase their ability to handle the cheaper sour crude.

COP has been aggressively purchasing assets around the globe and especially in Russia. Putin has said repeatedly that COP assets and agreements are not at risk and that COP is a partner with Russia in producing their oil.

On July 1st COP and Russia's Lukoil finalized a joint venture to develop energy fields in Artic Russia as part of a broader strategic alliance. COP has very good contacts in Russia and has been mentioned several times by Putin as a strategic partner. COP owns 12.6% of LUKOIL and has been approved to buy up to 20%.

2:1 Split on June 2nd gave us 2 of each.

(2) 2007 $50 LEAP Call OJP-AJ @ $7.88

Insurance put:
(2) June $50 COP-RJ @ $1.08, expired worthless

Entry (4/18 $49.00)

OXY - $82.90 Occidental Petroleum ** Stop $77.50 **

OXY blew out the stops and rallied to a new high at Friday's close after announcing earnings of $3.78 that more than doubled the prior year's number at $1.46. $1.66 of that headline number was special items and gains on the sale of assets. Profits from exploration and productions fell short of analyst's aggressive estimates but were still very strong.

S&P reiterated its bullish outlook on OXY given the additions in the Permian Basin, recovery of its Lybia assets and the Oman contract award. Things seem to be going very well for OXY.

Company Info

OXY declared a quarterly dividend of 31 cents in early May and appointed former U.S. Secretary of Energy, Spencer Abraham, to their board. Earnings in 2004 were a record $2.6B and as the CEO pointed out on Friday it was more than a billion more than they earned in 2000. Not a bad growth record. Q1 earnings were up +74% over Q1-2004.

OXY reported earnings on April 26th of $2.16 per share compared to estimates of $1.99. OXY said it had higher than expected production, strong pricing and record chemical sales. Still it failed to produce the blowout earnings of COP due to hedging.

OXY reported an agreement with Oman to invest $2B in the Mukhaizna oil field and upgrade production from 10,000 bbls per day to 150,000 per day. I would happily invest $2B once to get $3B return per year. Good job!

OXY is the 239th largest company in the world and an oil giant.
Occidental's principal activities are to explore for, develop, produce and market crude oil and natural gas. The operations are carried out through two segments: Oil and Gas and Chemical. The Oil and Gas segment develops, explores for, produces and markets crude oil and natural gas. The Chemical segment manufactures and markets basic chemicals. The company operates primarily in the United States, Qatar, Yemen, Colombia, Oman, Pakistan, Canada, Russia, Ecuador and the United Arab Emirates.

2007 $70 LEAP Call VXY-AN @ $10.00

Insurance Put:
June $65.00 OXY-RM @ $1.40, expired worthless

Entry $68.00 (4/19)

XOM - $59.50 Exxon Mobil ** Stop Loss $58.50 **

EARNINGS Due July-28th

I raised the stop to take us out on any material dip. XOM crashed and burned with the rest of the group and dropped back to support at $58. The positive news on Friday helped lift it to a new two-week high but that is not saying much. However, if XOM does not develop a positive trend by the Sunday after its earnings I am dropping it. I am hoping that it will announce something regarding its $30 billion in cash when it announces earnings. Otherwise we are out of here. Resistance is strong at $60 and I have my doubts about any future gains. Six billion shares is just too much lethargy to fight.

Company Info

XOM has larger reserves and more cash than any other oil company. They have to find something to do with their $30 billion and it will either be returned to the shareholders or used to buy more reserves.

XOM is the largest oil company in the world and while it has the largest reserves it also has the highest overhead cost.

2007 $60 LEAP Call ODU-AL @ $6.70

Insurance Put:
July $55 Put XOM-SK @ $1.20, expired worthless

Entry $58.00 (4/19)

XLE - $47.41 Energy SPDR ** Stop $44.75 **

The XLE surged to a new high on Friday with a +1.64 gain on the strength in the OSX. Unfortunately XOM remains the anchor for this index. Positive earnings for the group should push it higher but if we drop XOM and keep the XLE we are not gaining much. I am leaning towards taking out $5 profit and focusing on individual stocks. It all depends on XOM and movement after their earnings.

