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Weekly Newsletter, Saturday, 02/24/2007

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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

New Two Month High

Can you believe it? April crude came very close to hitting $62 intraday on Friday. It appears most investors could not believe their eyes as oil stocks failed to share in the exuberance.

The early morning spike was caused by a seemingly endless parade of refinery problems with shutdowns showing up like popcorn from a hot skillet. Most were temporary but the explosion and fire at the Valero refinery in Texas could take it offline for as much as a month. That would remove 3 million bbls of gasoline and 1.5 mb of distillates like jet fuel from the market. You would think such a major outage would put a sizeable crimp in Valero's stock price. Instead it rose nearly $4 for the week. The spike in gasoline prices was the culprit. Higher gasoline prices produce higher crack spreads for refiners and therefore higher profits.

We are approaching the period where gasoline normally puts in a bottom before moving higher on expectations of summer driving demand and hurricane season. Based on the chart it appears that bottom was put in back in January and traders have decided there will be no more weakness. Gasoline broke out of its month long range of $1.66-$1.73 on the April contract and charged to hit $1.83 intraday on Friday. The March contract expires for trading on the 28th. This expiration most likely put added pressure on prices. March heating oil also expires on the 28th and natural gas on Monday.

In this week's oil inventory report there was a sharp decrease in the distillate inventory of -5.0 million bbls following declines of -3.0, -3.6 and -2.6 mb over the prior three weeks. Gasoline inventories fell -3.0 mb last week and -2.1 mb the prior week. Crude levels rose +3.7 mb. The drop in refined products is due to many refineries taking portions of production offline early in the year for seasonal maintenance. With the flurry of refinery fires over the last week we are likely to see those levels fall again over the next two reports along with a rise in crude inventories from a drop in refining capacity. How this will impact pricing is unclear but a continued drop in refined products could keep upward pressure on gasoline. What we could be seeing here is the early stages of a refining problem ahead of summer demand. If the refiners fall behind the curve it could be a race to catch up that would have them running flat out at near 100% capacity heading into summer. Whenever they run near 100% breakdowns occur further complicating the problem.

Oil production problems continue to appear around the globe. New data from Mexico suggests the super giant Canatrell field is in catastrophic decline and could deplete to meaningless production levels within 5-7 years. First production from the Kashagan field in Kazakstan has been delayed until 2011-2012. It was initially scheduled for 2005 and then revised to late 2008 and now 2011-2012. Venezuelan production currently 2.56 mbpd fell -5.5% in 2006 and is predicted to fall another 5-8% in 2007. Oil imports from Venezuela fell nearly 8% in 2006 and are expected to fall another 8% in 2007 as Chavez sends that oil to China. It takes 5 days to ship it to the US and 30+ days to ship it to China along with the additional transportation costs of several dollars per bbl. Chavez is determined to cause the US energy grief and is protecting himself in advance from us causing him pain if we suddenly halted Venezuelan imports for political reasons.

Chavez policies has cut Venezuelan production from a high of 3.5 mbpd in 1997 to its current 2.5 mbpd. Venezuela exports roughly 1.1 mbpd to the US with the rate declining. Within months Chavez will have completely nationalized all the oil facilities in Venezuela and as 60% owner under the new contracts will be responsible for funding future development. Since the goal of nationalizing the oil industry was to siphon off the cash for domestic programs aimed at keeping him in power it is not likely he will invest the billions of dollars needed to drill new wells and build infrastructure. History has proven that it takes over 100 active rigs to maintain production levels in Venezuela. Currently there are only 60 and that number is declining. Without future investment it appears Venezuelan production is doomed to a continuing drop in production as wells deplete faster than new ones are drilled. In 1998 Chavez fired 18,000 PDVSA employees for their politically incorrect behavior. Those workers represented the majority of the skilled and knowledgeable workers in the sector. Without their knowledge and decades of experience it is an almost insurmountable task to create additional production now that he has kicked out the major independent oil companies. This is not a problem that can be remedied soon or even over the next decade since Chavez has made himself virtually immune from being removed from office. The current 5% decline rate is expected to increase as wells deplete and facilities fall into disrepair from lack of funds or proper management.

