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Weekly Newsletter, Saturday, 03/17/2007

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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

Any Day Now

The current dip in oil prices has already fallen further than I expected. $58 was my target and Friday's close was right at $57. Any day now I expect buyers to return and push us back over $58 for the next several months. I still believe this is our last buying opportunity before the summer highs.

OPEC met with lots of fanfare but failed to do anything but congratulate each other for pushing the price of oil higher. The compliance with the prior two cuts was said to be in the 70% range, which among OPEC members is almost the best they can expect. With prices just under $60 when the meeting began there was no need for further price manipulation. I am sure the drop under $57 before the week was out had some oil ministers wishing they could have a meeting do over.

The biggest surprise of all was the announcement that they would meet again in September. They were expected to meet again in June as the summer driving season gets underway but that meeting has been canceled. This was actually bullish for prices since it suggests they are not in any hurry to raise production. In fact OPEC has setup a nearly perfect scenario. With prices near $60 and the US driving demand and hurricane season just ahead they could have set the stage for sharply higher prices by not scheduling a June meeting.

OPEC had agreed to cut 1.7 mbpd off the market over the last few months. Only about 1 mbpd was actually cut. OPEC said they would focus on raising compliance rather than changing production quotas. If they can enforce compliance we could see some sharply higher prices. The IEA said last week that OPEC was already producing 400,000 bpd less than it should to maintain supplies at an adequate level. OPEC issued a report on Thursday saying it needed to produce 180,000 bpd more than its prior forecast between April-June.

Conoco Phillips said this week that they were going to spend $1 billion each on 30 different projects aimed at raising their daily production by 3% by 2011. That is a lot of money to only add 79,800 bpd in production. Conoco said costs had risen by one third and would continue to rise due to harsh production environments, lack of employees and smaller projects.

Haliburton said it was going to move its corporate headquarters to Dubai but that was not the big announcement for the week. HAL also said it was going to hire 13,000 workers in 2007 to handle planned growth from 2007 to 2009. HAL also added 13,000 workers in 2006. I dare you to try and convince anyone there is not a drastic exploration effort underway. These are not cheap workers!

This is going to be a short update this weekend. I am battling the flu and my publishing deadline is fast approaching.

Jim Brown


April Crude Chart - Daily

April Gas Futures Chart - Daily

April Gasoline Chart - Daily

 


Changes in Portfolio

New Energy Plays

None - See Watch List


Non Energy Plays
New Non-Energy Plays

None - See Watch List


Dropped Plays

None


New Watch List Plays Triggered
BHP $44.16 BHP Billion

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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CCJ - $36.86 -0.40 - Cameco

No news and no change in play.

To see the initial commentary on this position click here

Breakout trigger: $37.50 Hit March 7th

Position: JAN-09 $40 LEAP Call ZBK-AH @ $7.80

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PTR - $110.31 -3.63 - Petrochina

A drop in gasoline prices in Beijing was credited with cutting stock prices on PTR and SNP. There was no other news

Cost reduction play:

Our short put was triggered on Tuesday when PTR hit $110 on the dip. The premium received was $3.40. Maintain a stop loss on this short put at $100.

To see the initial commentary on this position click here

Breakdown targets:
$110 1/2 position - hit Mar-5th
$105 1/2 position - not yet triggered

Position: JAN-09 $120 LEAP Call ZJK-AD @ $10.70

Cost reduction play:
Position: Short June $105 Put PTR-RA @ $3.40, stop $100

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SNP - $75.37 -3.08 - Sinopec

The Beijing gasoline war which took from .04 to .08 yuan off the price of a liter of fuel was blamed from the decline in the stock price. Sinopec also announced it had raised output at one of its new refineries to a record 200,000 bpd in March. This refinery is going to be moved even higher to 243,000 bpd by April.

To see the initial commentary on this position click here

Breakdown target $82.50 hit on 2/27

Position: OCT $85 Call SNP-JQ @ $7.00

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THE $32.78 -.93 - TODCO ** Stop Loss $32.00 **

No news and no change in play. However I am raising the stop to $32.

To see the initial commentary on this position click here

Earnings: March 1st, $1.11 vs .34 cents in comparison quarter

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 $29.57 -.56 - Chesapeake Energy ** Stop loss $28.50 **

CEO Aubrey McClendon continues to buy shares. He has upped his position by purchasing 5.7 million shares on the open market for a total cost of $165 million over the last 18 months. This brings his total stake to 27 million shares. Reserves increased from 7.5 tcfe to 9.0 tcfe in 2006. As long as reserves continue to grow and McClendon continues to buy shares we should be comfortable waiting for the market to catch on. No news and 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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MRO $93.29 -1.44 - Marathon Oil

Marathon gave back -1.44 of the 5.44 it gained in the prior week so we have no challenge with the profit taking. MRO is still holding just below its two month high at $95. Marathon also signed a letter of intent with Noble Drilling to lease its newest rig the Noble Jim Davis when construction is completed sometime in 2009. The contract will give Noble approximately $377 million in revenues over a two-year period. Marathon is expected to use the deepwater rig in the Gulf of Mexico. 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
Cost update: Expired March put +65 cents to $13.25

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

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HES - $50.45 -2.35 - Hess Corporation
(Formerly (AHC))

Somebody started dumping HES late Thursday afternoon and kept the pressure up into Friday's close. Support at $50 should hold. We have a May $50 insurance put. No news and 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: 2/26/07
MAY $50 PUT IGG-QJ @ $1.35, profit stop $46

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BTU - $37.95 -.90 - Peabody Energy

No movement and no news. Several analysts have been recommending BTU at what they are calling as a depressed level.