Company Info

The XLE SPDR is composed of 27 energy stocks and represents about 8% of the SPX. This is the 8% that helped push the SPX to the current levels with the rise in oil over the last year. In fact the XLE has far exceeded the SPX in performance over the past year.

I chose a leap close to the money because there was no material price difference for the Leaps $2-3 away. Insurance is cheap and I expect this to be a very long-term play.

2007 $40 LEAP Call ORJ-AN @ $5.60

Insurance put:
June $39 Put XLE-RM @ $1.35, expired worthless

Entry $39.75 (4/18)

VLO - $83.35 Valero Energy ** Stop $77.00 **

EARNINGS Due July-26th

VLO is struggling back from the dip a little weaker than the rest. VLO set its low for July on Thursday at $78.75 and then spiked +3.63 from that close on Friday. It was definitely a short covering day and VLO had been under pressure. Earnings next week could surprise everyone with expectations for only +13% growth.

VLO remains in the best position to profit given their ability to refine the heavy sour crude currently available in the market. As prices rise on distillates VLO will continue to gain margin against other refiners.

Company Info

VLO has been weak since the announcement it was buying Premcor. This should be a very good deal for them and the combined companies will control a large portion of the refinery business. Think of it as a buying opportunity.

Valero is the largest independent refiner in the U.S. and one that has made the switch to the higher profit margins of sour crude. Oil prices are generally quoted using the West Texas Light Sweet price. The sour crude sells for significantly less and will become the dominant variety as oil supplies dwindle. Sour crude has been running about $10 a bbl under sweet crude. Valero is seeing even bigger discounts from less desirable grades from Mexico and Alaska. It costs more to process the sour crude and fewer refineries can handle it. This forces the price of that sour crude lower. Finished gasoline is priced basically on the price of a barrel of sweet crude. This means the same gas Valero produces from cheaper sour crude sells for the same price as the gas produced from sweet crude. This enables Valero to capture a significant profit margin. They had a record year in 2004 due in part to their ability to process the cheaper grade of oil. The company has already said 2005 profits will be higher in 2005 even if margins narrow for others.

Company website: http://www.valero.com/About+Valero/

Valero reported earnings on April 21st of $1.92 that more than doubled the prior year of $.91 cents. VLO fell slightly in trading because analysts had estimates of $1.97. Shucks, they missed estimates by a nickel but more than doubled last year. Let's sell them. Duh! They rebounded as eager traders rushed into the gap and they closed at $74.86 on Friday, more than $5 above the earnings dip at $69.55.

Valero announced on June-30th it was going to retire the Diamond Shamrock brand and put up Valero signs at its 2,900 Shamrock stations. This will give the Valero brand and image a huge boost since few if any consumers know Valero owned the chain. Valero has gone from a single refinery with 170,000 bbls of output to 14 refineries and 2.5 mbpd of output and 4,700 retail stores over just a few short years. It will become the largest refiner in the nation when it completes its acquisition of Premcor later this year.

2007 $75 LEAP Call VHB-AO @ $14.10

Insurance put:
June $60.00 VLO-RL @ $2.05, expired worthless

Entry $68.00 (4/15)

CVX - $57.79 Chevron Texaco ** No stop **

EARNINGS Due July-29th

Chevron rallied on the improved bid as the chances for a successful acquisition of Unocal seemed almost a sure thing. $58 has been resistance and that was the level reached on Friday. With the Unocal vote on August 10th and CNOOC no longer making noises about their offer it appears to be a done deal.

We have the Sept $55 put and we will be selling it once the vote has passed. Target $53 to sell the put on any dip.

