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Weekly Newsletter, Saturday, 09/02/2006

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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

Back On Track

After a brief rebound from the post Ernesto lows the price of oil closed at a new five month low for the October contract of $69.25. Support at $70 is losing its grip and even the 200-day average at $69.75 did not help. The next support level is $65 and without a new storm in the Gulf or a stupid move by Iran it seems we have a very strong chance of hitting that level.

That would enable us to fill on most of our watch list targets. Rising crude inventories despite the Alaska pipeline problem and Nigeria production problems are causing some to wonder if we are approaching an oil glut. Gasoline inventories rose more than expected and this weekend marks the end of driving season. The gasoline shortages many feared by the switch from MTBE to ethanol never really appeared. Refining margins have fallen to 20 cents a gallon and right in line with seasonal norms. They should remain low for the remainder of the year. Gasoline inventories are 5.6 million bbls over the 5-year average. That will not give any support to oil prices over the next few weeks. Heating oil supplies are at levels not seen since 1999 and a near glut.

Oil will not see any help from natural gas prices either. Last week saw an injection of +48bcf into storage bringing total gas in storage to 2.905 tcf. This is 12.4% over the five year average but that percentage has been falling weekly as the heat wave took gas out of the pipeline. With cooler weather ahead we should see injections of 65bcf or better each week in September and October. That will bring gas in storage on November 1st and the start of winter to right at 3.5 tcf and the limits of current storage capacity. This should cause gas prices to ease over the next 60 days as we close in on that 3.5 tcf number. Because gas and oil trade on a relative btu basis it should continue to weaken oil price support.

Energy prices suffered major losses in August with Crude losing -7%, heating oil -5.5%, gasoline -24% and natural gas -28%. Those are some very bearish numbers despite us heading into the peak of hurricane season. Now that we are only two weeks away from the peak of the season around Sept 10-15th AND the driving/cooling season is over we could see some dramatic drops in energy prices after Sept-15th assuming no hurricanes. I seriously doubt we will escape the entire season without at least one major threat and that prospect will provide some level of underlying support into early October.

Transocean Offshore (RIG), announced on Thursday it had received a 5-year contract worth $862 million to build a drillship for Chevron. The ship would be modeled on RIG's enterprise class drillship design which allows for parallel drilling operations designed to save time in deepwater well construction. RIG jumped +4.33 on the news. RIG also announced that a federal jury had awarded it $3.6 million in damages from GlobalSantaFe (GSF) for using patented RIG technology on two of its offshore rigs. The jump in RIG also powered the Oil Service Index (OSX) back above support and lifted other drillers in the sector.

The Transportation Index is benefiting from the drop in oil prices and I considered adding CSX back into the portfolio. CSX has found support at $30 and could be ready to rebound. However, falling gasoline/diesel prices also make it less attractive to ship by rail. I weighed the options and decided to take the plunge with a $5 2009 LEAP. With that kind of risk it is hard to say no.

I sent out an update on Wednesday night lowering some targets on several watch list entries. My initial expectations for an oil price decline may have been too reserved now that Ernesto missed the Gulf. I am targeting $65 oil with those new watch list levels.


October Crude Oil Futures Chart - Daily

December Crude Oil Futures Chart - Daily

December Natural Gas Futures Chart - Daily

September Unleaded Gasoline Chart

 


Changes in Portfolio

New Plays
CSX $30.38 CSX Corp

Dropped Plays

None


New Watch List Plays Triggered
DO $75.84 Diamond Offshore

Portfolio Listing & Top Picks


New Plays

Most Recent Plays

4 HEADER, begin SECTION 4 BODY-->

DO - $75.84 - Diamond Offshore

Diamond took one last dip to support at $70 on Tuesday and triggered our entry into the position just before a very strong rebound. Resistance at $74 was broken by the news on RIG.

I am recommending an insurance put because of my outlook on oil prices over the next 60 days. If we get lucky we could recover a substantial portion of our LEAP premium.

Insurance Put:
Buy October $70 put DO-VN currently $1.65


Company Info:

Diamond Offshore Drilling Inc. (Diamond Offshore) provides contract drilling services to the energy industry worldwide and is also engaged in deepwater drilling with a fleet of 44 offshore drilling rigs. The Company's fleet consists of 30 semisubmersibles, 13 jack-ups and one drillship. The Company's offers a range of services worldwide in various markets, including the deep water, harsh environment, conventional semisubmersible and jack-up markets. The Company provides offshore drilling services to a customer base that includes private and independent oil and gas companies and government-owned oil companies.

