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Weekly Newsletter, Saturday, 09/09/2006

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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

Slip Sliding Away

The month long slide in crude was greased again when Florence turned northward toward Bermuda. There are no storms forming in the Caribbean and gasoline demand season is over. It ended with one last spurt of demand that was +600,000 bbls over the same week in 2005. Katrina skewed that comparison in 2005, which cut demand considerably along the coast.

For the last two months I have been avoiding new energy positions while oil climbed higher. I promised everyone that the price would fall in late August and early September and that prediction is coming true. October crude is -$13 off its highs and closed at $66.25 on Friday. I was targeting $65 as our first test of support with $60 as a secondary possibility.

We are very close to entries on many of our watch list positions and we were triggered on Petrobras on Friday. Ironically Petrobras fell after the monster discovery by BP/CVX in the deep waters of the Gulf. Petrobras has a lot to gain from that field and owns quite a lot of acreage along with APC, XOM, and RDS. We got decent entry on a strong stock. No complaints there.

OPEC meets Monday and Iran and Venezuela will be asking for production cuts to hold prices at $65. I seriously doubt it will happen but anything is possible. Most OPEC members are already pumping at full capacity due to declining capability. They need every dollar they can generate and while cutting back on production may raise the price they depend on those thousands of bbls per day of output to cover economic problems and new exploration. I believe the outcome will be a public "no change" statement but a private and silent agreement by a few to slow slightly to maintain the price.

Natural gas prices fell to $5.65 at Friday's close and are starting to attract attention from investors. The growing supplies of gas in storage surged by +71.0 bcf last week to 2976 bcf and +12% over the five-year average. With maximum storage commonly assumed to be 3.2-3.5 tcf that only leaves 3-4 more weeks of maximum injection before reaching the initial threshold and forcing pipelines to restrict further injection. This will force some gas on gas competition for price and could further pressure prices. This late September, early October dip is being looked at by investors as a buying opportunity for gas stocks. Assuming we have a normal winter supplies would be reduced enough by spring to push prices back over $10 according to energy analysts. One producer was targeting $12.50 for next summer but that may be wishful thinking unless old man winter blows really hard. We already have UPL on the watch list but I am going to add a couple more gas stocks over the next couple of weeks. The drop in gas prices forced coal lower and BTU hit our exit stop. After looking at the sector again I decided to close Arch Coal as well while we are still close to a breakeven. With the gas prices going lower coal will be sure to suffer. I kept Walter because its very high quality coal is not used for electricity but for other purposes.

I received an update from ASPO this week and thought it was worth passing on. It criticizes the rosy estimates of oceans of oil by CERA and the IEA. Read it here: http://tinyurl.com/gwrzu

I am expecting a busy week ahead if oil prices tick just a little lower. We should get fills on several targets and start filling out the portfolio again. Keep the faith! Oil companies are still being valued at $35-$40 oil and I seriously doubt we will ever see $50 again. Every major dip is a buying opportunity for long term holders. Hopefully we can get some entries before a late season storm appears in the Gulf.


October Crude Oil Futures Chart - Daily

December Crude Oil Futures Chart - Daily

December Natural Gas Futures Chart - Daily

 


Changes in Portfolio

New Plays

None


Dropped Plays

New Watch List Plays Triggered

Portfolio Listing & Top Picks

New Plays

Most Recent Plays

PBR - $83.55 - Petroleo Brasileiro

Petrobras has dropped -$13 since early August and is approaching initial support at $82. -$9 of that drop was over the last three days. The drop was due mostly to the fall in oil prices but there was additional concerns due to the Bolivian nationalization. PBR assets in Bolivia are being nationalized along with everyone else and the date for final negotiations is rapidly approaching. Petrobras is expected to suffer somewhat from the asset grab but Bolivia still needs PBR to continue to explore and build out infrastructure. They will continue to make money in Bolivia but substantially less. Fortunately Petrobras is a very active explorer in both shallow and deep water and has large reserves that will remain safe from seizure by Chavez and Morales.