Saudi on the other hand is going to invest $267 billion over the next 10 years to develop its oil, gas and chemical businesses. They quietly announced this week a new discovery well southwest of Ghawar that produced 4,000 bpd on its first test. They have several projects underway that should add 1.2 mbpd to their output capacity over the next 4 years.

Russia finally took aim at the Kovykta TNK-BP joint venture project on its east Siberian gas field. This project is 50% owned by BP or should I say "was" owned by BP. Russia told BP it was in violation of its development agreement and gave it 3-months to fix the violations or risk losing their license. This is exactly the ploy used against Shell and their $20 billion Sakhalin gas project. The attack ended with Shell losing control and becoming an operator and Gazprom became the owner. Analysts have been saying for months that BP was next on the hit list and that hit has begun.

Ironically Russia will face a natural gas shortage this year of nearly 4 billion cubic meters according to Anatoly Chubais, CEO of a large Russian gas utility company. He predicted the shortage would double next year and increase by a factor of 10 within a few more years. The shortage has halted construction of gas power plants by his company. Russia is planning a strategic play with its natural gas across all of Europe but can't keep its own fires lit as it follows the Chavez strategy of nationalizing its energy assets. Eventually these countries will understand that it is better to have a smaller piece of a bigger pie than a large piece of a shrinking pie. By then it will be too late to prevent an energy disaster.

UK oil and gas production will fall by -10% for the next three years or 250,000 bpd according to the UK Offshore Operators Association. Production from the UK Continental Shelf fell -9% in 2006 due to rising costs and increasingly harder production hurdles. Sound familiar?

China's coal exports fell 20.4% year over year in January. It was the 4th straight month of decline. China could become a net importer by the end of 2007 due to demand from new coal-fired power plants coming online and the increasing demands for power.

Last but not least a Saudi wing of al Qaeda called on attacks on suppliers of oil to the US saying targets should not be limited to the Middle East but including places like Canada, Mexico and Venezuela. I bet Chavez fell out of his chair when he heard that. Attack him for selling oil to the US. What a strange turn of events!

There are no hurricane predictions yet but historians point out that there is rarely two years of back-to-back calm with no storms. With global warming the storms are only going to get more severe so this season will be watched even more closely than 2006.

That is enough rambling for today but I am sure you get the picture. The optimistic forecasts for future production are meeting with reality and geopolitical concerns that are not easily resolved. The long-term price of oil will continue higher and there is little anyone can do to stop it. Time is on our side.

We saw some nice gains in most of the positions last week and hopefully that will continue as gasoline prices move higher into summer. I would not be surprised to see some volatility next week as the various futures contracts roll over. $58 should be support and I would look to add to positions at that level.

It may be boring not to add any new positions but this is what we waited for over the last six months. We waited for the fall dip, bought the dip and now we ride it higher. Don't worry, be happy!

Jim Brown


April Crude Chart - Daily

March Gas Futures Chart - Daily

April Gas Futures Chart - Daily

 


Changes in Portfolio

New Energy Plays

We will be looking for new entries on any March dip in crude prices.


New Non-Energy Plays

None


Dropped Plays

New Watch List Plays Triggered

None


Portfolio Listing & Top Picks


New Plays

Most Recent Plays

None this week.
 


Play Updates

Existing Plays

The current format of the Play Updates has changed. Only the pertinent data that has changed from the prior week will be shown in an effort to concentrate more on new commentary on new plays rather than restating existing positions. Each play has a link back to either its last full commentary or its initial description.

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ECA - $48.29 -0.65 - Encana ** Stopped $47.50 **

Natural gas fell to $7.27 at the open on Tuesday and that knocked Encana down to our stop at $47.50. We exited for a breakeven. With gas prices expected to fall over the next couple of months I am not complaining.

To see the initial commentary on this position click here

Earnings: Feb-15th, 84 cents vs $1.46 on lower gas prices.

Current recommendation: Buy at $44

Breakdown target: $45 hit Jan-3rd

Position: 2009 $50 LEAP Call ZBM-AJ @ $6.60, exit $6.80 for BE

Insurance put: None

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THE $34.15 +1.20 - TODCO ** New Stop $30.00 **

Todco must have heard I was thinking about dropping it. We saw a nice rebound from support at $32.50. It looks like all the bad news is priced in so I am sticking with it through earnings next week.