Breakdown target triggered @ $70 (8/29)
Position: 2009 $80 LEAP Call VCT-AP @ 14.20

CSX - $30.38 - CSX Corp

The railroads saw their busiest intermodal week in history the last week of July when it shipped 251,000 trailers and containers. Analysts expect that record to be broken several times over the next several weeks as the railroads ramp up for a surge in traffic. New cars, new track, new customers and a growing load of energy products are adding up to record results. Falling diesel prices will also reduce pressure on profits. I consider CSX as the premier railroad stock and I would hope over the next two years to see some major new highs.

Company Info:

CSX Corporation (CSX) based in Jacksonville, Florida, owns companies providing rail, intermodal and rail-to-truck transload services that combine to form transportation companies, connecting more than 70 ocean, river and lake ports. CSX's principal operating company, CSX Transportation Inc. (CSXT), operates the railroad in the eastern United States with approximately 21,000-mile rail network linking commercial markets in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec. CSX Intermodal Inc. (Intermodal) is a coast-to-coast intermodal transportation provider, an integrated intermodal company serving customers from origin to destination with its own truck and terminal operations, plus a dedicated domestic container fleet. Containers and trailers are loaded and unloaded from trains, with trucks providing the link between intermodal terminals and the customer.

Buy 2009 $35 LEAP Call OBC-AG currently $4.90

Entry (9/03)

 


Play Updates

Existing Plays

WLT - $54.81 - Walter Industries

Walter continued to push higher despite the drop in natural gas prices. Walter's coal is not used for heating but for industrial uses. That along with its other business sectors should insulate it to some extent from the rest of the coal sector.

Company Info:

Walter Industries, Inc. (Walter) is a diversified company with seven operating segments: Mueller, Anvil, Industrial Products, Natural Resources, Homebuilding, Financing and Other. The Company's seven segments are further grouped into Water Products, Natural Resources, Homebuilding and Financing, and Other. The Water Products group, which consists of Mueller, Anvil and Industrial Products segments, manufactures water infrastructure and flow control products. The Natural Resources segment consists of coal mining and methane gas operations. Walter markets and supervises the construction of detached, single-family residential homes, primarily in the southern United States, through the Homebuilding segment. The Financing segment provides mortgage financing on such homes and purchases mortgages originated by others. The Other segment includes the manufacturing of foundry and furnace coke, slag fiber and specialty chemicals, as well as the Company's land division.

Breakout target: $52 triggered 8/23
Position 2009 $60 LEAP Call OZE-AL @ $11.50

Entered $52 8/23

ATPG - $39.48 - ATP Oil and Gas Corp ** Stop loss $28 **

ATP continued to move higher and this has given us an ideal chance to enter a long term insurance put ahead of any further decline in oil prices. The December put should take us well past any problems in the fall.

Insurance put:
Buy Dec $35 PUT HKU-XG currently $1.60

Company Info:
ATP Oil & Gas Corporation (ATP), incorporated in 1991, is an offshore oil and gas development and production company operating in the Gulf of Mexico and the North Sea. The primary objectives of the company are to develop already-discovered reserves not strategic to major or exploration-oriented oil and gas companies and to achieve a high rate of return for ATP from such low-risk developmental projects. ATPs expansion from operations on the Outer Continental Shelf into deepwater in the Gulf of Mexico and extension into the North Sea significantly increase the opportunities for the company. ATP became a public company in February, 2001 and is traded on the NASDAQ under the symbol ATPG.
ATP operates exclusively offshore and has addressed projects in Gulf of Mexico water depths from 12 feet in the Eugene Island Area to deepwater 1350 feet of water in Garden Banks; in the North Sea projects range from 50 to 200 feet of water depth. ATP understands this environment and applies advanced sub-sea technology to speed up development and lower capital costs. ATP has been frequently recognized for pushing existing technology to a higher level and is a leader of companies utilizing subsea technology and performing its operations in an environmentally sound manner.
At December 2002, ATP had leasehold and other interests in 50 offshore blocks, 29 platforms and 70 wells, including six subsea wells, in the federal waters of the Gulf of Mexico. ATP operates 55 of these 70 wells, including all of the subsea wells, and 76% of our offshore platforms. ATP also has interests in seven offshore blocks and one company operated well in the UK Sector North Sea and one offshore block in the Dutch Sector North Sea.
You can listen to the full presentation from the recent energy conference at the link below. Use the Windows media option to view the slides. (They will not change automatically) http://tinyurl.com/n3ffr