SELL JAN-08 $30 PUT LLW-MF is BTU touches $35

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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SLB $64.48 -0.62 Schlumberger

SLB continues to hold near the top of its range on no news. No change in play.


SELL JAN $55 PUT WUB-MK on a touch of $60 by SLB

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 $65.90 +0.53 - Sunoco

Still holding at the high end of its recent range on no news. No change in play.

SELL JAN $55 PUT WUD-MK on a touch of $60 by SUN

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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VLO $60.01 -.22 - Valero Energy

Valero is holding at its six-month highs and only gave back 22 cents of its multi dollar gain last week. With falling oil prices and rising gasoline prices Valero should be printing money. No news of note and no change in play.

To see the last full commentary on this position click here

Earnings: Feb-1stbr>
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:
PPosition: 9/25 Jan $45 Put VLO-MI @ $2.25, expired

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

DO - $76.12 -.54 - Diamond Offshore ** New Stop $73.00 **

No news and no change in play.

To see the last full commentary on this position click here

Earnings schedule: Feb-8thbr>
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:
110/03 October $70 put DO-VN @ $1.65, exit @ $4.80, +3.15

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


Leaps Trader Watch List

Dropped Entries

None


New Watch List Entries

None

CCurrent Watch List

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 $180

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

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

ATI - Allegheny Tech

Allegheny Technologies Incorporated (ATI) is a diversified specialty metals producer. The Company operates in three segments: High Performance Metals, Flat-Rolled Products and Engineered Products. The High Performance Metals segment produces, converts and distributes a range of high-performance alloys, including nickel and cobalt-based alloys and superalloys, titanium and titanium-based alloys, zirconium, hafnium, niobium, nickel-titanium and their related alloys. The Flat-Rolled Products segment produces, converts and distributes stainless steel, nickel-based alloys, and titanium and titanium-based alloys. The Engineered Products segment produces tungsten powder, tungsten heavy alloys, tungsten carbide materials and carbide cutting tools. ATI products are used in various markets. These markets include aerospace, defense, chemical process industry, oil and gas, electrical energy and medical.

Breakdown target $92.50

Call spread:
BUY JAN-09 $100 LEAP Call OYG-AA
SELL JAN-09 $140 LEAP Call ZKG-AH

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

TEX - Terex Corp

Terex Corporation (Terex) is a diversified global manufacturer of capital equipment delivering solutions for the construction, infrastructure, quarry, mining, shipping, transportation, refining and utility industries. The Company operates in five business segments: Terex Construction, Terex Cranes, Terex Aerial Work Platforms, Terex Materials Processing & Mining, and Terex Roadbuilding, Utility Products and Other. The Company's products are manufactured at plants in North America, Europe, Australia, Asia and South America, and are sold primarily through dealers and distributors worldwide. During the year ended December 31, 2005, it acquired Halco Holdings Limited and its affiliates, and Power Legend International Limited and its affiliates. It entered into a joint venture with North Hauler Joint Stock Company Limited to produce high-capacity surface mining trucks in China. It has a 50%-ownership interest in Sichuan Changjiang Engineering Crane Co., Ltd.

Breakdown target $60.00

Call spread
BUY JAN-09 $70 LEAP Call VXQ-AN
SELL JAN-09 $110 LEAP Call VXQ-AB

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

TSO - Tesoro

We were stopped out of our highly profitable TSO position and now we are looking to get back in with a different strike on the next dip in refiners.

Company info:

Tesoro Corporation (Tesoro) is an independent petroleum refiner and marketer with two operating segments: refining, which is engaged in refining crude oil and other feedstocks at its six refineries in the western and mid-continental United States and selling refined products in bulk and wholesale markets (refining), and retail, which is engaged in selling motor fuels and convenience products in the retail market through its 460 branded retail stations in 18 states. Through its refining segment, the Company produces refined products, primarily gasoline and gasoline blendstocks, jet fuel, diesel fuel and heavy fuel oils for sale to a variety of commercial customers in the western and mid-continental United States. Tesoro's retail segment distributes motor fuels through a network of retail stations, primarily under the Tesoro and Mirastar brands.

Breakdown target: $89

BUY 2009 $100 LEAP Call ZGC-AT (highest strike available)
 

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