To see the initial commentary on this position click here

Earnings schedule: March 1st

Current recommendation: Hold

Breakdown target $39 hit 12/7/06

Position: 2009 $45 LEAP ZYU-AI @ $8.40

Insurance Put: None

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CHK $30.47 +0.79 - Chesapeake Energy ** Stop loss $28.50 **

CHK spiked over resistance at $30 on Friday after posting earnings of 90 cents that beat the street estimates of 76 cents substantially. They saw a production increase of 235 mcf per day over Q4-2005 and saw net reserves climb +19% to 8.956 TCF. They made $27 million for the quarter and $308 million for the year from their hedging program. Not bad when you consider gas prices were cut in half for the year. They increased working rigs to 132 from 73 in 2005.

I was going to sell a covered call here but there is no premium to sell. With ECA at $30.47 the $32.50 April call is only 45 cents, 15 cents for March. Puts are correspondingly cheap but we have strong support only a buck lower. No reason to risk additional funds to hedge this play. No change in play.

To see the initial commentary on this position click here

Earnings: Feb-23rd, 90 cents vs est 76 cents.

Current recommendation: Hold

Position: 2009 $35 LEAP VEC-AG @ $5.30

Insurance put: none

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FXI $105.40 -1.50 - FTSE/Xinhua China 25 Index Fund

The China ETF took a beating on Friday with a -2.60 loss to erase the early week gains. The China markets are closed for the Lunar New Year and will reopen on Monday. The dip came from funds reallocating into other countries not up so strongly for the last year.

The iShares FTSE/Xinhua China 25 Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the FTSE/Xinhua China 25 Index.

Component list

This iShare focuses on the largest companies in China (58% of it positions) and Hong Kong (42%). These are the most liquid companies in these markets. With Asia growing by leaps and bounds the FXI generated a +40% return in 2005 without using options. We hope to do better using LEAPs.

Current recommendation: Buy under $105

Breakout target: $94.50 hit 11/22/06 on gap open to $95.80

Position: 2009 $100 LEAP Call VHF-AT @ $13.50

No insurance

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MRO $92.59 +1.56 - Marathon Oil

Nice move higher by Marathon to current resistance at $93. They are riding the refiner wave this week. No news and no change in play.

To see the initial commentary on this position click here

Earnings: Feb-1st 3.06 vs 3.43 (Q4/05) $1.08 billion profit

Current recommendation: Buy at $85

Position 2009 $100 LEAP Call VXM-AT @ $12.60

Insurance put: 2/18/07
Position: March $85 PUT MRO-OQ @ 65 cents. Stop $85

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HES - $55.58 +1.31 - Hess Corporation
(Formerly (AHC))

No news but Hess finally broke out over resistance at $55 to hit a new 7-month high. No change in play.

To see the initial commentary on this position click here

Earnings: Jan 31st, $1.13, vs $1.44 in Q4/05, 230% replacement

Current recommendation: Buy at $47

Position:
11/05/06 2009 $50 LEAP Call VHS-AJ @ $6.80
Cost adjustment put exit +1.60, cost = $8.40

Insurance Put: Triggered Jan-3rd @ $49
01/03/07 May $45 put HES-QI @ $2.60, exit 1/26 $1.00

Insurance Put: 2/16/07
BUY MAY $50 PUT IGG-QJ if HES trades at $52.75.

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BTU - $44.44 +3.41 - Peabody Energy

Outstanding sprint higher by BTU. The spike came on news from the government that coal production fell -3% for the week of Feb-17th as producers cut back on production to reduce inventories at power plants. An analyst at Raymond James said everything was in place for a nice turnaround in 2007 after coal supplies exceeded demand in 2006 for the first time in 4 years. No change in play.

To see the initial commentary on this position click here

Earnings: Jan-25th +42% including special items.