ATP is getting plenty of airtime. Cramer had an on-air interview with the CFO of ATP. You can watch the video here after a brief commercial interlude. Definitely a compelling case to buy ATP. http://tinyurl.com/nm3rw

Position: 2009 $40 LEAP Call VCL-AH @ $11.70

Entry $38.16 (8/20)

ACI - $33.63 - Arch Coal Inc ** No Stop **

No change in play. Arch found support at $34 and we have a strong insurance position with the Sept $35 put to take advantage of any late August decline. We came within 22 cents of being taken out of the put before a rebound appeared. Maintain the profit stop at $32.

Target $32 to close the insurance put.

Current Recommendation: Buy under $35

Earnings: July 21st, $69.6 million, $0.48 cents

Prior Commentary:

The CEO said in an interview on June 28th that a lot of legacy contracts were expiring soon and that had great implications for their bottom line. Arch saw profits jump 10-fold in the first quarter as new contracts took effect. He said coal would be so short that users would want to secure future contracts to guarantee supply. Coal prices have risen sharply since 2004 doubling in most US basins and tripling in some. Because Arch sells its coal under long-term contracts it has yet to see these prices. Customers of Arch had been locked in at 2003 prices. He said over the next three years the vast majority of their contracts would expire. He said Arch would be selective on which they would renew at current prices. With a strong balance sheet they can take a different view of sales. He said it was the best environment seen in over 20 years for coal. The US currently has 310 gigawatts of electric power and 50% is fired by coal. The US is adding 90 gigawatts with 20 GW being completed by 2010. This will consume another 65 million tons of coal or an increase of roughly 6.5% over current production not counting increases in other areas.

Company Info:

Arch Coal, Inc. operates as a coal producer in the United States. The Company's primary business is the production of steam and metallurgical coal from surface and underground mines throughout the United States, for sale to utility, industrial and export markets. Its mines are located in southern West Virginia, eastern Kentucky, Virginia, southern Wyoming, Colorado and Utah. As of December 31, 2005, it operated 21 mines, and controlled approximately 3.1 billion tons of proven and probable coal reserves. During the year ended December 31, 2005, the Company sold approximately 140.2 million tons of coal. The Company has three business segments, which are based on the low-sulfur coal producing regions in the United States, in which the Company has operations. These segments are the Central Appalachia region, the Powder River Basin and the Western Bituminous region. On December 31, 2005, the Company sold its 100% interest in Hobet Mining, Inc., Apogee Coal Company and Catenary Coal Company.


Position: Jan 2008 $50 LEAP Call YEP-AJ @ $4.20

Insurance Put 8/06
Position: Sept $35 Put ACI-UG @ $1.50

Entry $36.50 (7/14)

MDR - $49.21 - McDermott ** Stop loss $38 **

Definitely no complaints here. MDR still holding near its all time high. MDR continues to consolidate just under $50 and I am hoping a breakout comes soon. MDR should be insulated from oil prices but you can never tell.

Maintain stop on insurance put at $42 and hope like heck we don't need it.

Current recommendation: Buy @ $43

Company Info:

J. Ray McDermott is a leading provider of engineering, procurement, construction, and installation services for offshore oil and gas field developments worldwide. McDermott International, Inc. is a leading worldwide energy services company. McDermott's subsidiaries provide engineering, construction, installation, procurement, research, manufacturing, environmental systems, project management and facility management services to a variety of customers in the energy and power industries, including the U.S. Department of Energy.

3:2 split on June 1st reduced the strike price by 1/3 and increased the contract size to 150 shares.