Company Info

Chevron will likely sell off about $3 billion in non-core assets once the Unocal deal is consummated. The main asset Chevron wanted was the 1.7 billion barrels of proven reserves and tens of thousands of acres of additional leases still to be explored. Chevrons current average cost of produced crude is $27. After selling the non-core assets they will end up with the Unocal proven reserves at about $9 a bbl plus billions in other assets like gas fields, power plants and joint ventures around the world. This was a very sweet deal for Chevron even at the raised price.

The Unocal leap was actually triggered when the price hit $59 on the announcement. With UCL trading at $58.74 at Friday's close there would not have been any material movement. Because any Unocal leap will eventually end up being a Chevron leap I am electing to use the previously recommended Chevron leap as the actual position. I am using Friday's close for the entry price.

2007 $60.00 LEAP Call VCH-AL @ $5.60
2007 $57.50 LEAP Call VCH-AY @ $6.70
UCL 2007 $60 LEAP Call VCL-AL @$6.60

We held both CVX and UCL leaps when the buyout was announced. I dropped the UCL listing as a duplicate to focus on the eventual merged company.

Insurance Put:
June $55 Put CVX-RK @ $1.65, expired worthless

New Put 6/19
Sept $55 Put CVX-UK @ 0.95

Entry $56.67 (04/07)


Leaps Trader Watch List

For the second consecutive week UPL came close to our trigger point but not close enough. UPL closed at a new all time high of $36.51 on Friday after rebounding from a dip to $32.70 on Monday. It appears we are not supposed to have that stock in our portfolio. I am going to raise the entry point but not chase it higher.

Amerada Hess and Sunoco are two other recurring headaches. I keep hoping both decline enough to provide a reasonable entry but they both continue to set new highs. SUN did decline to $118 but options were still outrageous. I figured it would take one more hit to $114 to flush the optimism but those hopes were dashed when it rallied +5.06 on Friday to $123.41 and a new high.

AHC was even worse with a rebound from $110.50 to $118.90 and a new all time high. Both of these stocks are high dollar and have high options for a reason. FYI, I am not going to add them at these levels but I do intend to trade them on the next dip.

As we near the potential fall demand season I hesitate to add anymore energy plays unless we get another substantial dip. I am going to adjust the entries on the remaining watch list entries with a trailing stop concept.

Dropped Entries


New Watch List Entries


Current Watch List

UPL - $36.51 Ultra Petroleum

** Breakdown Target $34.00 **
** Breakout Target - none **

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.

Breakdown Target
BUY 2007 $37.50 LEAP Call OZH-AU currently $7.90


BP - $65.95 BP, PLC

** Breakdown Target $64.00 **

BP PLC. produces & markets crude oil & petroleum products worldwide. It is involved in exploration and field development throughout the world and is engaged in the manufacture and sale of petroleum-based chemical products. For the 3 months ended 3/31/05, revenues rose 15% to $81.01B. Net income rose 34% to $6.60B. Results reflect increased sales from all the business segments, higher marketing & refining margins and inventory gains

Breakdown Target
BUY 2007 $65 LEAP CALL WAO-AM currently $9.00


TLM $41.87 Talisman Energy

** Breakout target - None **
** Breakdown target $39.50 **

Company info:

Talisman Energy Inc. (Talisman) is an independent international upstream oil and gas company whose main business activities include exploration, development, production, transporting and marketing of crude oil, natural gas and natural gas liquids. The Company's operations, during the year ended December 31, 2004, were conducted principally in four geographic segments: North America, the North Sea, Southeast Asia and Algeria. The Trinidad Angostura project began production in January 2005. Exploration is being advanced in other areas outside the principal geographic segments, including Alaska, Colombia, Qatar and Peru. During 2004, total production averaged 438 million barrels of oil equivalent per day (mboe/d) and the Company exited the year producing 452 mboe/d in December. In 2004, the Company drilled 641 successful wells.

Breakdown Target
BUY Jan 2006 $40 CALL TLM-AH currently $6.30


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