Current recommendation: Buy at $35

Position:
10/22/06 Jan-2009 $50 LEAP Call ZZT-AJ @ $8.70
02/05/07 March put stopped -$1.00, cost = $9.70

Insurance put: Triggered with drop through $39
01/03/07 March $35 Put BTU-OG at $1.15, stopped @ $42.50

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DVN - $66.16 -0.53 - Devon Energy

I came very close to dropping Devon this week after it failed to show any gains compared to the other stocks in the portfolio. Since we just bought a new insurance put last week I decided to wait a little longer. The March put gives us about two weeks of protection but without any gain next week Devon is gone.


To see the last full commentary on this position click here

Earnings: Feb-7th, $1.36 vs est of $1.36

Current recommendation: Buy at $60

LEAP Position:
10/03/06 Position: 2009 $70 LEAP Call VVH-AN @ $9.00
Cost update: 1/22 Put exit +0.20 = $9.20

Insurance put: 2/16/07
BUY MARCH $65 PUT DVN-PM currently $1.05. Stop $63.

Insurance put: Triggered 12/18 at $69
Position: Apr-2007 $60 Put DVN-PL @ $1.30, exit $1.10 1/22

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RIG - $78.75 +2.51 - Transocean Inc ** New Stop $74 **

RIG rebounded nearly +$4 from the Tuesday lows after the company said it settled a patent suit with Global Santa Fe. GSF will pay a fee for prior use of the RIG technology and a future percentage of revenues from GSF drill ships equipped with that dual activity drilling technology. Using the dual activity technology companies can drill two wells at once from the same ship and cut development time and costs.

Their rig report released Feb-2nd

To see the last full commentary on this position click here

Earnings: Feb-14th, $1.25 vs 46 cents in prior quarter.

Current recommendation: Buy at $74

LEAP Position:
10/03/06 Position: 2009 $80 LEAP Call VOI-AP @ $12.90
01/31/06 Cost update Put stopped -1.15 cost = 14.05

Insurance put: Triggered at $79 on Jan-3rd
1/3/07 Feb $75 PUT RIG-NO @ $2.55, stopped $77.50, $1.40

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TSO - $91.23 +5.45 - Tesoro Corporation ** Stop Loss $87.00 **

Tesoro rocketed higher once again on the various refiner problems pushing the price of gasoline higher. Eventually this balloon is going to bust so I raised the stop again. Analysts were still recommending it as late as Friday night saying the current price still represented a PE of less than 8.

To see the last full commentary on this position click here

Earnings: Jan-29th, $2.28 +129%

Current recommendation: Hold

LEAP Position:
10/04/06 Position: 2009 $70 LEAP Call ZGC-AN @ $7.70

Insurance put: None

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SLB $64.58 +1.25 Schlumberger

SLB recovered all the ground lost in the prior week and returned to press resistance at $66. No news and no change in play.

To see the last full commentary on this position click here

Earnings schedule: Jan 19th, +71% to $1.13 billion

Current recommendation: Buy at $60, stop at $55

LEAP Position:
1/2 9/11/06 @ $8.60
1/2 9/12/06 @ $8.00
Position: 2009 $70 LEAP Call VWY-AN @ $8.30
Cost update for expired Jan put +2.00 = $10.30

Insurance Put: 9/18
Position: Jan $50 Put SLB-MJ @ $2.00, expired

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

SUN $66.25 +4.47 - Sunoco

Sun caught an upgrade to "buy" from Deutsche Bank and the short squeeze began. SUN rallied from $60 to $67 over the last two weeks as refiners moved to the front of the headlines. DB said margins were improving due to a shrinkage of imported gasoline. No other material news and no change in play.

To see the last full commentary on this position click here

Earnings: Jan-31st, -57% $1.00 vs $.96 analyst est.

Current recommendation: Buy at $60, stop at $54

LEAP Position:
9/12/06 Position: 2009 $70 LEAP Call VUN-AN @ $13.50
Cost update expired Jan put +2.40 = $15.90

Insurance Put:
Position: Jan $55 Put SUN-MK @ $2.40, expired

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PXP $47.82 -.54 - Plains Exploration ** Dropped **

PXP announced earnings that were less than exciting and drew a couple of downgrades in the process. Reserves shrank 12% and they sold off a large portion of their proven assets. I am electing to exit now for a minor loss rather than wait for a break of support at $47.50.