Position 2007 $70 LEAP Call OYZ-AN @ $8.50
Split into 2007 $46.66 LEAP OYZ-AX @ $5.66
or
Position 2008 $75 LEAP Call YAE-AO @ $12.50
Split into 2008 $50.00 LEAP YAB-AJ @ $8.33
Cost increase put close 6/26 +1.40, cost = $9.73


Insurance Put: (8/13)
Position: September $45 Put MDR-UI @ $1.40

Position: August $36.625 Put MHH-TV @ $2.00, 6/13,
closed .60 6/26, -1.40

Position: June $60 Put MDR-RL @ $1.25 (5/22)
Split into June $40 Put MHH-RH @ $0.83, expired worthless 6/16


Entry $44.02 (5/18)

PTR - $111.81 - Petrochina ** No Stop **

No change in play. We tested support at $110 and we still have a Sept $110 put. This is a crucial spot for PTR and hopefully any breakdown comes before the put expires not after.

We have a 2008 LEAP and PTR could be $200 before expiration. As long as we maintain the positive trend the long-term price of oil should be our salvation.

Maintain a profit stop on the insurance put at $106

Current recommendation: Buy under $110

Earnings schedule: August 24th, $10.1 billion, +29%

Prior commentary:

Petrochina is the fourth largest energy company in the world. It is a government monopoly but it acts like an independent. PTR is aggressively acquiring leases and rapidly expanding its drilling program. It currently has over 10.9 billion bbls of proven reserves and more than 44 TCF of gas. Warren Buffet owns $2.3 billion of PTR stock. It trades at less than $12 per BOE and has a 3.5% dividend yield. PTR owns 14,000 service stations and has 2,900 franchised stations. It is majority owned by China and has unlimited capital for expansion if China likes the deal. I expect several acquisitions by PTR over the next couple years but with a $208 billion market cap and China as the owner it will not be a target itself. China would never give up control of those oil assets. PTR saw its output rise +6.3% in Q1 to 267.7 million bbls when most companies were posting declines in reserves and production. Gas output rose +35.6%. PTR owns 75% of the oil and gas reserves in China and supplies 40% of its needs. This is as close to a permanent lock on a profit as we can get given the rapid growth of China's economy.

Cramer has been pounding the table on PTR saying it was not afraid to drill in communist countries, places torn apart by strife or run by two-bit dictators like Chavez or Morales. With the Chinese government and military behind it there is little chance of somebody trying to confiscate PTR assets.

Company info:

PetroChina Company Limited operates a range of petroleum and related activities through four primary business segments: Exploration and Production Segment, Refining and Marketing Segment, Chemicals and Marketing Segment, and Natural Gas and Pipeline Segment. The activities include the exploration, development, production and sales of crude oil and natural gas; the refining, transportation, storage and marketing of crude oil and petroleum products; the production and sales of basic petrochemical products, derivative chemical products and other chemical products, and the transmission of natural gas, crude oil and refined products, and the sales of natural gas.

Position: 2008 $120 LEAP Call LJC-AD @ $16.20
Cost adjustment: Close short Dec $115 call +1.30 = $17.50
Cost adjustment: Close long July $90 puts +3.00 = $20.50

Insurance put: (8/13)
Positon: Sept $110 Put PTR-UB @ $2.40, profit stop $106

Insurance combo: Closed
Short: Dec $115 Call PTR-LC @ $3.20, 6/13, exit $4.50, -1.30
Long: (2) July $90 Puts PTR-SR @ $3.70, 6/13, exit $0.70, -3.00

Insurance puts: (Closed 6/7)
Closed: June $105 PUT PTR-RA, @ $4.20 (5/22), exit 6/7 @ $4.30

Entry 5/14 $116.20

BTU - $44.65 - Peabody Energy ** Stop loss $39 **

No change in play. Just waiting for winter to turn thoughts back to coal.

Prior commentary:

BTU announced the acquisition of Australia's Excel Coal for $1.4 billion. The market liked the deal and BTU rose on the announcement. Excel is expected to boost its production from 5.6 million tons in 2005 to 15 million tons in 2007. BTU already produces about 60 million tons per quarter so at 2007 levels Excel will amount to about 6% of the 255 million ton total. The key to the equation is the distance from Australia to the high-demand markets like India and China as well as the volume of metallurgical coal Excel produces. If BTU is on the acquisition path James River (JRCC) and Foundation (FCL) have been rumored as targets as well as Massey Energy (MEE) and Consol Energy (CNX). Those would require a much stronger investment and face some regulatory hurdles.

We have been unbelievably unlucky on our insurance puts on BTU. Every one was filled near the highs for the day, low for BTU, and was followed promptly by a strong jump in BTU rendering our put worthless. I am hesitant to buy another one and I plan on selling an in the money calls when gas prices roll over. That collapse could last more than a month so we should be safe. I just want to get past the earnings before making any new moves.