I am adding a January put while the strike is well below the current level. The price is reasonable and we should get past any remaining Q3 declines. $70 is strong support.

Insurance Put:
Buy January $70 PBR-MN currently $1.80

Company Info:

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 hit 9/08
Position: 2009 $100 LEAP Call VDW-AT @ $14.90

Insurance put:
9/11 January $70 PBR-MN currently $1.80


 

Play Updates

Existing Plays

DO - $74.67 - Diamond Offshore

Diamond is holding its gains and the news of the BP find in the deep water means a lot more drilling over the next ten years. Oil prices are impacting the stock price but $70 is strong support.

Maintain a $60 profit stop on the October $70 insurance put.

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

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

CSX - $30.30 - CSX Corp

CSX held its gains giving up only 9 cents for the week despite the failure of transports in general. No complaints here!

To be on the cautious side let's take out insurance against a September correction. The November $30 put gives us almost dollar for dollar protection well into Q4. If support at $29.50 breaks we could easily see $24-$26. This could give us a nice return and a free ride into 2009.

Insurance put:
Buy November $30 Put CSX-WF currently $1.40


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.

Position: 2009 $35 LEAP Call OBC-AG @ $4.90

Insurance put:
9/11 Buy November $30 Put CSX-WF currently $1.40

Entry (9/03)

WLT - $51.70 - Walter Industries

Walter bled about -$3 for the week but still has a far better looking chart than the rest of the coal sector. Just in case I am adding an insurance put all the way out in December. This will allow me to sleep at night if coal implodes like housing. Strong support at $40 is possible so better safe than sorry.

Insurance put:
Buy December $45 Put WLT-XI currently $1.30

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

Insurance put:
9/11 Buy December $45 Put WLT-XI currently $1.30

Entered $52 8/23

ATPG - $38.78 - ATP Oil and Gas Corp ** No Stop **

ATP held its gains and even tried to move higher before being scuttled on Friday. I removed the stop now that we have an insurance put and we can rest easy.

Insurance put: No stop on the put.


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:
8/20 2009 $40 LEAP Call VCL-AH @ $11.70

Insurance put:
9/06 Position Dec $35 PUT HKU-XG @ $1.50

Entry $38.16 (8/20)

ACI - $30.31 - Arch Coal Inc ** Closed **

Arch crumbled below support at $32 and triggered the profit stop on the insurance put. We exited for $3 for a profit of $1.50. This reduced the cost in the LEAP from $4.20 to $2.70. The LEAP closed at $2 on Friday giving us a -70 cent loss.

With coal turning blacker by the day I elected to take the small lump and exit.


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:
7/14 Jan 2008 $50 LEAP Call YEP-AJ @ $4.20
9/06 cost update: +1.50 from put sale, cost = $2.70

Insurance Put 8/06
Position: Sept $35 Put ACI-UG @ $1.50, exit $3.00 9/06

Entry $36.50 (7/14)

MDR - $47.60 - McDermott ** Stop loss $38 **

Definitely no complaints here. MDR did give back some gains as anything related to oil took a beating. We have a September $45 put that should expire worthless unless the bottom really falls out. I am not going to put a stop on it but try and hold it for the $1.40 we have in it if MDR takes a dive before Friday. Personally I would be willing to take a buck if we can get it. MDR has been so strong I hate to spend another $1.40 for October protection but November is too expensive at $2.30. I hate to step down to $40 in November because that is very strong support. If we don't take our opportunity this week and MDR takes another -$3 dive then our October put possibility becomes too expensive as well.

I considered selling a call instead but should a hurricane appear headed for the Gulf we could see a strong bounce in MDR. That leaves me with only a stop on MDR or the October $45 put as viable options. I am electing to go with the October put.