To see the last full commentary on this position click here

Earnings: Feb-22nd, 46 cents vs 39 cents

Current recommendation: Buy at $44, stop $40

LEAP Position:
9/12/06 Position: 2009 $50 LEAP Call ZXL-AJ @ 7.50
Cost update expired Jan put +1.90 = $9.40
2/26/07 Exit @ 7.90, -1.50

Insurance Put:
9/25 Jan $40 Put PXP-MH @ $1.90, expired

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

FST $33.39 +.11 - Forest Oil

Forest continues to trend higher despite the fractional gains for the week. Earnings are still ahead and I expect a strong report. No news and no change in play.

Enercom conference presentation

To see the last full commentary on this position click here

Earnings schedule: Feb-27th

Current recommendation: Buy at $30, stop at $27

LEAP Position: 9/12/06
Position: 2009 $40 LEAP Call OJG-AH @ 4.50

No insurance due to cheap LEAP

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

VLO $58.77 +2.81 - Valero Energy

Valero spiked on the rise in gasoline and also on the upgrade and positive comments by Friedman Billings Ramsey Group. (FBR) The analyst there said Valero could earn $7.80 in 2007 and would be flush with about $3 billion in cash by year end. He speculated that with no acquisition targets Valero would spend that cash on an aggressive stock buyback program of as much as 20% of the outstanding. Valero prints money and having future cash flows is not a problem. Valero hit a new 6-month high on the combination of factors.

They presented at the Credit Suisse Energy Conference on the 8th. You can listen to that presentation here

No other news and no change in play.

To see the last full commentary on this position click here

Earnings: Feb-1st

Current recommendation: Buy at $50, stop at $45

LEAP Position:
9/24/06 Position: 2009 $60 LEAP Call VHB-AL @ $7.70
Cost update expired Jan put +2.25 = $9.95

Insurance Put:
Position: 9/25 Jan $45 Put VLO-MI @ $2.25, expired

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

PBR - $95.61 +1.56 - Petroleo Brasileiro ** Stop $89.50 **

Petrobras finally posted a gain when it rebounded off support at the 100-day average. In the world of weird Petrobras and Russian giant Gazprom signed a memorandum of understanding on Friday. Why these gas giants would cooperate a world apart is confusing but Petrobras did say they were interested in Gazprom technology for development, storage and transport of LNG. You can bet this technology will not come cheaply from Russia. No change in the play.

To see the last full commentary on this position click here

Earnings schedule: N/A

Current recommendation: Buy at $92, stop at $85

LEAP Position:
9/08/06 Position: 2009 $100 LEAP Call VDW-AT @ $14.90
Cost update Jan expired put +1.80 = $16.70

Insurance put:
9/11 January $70 PBR-MN @ $1.80, expired

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

DO - $79.84 +1.25 - Diamond Offshore

After last week's massive ex-dividend drop any gain was helpful but it only returned DO to resistance at $80. This could be a long road back from that -$6 dividend hit. No change in play.

To see the last full commentary on this position click here

Earnings schedule: Feb-8th

Current recommendation: Buy at $75, stop at $69

LEAP Position:
8/29/06 Position: 2009 $80 LEAP Call VCT-AP @ 14.20
Cost reduction: Oct $70 Put profit -3.15, cost now $11.05
Cost increase: Dec $60 put expired -2.40, cost now $13.45

Insurance Put:
10/08 Dec $60 Put DO-XL @ $2.40, expired

Position closed:
10/03 October $70 put DO-VN @ $1.65, exit @ $4.80, +3.15

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

ATPG - $42.94 +1.81 - ATP Oil and Gas Corp

ATPG continues to move to new 2-month highs and earnings are scheduled for next Friday. Let's hope they do something right.

To see the last full commentary on this position click here

Earnings schedule: Mar-2nd.