Current recommendation: Buy over $40

Earnings schedule: July 20th

Company Info:

Peabody Energy Corporation (Peabody) is the largest private-sector coal company in the world. During the year ended December 31, 2004, the Company sold 227.2 million tons of coal. It sells coal to over 300 electricity generating and industrial plants in 16 countries. The Company owns, through its subsidiaries, majority interests in 32 coal operations located throughout all the United States coal producing regions and in Australia. Most of the production in the western United States is low-sulfur coal from the Powder River Basin. In the West, it owns and operates mines in Arizona, Colorado, New Mexico and Wyoming. In the East, it owns and operates mines in Illinois, Indiana, Kentucky and West Virginia. The Company owns four mines in Queensland, Australia. Most of the Australian production is low-sulfur, metallurgical coal. In addition to the mining operations, the Company markets, brokers and trades coal.

Position: 2008 $55 LEAP Call LLW-AK @ $9.50
Cost increased 4/19 by +1.30 to $10.80
Cost increased 5/01 by +1.70 to $12.50
Cost increased 6/30 by +2.15 to $14.65

Insurance Put: (closed 6/30)
July $45 Put BTU-SI @ $2.40, 6/13, exit 6/30 @ .25, -2.15

Insurance put: (closed 6/9)
Closed: JUNE $52.50 PUT BTU-RT, @ $2.70 (5/22), exit $2.65, 6/8

April 8th covered call:
Sell June $60 Call BTU-FL @ $2.20, stopped $3.50, 4/19, -1.30

April 24th covered call:
Sell Sept $70 Call BTU-IN @ $4.20, exit $5.90 5/01 -1.70
Set stop loss at $67.50, hit 5/01
Set profit stop at $58.00, changed to 58.50 4/30

Entry $48.00 (3/07)

CCJ - $41.77 - Cameco ** No stop **

Finally CCJ found a spark on some positive press about the shortage of uranium and gained nearly +$3. There is even a uranium fund now that is buying and hoarding uranium ore in preparation for the eventual doubling or tripling of uranium prices.

Current recommendation: Buy @ $35

Earnings: July 27th, +138%

Original Play Description:

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.

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.

Company Info:

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.

Pre-split entries:
Breakout target $72.50 hit
Position: 2007 $80 LEAP ZBK-AP 1/2 position @ $10.60 (2/06)

Breakdown target $67.00 hit
Position: 2007 $80 LEAP ZBK-AP 1/2 position @ $9.00 (2/08)

Pre-split average cost: $9.80
Post split position: (4) 2007 $40 LEAP ZBK-AH @ $4.90
Cost reduction: -.75 on 3/21, cost now $4.15

Additional Position: 2008 $40 LEAP LTA-AH @ $9.00 on 2/25.
Added after the 2:1 split on 2/24

Put insurance: (expired 6/18)
Position: June $35 PUT CCJ-RG @ 1.20 (5/22), expired -1.20

Monday Mar-20TH cost reduction strategy:
Sell the June $40 call CCJ-FH @ $1.75
Set a profit stop at $33.50, hit 3/21, exit $1.00, +0.75
Set a stop loss at $39.95

HAL - $32.97 - Halliburton ** Stop Loss $30 **

HAL is stuck in a very tight range between $33-$34. No change in play. Considering some of the losses the drillers have been piling up this is actually encouraging.

Current recommendation: Buy over $30

Earnings: July 21st, +44% or $0.55 cents

Company Info:

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.

Halliburton was awarded a two-year contract with Statoil worth $193 million for cementing, drilling and completion fluid. Statoil said they were the largest contracts of their type awarded in 2006. In addition to the initial term there are three two-year extensions, which should bring the final value to somewhere in the $1 billion range allowing for adjustments.

Current position:
2007 (2) $40 LEAP Call HAL-AH @ 5.63
Cost adjustment:
Closed July $32.50 Puts, -1.55, new cost = $4.08
Expired August $27.50 put, +0.45, new cost = $4.53

Original Position: 2007 $85 LEAP Call VHW-AQ @ $9.80
Monday March 20th: Position change
Sold the 2007 $85 LEAP VHW-AQ, exit $4.25.
Bought the 2007 $80 LEAP VHW-AP, entry $5.70.