Buy October $45 Put MDR-VI currently $1.40

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
9/11 Buy October $45 Put MDR-VI currently $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 - $107.44 - Petrochina ** No Stop **

PTR gave up -$5 and put our $110 put into the money. If the decline continues into next week we should hit our profit stop at $106 for close to a double on the put premium. I want to buy a December $100 put first think Monday morning. I don't see any relief for oil and I think that would be a wise move.

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 Sept insurance put at $106

Buy December $100 Put PTR-XT currently $2.20, no stop


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 - $38.64 - Peabody Energy ** Stopped $39 **

That was really ugly. BTU took a -$6 point header in three days on the collapse in natural gas prices and a warning that it would ship less coal than previously expected. Peabody warned that 2006 production could come in at the lower end of its prior forecast due to equipment problems and problems at one supplier location. Support at $43 evaporated.

We took s severe beating in BTU due mostly to several reversals of direction early in the play where our stops on covered calls were hit on strong gaps higher when coal was in favor.

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.

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
Stopped @ $39 9/08 @ $4.50, -10.15

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 - $40.67 - Cameco ** No stop **

CCJ gave back some of its gains but closed at the high end of its recent range. If you are still holding the initial 2007 LEAPS I would probably be looking to exit them on any bounce. They are still profitable and the trend is still up. However, if natural gas continues to fall it could bleed over into uranium despite it being entirely irrational. For bookkeeping purposes I am going to drop the 2007 LEAPS from tracking as of Monday.

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 - $30.80 - Halliburton ** Closed **

HAL finally cratered and gave back all of its gains from July. I gave up on the position and closed it. The LEAPS have been nearly worthless since the July crash when they aborted the KBR spinoff. They can't seem to get out of their own way but at least we will not have to look at them after today.

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
Closed 9/11 @ 35 cents. Loss $4.18

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

Dropped Entries

None


New Watch List Entries
LTRLoews Corp
APCAnadarko Petroleum

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

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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

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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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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: $62 - Target changed
Buy 2009 $70 LEAP Call VUN-AN


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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 - CHANGED !!
Breakdown target: $40 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: $40 - Target changed !!
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: $47.50 - Target CHANGED !!

Buy 2009 $60 LEAP Call VHB-AL

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LTR - Loews Corp

Loews Corporation is a holding company. The lines of business the subsidiaries are engaged include commercial property and casualty insurance (CNA Financial Corporation (CNA), a 91% owned subsidiary); production and sale of cigarettes (Lorillard, Inc. (Lorillard), a wholly owned subsidiary); operation of interstate natural gas transmission pipeline systems (Boardwalk Pipeline Partners, LP (Boardwalk Pipeline), an 85%-owned subsidiary); operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc. (Diamond Offshore), a 54%-owned subsidiary); operation of hotels (Loews Hotels Holding Corporation (Loews Hotels), a wholly owned subsidiary), and distribution and sale of watches and clocks (Bulova Corporation (Bulova), a wholly owned subsidiary).

Breakdown target: $36.50 - Firm target

Buy 2009 $40 LEAP Call VRH-AH

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APC - Anadarko Petroleum

Anadarko Petroleum Corporation (Anadarko) is an oil and gas exploration and production company. Major areas of operations are located in the United States, primarily in Texas, Louisiana, the mid-continent region and the western states, Alaska and in the deep waters of the Gulf of Mexico, as well as in Canada and Algeria. Anadarko also has production in Venezuela and Qatar. It actively markets natural gas, oil and natural gas liquids (NGLs) and owns and operates gas-gathering systems in its core producing areas. In addition, the Company engages in the hard minerals business through non-operated joint ventures and royalty arrangements in several coal, trona (natural soda ash) and industrial mineral mines located on lands within and adjacent to its Land Grant holdings. The Land Grant is an eight-million-acre strip running through portions of Colorado, Wyoming and Utah where the Company owns most of its fee mineral rights.

Breakdown target: $42.50 - Firm target

Buy 2009 $50 LEAP Call OCP-AJ
 

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