Current recommendation: Buy at $38, stop at $34

LEAP Position:
8/20/06 Position: 2009 $40 LEAP Call VCL-AH @ $11.70
12/17/06 Cost update expired Dec 35 put -1.50 = $13.20

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

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

PTR - $120.52 -2.31 - Petrochina ** New Stop $119 **

PTR took some heat with news that Warren Buffet is being urged to divest the nearly three million shares Berkshire owns. Petrochina's parent CNPC operates in the Sudan and activists are pressing Berkshire to divest to protest the genocide in Darfur. Buffet responded that he had no intention to divest since it would have no impact on Petrochina. PTR has no activities in Sudan. My belief that PTR will recover strongly once money starts flowing back into the markets after the Chinese New Year has been shaken. I am adding a stop despite believing in the prospects. We have a 2008 LEAP on PTR and I would rather take my lumps now if the stop is hit rather than watch the premium bleed accelerate over the summer. The chart shows increasing pressure to the downside at $120. I am setting the stop at $119.

To see the last full commentary on this position click here

Earnings schedule: N/A

Current recommendation: Buy under $125.50, stop at $119

LEAP Position:
5/14/06 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
Cost adjustment: Close long Sept $110 put -2.60 = $17.90
Cost adjustment: Expired Dec $100 put +2.20 = $20.00
Cost adjustment: Closed Jan $135 put -2.60 = $17.40

Insurance put: (12/31)
1/03/07 Jan $135 Put PTR-MG at $138.50, $1.90
1/04/07 Profit stop at $132.50, $4.50 for +2.60.

Insurance put: (9/11)
Position: December $100 Put PTR-XT @ $2.20, expired

Insurance put: (8/13)
Position closed:
Sept $110 Put PTR-UB @ $2.40, stop @ $106 @ $5.00, +2.60

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


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Non-Energy Positions
****************************

DHI - $27.02 -1.19 - DR Horton ** Dropped **

The three week slide in DHI and the constant bad news from the housing sector has poisoned my mindset about DHI. We are profitable in the LEAP but the premium is bleeding with every downtick. Support is still well below at $26 but I am electing to dump DHI as a non core asset as they say in the energy sector.

To see the last full commentary on this position click here

Earnings: Jan-23rd, +35 cents vs 98 cents in 2005.

Current recommendation: Hold

LEAP Position:
9/24/06 Position:
2009 $25 LEAP Call VEI-AE @ $5.10, exit 6.30, +1.20

Insurance put: None
 


Leaps Trader Watch List

I looked at Cameco last weekend as it approached support at $36 and thought about adding it. That support was tested on Tuesday and a rebound to $39.50 appeared. I will pass on buying that bounce. A new uranium company has appeared, Energy Metals (EMU). This is a ground floor opportunity but they don't have options. Could be an IRA candidate.

I considered McDermott as play on Global Santa Fe earnings on Monday but the MDR chart has no momentum.

I think we are going to see some weakness in crude in the weeks ahead and that will give us some more targets. If no weakness appears we will continue to ride the current horses.
 

Dropped Entries

None


New Watch List Entries

None

Current Watch List

SNP - Sinopec

China Petroleum & Chemical Corporation (Sinopec Corp.) is an integrated energy and chemical company with upstream, midstream and downstream operations. The Company and its subsidiaries operate mainly in the People's Republic of China. The principal operations of Sinopec Corp. and its subsidiaries include exploring for and developing, producing and trading crude oil and natural gas; processing crude oil into refined oil products, producing refined oil products and trading, transporting, distributing and marketing refined oil products, and producing, distributing and trading petrochemical products. Sinopec Corp. has five operating segments: exploration and production, refining, marketing and distribution, chemicals, and corporate and others. On June 21, 2005, Sinopec Corp. entered into an agreement with Beijing Yanhua Hitech Co., Ltd., pursuant to which Sinopec Corp. acquired 95% equity of Beijing Yanhua Hi-tech Catalyst Co., Ltd., held by Yanhua Hi-tech Corp.

Breakdown target $82.50

Buy OCT $85 Call SNP-JQ

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

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.

Breakdown target $45

Buy JAN 2009 $50 LEAP Call AZH-AJ

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

OSX - Oil Service Index

Index Description:

The Philadelphia Oil Service Index is an index of 15 companies that provide drilling and production services, oil field equipment, support services and geophysical/reservoir services. This index contains companies like Halliburton, Nabors, Schlumberger, etc.

Complete list of OSX components

Breakdown trigger $175

SHORT Sept $220 PUT - OFJ-UD, Stop loss OSX $160
 


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