Our adjusted cost in the 2007 $80 LEAPS is now $11.25
The strike is lower and will split into (2) $40 LEAPS @ $5.63

Insurance Put: (5/22) Contracts doubled by 2:1 split (HAL-SS)
Position: July $65 Put HAL-SM @ $1.00, exit $2.55 7/21

Insurance Put: (7/23)
August $27.50 Put HAL-TR @ $.45, expired worthless

Entry $39.50 (2/06)

 


Leaps Trader Watch List

Adjusting Targets, Part 2

I sent out an update last Wednesday night to lower some of the targets in light of the current inventory levels on oil and the lack of storms. The targets changed were as follows.

I lowered the breakdown targets on these watch list entries:

CEO $86.01 - Old target $85.00, new target $80

SUN $73.01 - Old target $70.00, new target $65

UPL $50.27 - Old target $47.50, new target $45

SLB $62.15 - Old target $60.00, new target $57

Targets left unchanged:

FST $33.50 - target $30

NBR $32.94 - target $30

PBR $89.50 - target $85

PXP $44.21 - target $41

SU $78.09 - target $70

XTO $46.18 - target $42

I mistakenly added a target for VLO and FTI and neither were on the watch list. They were on my personal list to be added but I had not yet put them in the mix. I am adding VLO this weekend and removing FTI from consideration.

I hesitate to add any new positions until we know what oil is going to do. We have 12 possibles and that should be enough for the time being.


Jim Brown
 

Dropped Entries

None


New Watch List Entries
VLO Valero

Current Watch List

CEO - CNOOC Limited

CNOOC Limited is a producer of offshore crude oil and natural gas and an independent oil and gas exploration and production company. It mainly engages in oil and natural gas exploration, development, production and sales. The Company has four major oil production areas offshore China, which are Bohai Bay, Western South China Sea, Eastern South China Sea and East China Sea. It is an offshore oil producer in Indonesia. The Company also has certain upstream assets in regions, such as Africa and Australia. As of December 31, 2005, it owned net proved reserves of approximately 2.36 billion barrels-of-oil equivalent (BOE) and its annual average net production was 424,108 barrels-of-oil equivalent per day (BOEPD).

CEO does not have LEAPS. I am going to target $80 for an entry and use the March $90 Call for the trade.

This is a firm entry trigger

Breakdown target: $80
Buy March $90 Call CEO-CS

************************

UPL - Ultra Petroleum

Ultra Petroleum Corp. (Ultra) 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 primarily in the Green River Basin of southwest Wyoming and Bohai Bay, offshore China. As of December 31, 2005, Ultra owned interests in approximately 148,007 gross acres in Wyoming covering approximately 230 square miles. The Company owns working interests in approximately 330 gross productive wells in this area and is operator of 53% of the 330 gross wells. Its domestic operations are focused on developing and expanding a tight gas sand project located in the Green River Basin in southwest Wyoming. During the year ended December 31, 2005, the Company's Wyoming production was approximately 87.4% of total oil and natural gas production on a thousand cubic feet of natural gas equivalent (MCFE) basis and 98.5% of the Company's estimated net proved reserves were in Wyoming on an MCFE basis.

Ultra has been extremely volatile for the last six months with the price of natural gas falling more than -50%. Ultra has current support at $50 but I would like to target something even lower if gas supplies hit a new storage record late in the summer. $45 would be my initial target based on recent information.

Breakdown target: $45.00 - This is a firm target.
Buy 2009 $60 LEAP Call OZH-AL

************************

SU - Suncor

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. During the year ended December 31, 2005, the Company produced approximately 206,100 barrels of oil equivalent (BOE) per day, comprised of 174,500 barrels per day (bpd) of crude oil and natural gas liquids and 190 million cubic feet per day (mmcf/d) of natural gas.

Suncor has performed better than the sector over the last month and appears to be holding above $75. I would normally like to target the 200-day average at that $75 range but June's low of $68 is slightly more appealing. I am going to shoot for $70 as a compromise.

Breakdown target: $70 - This is a firm target
BUY 2009 $80 LEAP Call OYX-AP

************************

SLB - Schlumberger

Schlumberger Limited (Schlumberger) is an oilfield services company, supplying technology, project management and information solutions. Schlumberger consists of two business segments: Schlumberger Oilfield Services and WesternGeco. Schlumberger Oilfield Services is an oilfield services company supplying a range of technology services and solutions to the international oil and gas industry. WesternGeco, 70% owned by Schlumberger and 30% owned by Baker Hughes, is an advanced surface seismic company.

SLB has decent support at $60 and again at $55. SLB said business was booming in its July earnings release and yet it still sold off. I am targeting $57 for an initial position based on the July dip. June's support at $55 should hold making $55 a secondary target.

Breakdown target: $57 - 1/2 position
Breakdown target: $55 - 1/2 position
Buy 2009 $70 LEAP Call VWY-AN

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PBR - Petroleo Brasileiro

Petroleo Brasileiro S.A. - Petrobras (Petrobras) is a mixed-capital enterprise of which a majority of voting capital must be owned by the Brazilian Government. The Company is engaged in a range of oil and gas activities, which include segments such as exploration and production, refining, transportation and marketing and distribution. The Company operates 95 platforms for production (72 fixed and 23 floating), 16 refineries, 30.318 kilometers of pipeline and 6,154 filling stations spread across the national territory. In addition, to its position in Brazil, Petrobras is present in 15 countries, such as Angola, Argentina, Bolivia, Chile, Colombia, Ecuador, the United States, Iran, Mexico, Nigeria, Paraguay, Peru, Tanzania, Uruguay and Venezuela. It also operates backup support of offices in New York, Tokyo, China and Singapore.

Petrobras has decent support at $85 and again at $80. I would like to see $80 again but we will monitor any drop for a hint of rebound. Try not to catch the knife.

Breakdown target: $85

Buy 2009 $100 LEAP Call VDW-AT

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SUN - Sunoco

Sunoco, Inc. (Sunoco), operates through its subsidiaries, as a petroleum refiner and marketer, and chemicals manufacturer with interests in logistics and cokemaking. The Company's petroleum refining and marketing operations include the manufacturing and marketing of a range of petroleum products, including fuels, lubricants and petrochemicals. Sunoco's chemical operations include the manufacturing, distribution and marketing of commodity and intermediate petrochemicals. The petroleum refining and marketing, and chemicals and logistics operations are conducted principally in the eastern half of the United States. Sunoco's cokemaking operations are conducted in Virginia, Indiana and Ohio. The Company operates in five business segments: Refining and Supply, Retail Marketing, Chemicals, Logistics and Coke.

SUN has refused to die after that sprint to $80. There is plenty of congestion in the $60-$70 range and the best we can hope for is probably in the high $60s range so I am targeting $65 as the middle of that congestion.

Breakdown target: $65 - This is a firm target
Buy 2009 $80 LEAP Call VUN-AP

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PXP - Plains Exploration

Plains Exploration & Production Company (PXP) is an independent oil and gas company primarily engaged in the activities of acquiring, developing, exploiting, exploring and producing oil and gas properties in the United States. The Company owns oil and gas properties in six states with principal operations: the Los Angeles (LA) and San Joaquin Basins onshore California; the Santa Maria Basin offshore California; the Gulf Coast Basin onshore and offshore Louisiana, including the Gulf of Mexico, and the Val Verde portion of the greater Permian Basin in Texas. In April 2005, PXP acquired California producing oil and gas properties from a private company. In September 2005, the Company acquired Point Arguello Unit, Rocky Point development project and related facilities, offshore California, from subsidiaries of Chevron U.S.A. Inc. In May 2005, the Company closed the sale to XTO Energy, Inc. of interests in producing properties located in East Texas and Oklahoma.

Strong support for the current spike at $41 with additional support at $37. The recent news bounce is slipping and with any luck we could see $38 again. Options are relatively cheap and I am going to split the entry.

These are firm targets
Breakdown target: $41 for 1/2 position
Breakdown target: $37 for 1/2 position
Buy 2009 $50 LEAP Call ZXL-AJ

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FST - Forest Oil

Forest Oil Corporation (Forest) is an independent oil and gas company engaged in the acquisition, exploration, development, and production of natural gas and liquids primarily in North America. At December 31, 2005, Forest held interests in approximately 3,900 net oil and gas wells in the United States and Canada and sold 165.2 billion cubic feet of natural gas equivalent of oil and gas, or an average of 453 million cubic feet of natural gas equivalent per day during ther year ended December 31, 2005. Approximately 84% of the Company's total production was in the United States, and 16% was in Canada. In the United States, Forest's production of natural gas is generally sold in the areas where it is produced or at nearby pooling points. In Canada, the Company's natural gas production is sold by its subsidiary, Canadian Forest Oil Ltd., either through a joint venture with other producers, which is a long-term commitment, or under direct sales contracts or spot contracts.

Forest completed a major divestiture back in March of their offshore properties and made a major distribution to shareholders knocking -$20 off the stock price. Since early May the stock has been stuck in the $30-$35 range as investors digest their new onshore exploration focus. The change in direction appears to have confused many and the sharp drop in stock price probably confuses new investors. Their presentation at the energy conference made good sense to me and I think it was the right move. I am going to target a breakout and a breakdown.

These are firm targets:
Breakdown target: $30
Breakout target: $35.50 Cancel if $30 triggered first
Buy 2009 $40 LEAP Call OJG-AH

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NBR - Nabors Industries

Nabors Industries Ltd. (Nabors) is a land drilling contractor with almost 600 land drilling rigs. The Company conducts oil, gas and geothermal land drilling operations in the United States Lower 48 states, Alaska, Canada, South and Central America, the Middle East, the Far East and Africa. It is also one of the land well servicing and workover contractors in the United States and Canada. The Company owns approximately 565-land workover and well-servicing rigs in the United States, primarily in the Southwestern and Western United States, and approximately 215-land workover and well-servicing rigs in Canada. Nabors is a provider of offshore platform workover and drilling rigs, and owns 43 platform, 19 jack-up units and three barge rigs in the United States and multiple international markets.

Nabors said they are not seeing any weakness in rig pricing and have more than 100 new rigs on order. They said day rates were still climbing and the international and offshore business was strong enough to contract for terms long enough to recover 100% of the rig costs in most instances. With the strong emphasis on gas drilling rig backlogs for deep rigs were up to three years in some cases.

Support is $30 post reorganization and we could easily hit that on the next dip. I am willing to buy a cheap 2009 LEAP and forget it.

Breakdown target: $30 - This is a firm target
BUY 2009 $40 LEAP Call VRB-AH

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XTO - XTO Energy Inc

XTO Energy Inc. is engaged in the acquisition, development, exploitation and exploration of producing oil and gas properties, and in the production, processing, marketing and transportation of oil and natural gas in the United States. The Company's proved reserves are principally located in the Eastern Region, including the East Texas Basin and northwestern Louisiana; North Texas Region, including the Barnett Shale; San Juan Region; Permian and South Texas Region; Mid-Continent and Rocky Mountain Region, and Middle Ground Shoal Field of Alaska's Cook Inlet. As of December 31, 2005, its estimated proved reserves were 6.09 trillion cubic feet (Tcf) of natural gas, 47.4 million barrels (Bbls) of natural gas liquids and 208.7 million Bbls of oil. During the year ended December 31, 2005, the Company's average daily production was 1,033,143 thousand cubic feet (Mcf) of gas, 10,445 Bbls of natural gas liquids and 39,051 Bbls of oil. In April 2005, it acquired Antero Resources Corporation.

XTO was a presenter at the recent energy conference and I was impressed with their outlook and direction. I believe their stock is under priced already but with the impending drop in gas prices as storage fills up I am hoping to buy them cheaper. Link to presentation: http://tinyurl.com/qorbr

Breakdown target: $42 - This is a firm target
BUY 2009 $50 LEAP Call OUO-AJ

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VLO - Valero

Valero Energy Corporation (Valero) owns and operates 18 refineries located in the United States, Canada and Aruba that produce refined products, such as reformulated gasoline (RFG), gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, low-sulfur diesel fuel and oxygenates (liquid hydrocarbon compounds containing oxygen). The Company also produces conventional gasolines, distillates, jet fuel, asphalt, petrochemicals, lubricants and other refined products. Its business is organized into two segments: refining and retail. The refining segment includes refining operations, wholesale marketing, product supply and distribution, and transportation operations. The retail segment is segregated into two geographic regions: the U.S. System and the Northeast System. On September 1, 2005, Valero completed the merger of Premcor Inc. with and into Valero Energy Corporation.

I initially targeted VLO at $55 but after research this weekend I am lowering it to $50.

Breakdown target: $50

Buy 2009 $60 LEAP Call VHB-AL
 


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