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Weekly Newsletter, Saturday, 09/01/2007

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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

Sometimes You Feel Like A Nut

For some reason I found myself repeating that Almond Joy/Mounds jingle to myself all day on Friday as oil prices climbed to nearly $74.50 on a combination of circumstances. Ahh, but the second line to that jingle says, "Sometimes you don't." I don't because I am still confident our plan will work and we will get a majority of our watch list entries when oil prices subside.

Let's review why oil prices rose this week. Concern over high driving demand for the last week of summer and four refineries down for much of the prior week had traders watching the Wednesday inventory reports even more so than normal. Would gasoline drop, would there be enough for the holiday driving, does the Easter bunny exist? Had to throw that in the mix just to see if you were paying attention. Traders may have been watching for the inventory report but they were NOT paying attention.

Oil inventories dropped "unexpectedly" by -3.5 million barrels and gasoline stocks fell by -3.7 million barrels in the prior week. Dang! The world must be coming to an end. Buy some oil futures quick. Aunt Martha and uncle Bill may not have enough gas to get back from their Labor Day trip. What are we going to do? There is only enough gasoline for 20 days of supply according to the EIA. Break out the ration cards we are going to need them.

Let's reconstruct the events and see why inventory levels fell "unexpectedly" last week. If you are a tanker driver bringing a million bbls of oil from Saudi Arabia, Nigeria or Venezuela and saw this hurricane probability chart for Dean as you headed for the east coast of the U.S. what would you do? I doubt it would be "damn the storm, full speed ahead" and plunge right through a category 5 hurricane to the refineries in Texas and Louisiana. No, you will dial back on the engines and put yourself in a parking orbit somewhere east of the Bahamas and wait for it to blow over. With several tankers a day carrying from 500,000 to a million barrels each it probably looked like a tanker farm trapped in the Bermuda triangle before the week was out.

Hurricane Dean Wind Chart

The rigs in the Gulf were shutting down and evacuating personnel in case Dean turned north and Pemex was shuttering production in Mexico. All of this reduced the flow of oil into the refineries several of which had also slowed production and shuttered non-essential output until the storm passed.

Once the storm turned into Mexico and everyone realized it would not impact the Gulf the tankers began sprinting west and lining up to offload their cargo. We import an average of nearly 11 mbpd of oil from various countries including Mexico and Canada. That oil not coming from our neighbors has to come by tanker. Imports were down 993,000 barrels per "day" last week or 6,951,000 barrels for the week. Personally I think it was amazing inventory levels were only down -3.5 million barrels for the week according to the EIA numbers. That should tell you something about how much extra oil is floating around in the system. Our oil inventories are just below the decade highs set back in July but still more than 10.9% over the 5-year average high for this time of year. Definitely no shortage of crude despite the -3.5 mb drop.

Gasoline fell -3.7 million barrels for a multitude of reasons. The first one was obviously the hurricane. We import around one million barrels per day and that arrives on tankers. We also had two refineries in Texas shut down partially for the hurricane and two that were down for other reasons including the 250,000 bpd plant in Mississippi. Those Gulf refineries that did not shut down slowed production to minimize problems if the storm did turn their way. Refinery utilization fell to 90.3% from 91.6% a week earlier. Even with all the impacts to gasoline production and imports the current 20-day supply is only 1.9 days below last year at the same time without any problems. Pop quiz: What could cause all the refineries in the U.S. to quit refining gasoline at the same time? Nothing but a life ending comet strike on North America. Every refinery stands alone and gets its crude from different sources. That 20-day supply assumes all refining activity halted tomorrow. It is not going to happen.

If you think about it the "unexpected" drop in oil and gasoline levels was not all that unexpected. You just have to put your brain in gear for 30 second or so and consider the facts. Obviously many traders failed to pass the test and clicked the mouse in panic instead.

Next week I guess the headline will read "unexpected increase" in crude inventory levels surprises analysts. Duh, it just means the tankers lined up in the Gulf dumped their loads are steaming east again at full speed to try and recover lost time.

Thanks to that unexpected drop in inventory we were triggered on the XLE put on Friday as it rose to our entry point. I love it when a plan comes together!

Now, to complicate the scenario for next week we have a new tropical storm forming south of Puerto Rico and headed right along the same path Dean took. It was not even a named storm yet when I started writing this commentary and was only called tropical storm Felix. As of 5:AM Saturday morning it now has a name, Felix. It is expected to hit the Honduras, Guatemala and the Yucatan on Wednesday if the course does not change. That would take it out of harms way other than to produce a lot of wind and rain on those Pemex fields northwest of the Yucatan in Campeche Bay. The obvious fear is that it will turn north, pick up intensity over the warm water and head into the gulf. Currently it only has winds of 30 knots but that could change at any time.

Tropical Storm Felix

The reason we are seeing storms form now is due to the peak of the season just ahead. September 10th is the normal peak of hurricane season and then storm frequency declines sharply. As an example Katrina and Rita formed very near the peak of the season in 2005.

Hurricane Season

Another challenge to prices will come with the OPEC meeting on September 11th. The two most hawkish OPEC members, Iran and Venezuela, have already called for OPEC to maintain current production levels. This is contrary to their normal call to reduce production. Since neither can even make their reduced quotas they would benefit from other OPEC members being curtailed even more. Since Q3 is a very heavy demand season around the globe the idea of cutting production even further is ridiculous. By calling for OPEC to maintain production they hope to limit any increases to meet that demand.

Depending on whom you listen to demand in Q3 is expected to increase by 1.5-2.0 mbpd as refineries gear up for winter heating oil production. Assuming no hurricanes to slow progress in the Gulf non-OPEC production around the world could grow by +600,000 bpd. That means OPEC will have to increase production to 31.3 mbpd to accommodate increased demand. Based on their current posted production numbers that would be about 800,000 to 1.2 mbpd more than they are currently producing. That assumes everything proceeds according to plan with the various non-OPEC projects scheduled to come online in the next 3-months. Since nothing ever runs on schedule it is a pretty sure bet OPEC will need to increase production by 1.5 mbpd to keep supplies level. This would be right at their maximum output level of roughly 32 mbpd. They make a lot of noise about being able to produce more but demand growth keeps sucking it up just as fast as they can increase production.

Regardless of what eventually happens to demand and supply in Q3/Q4 the OPEC meeting on the 11th will be a critical focal point and could have a serious impact on prices. They could claim only a minimal increase to keep prices high and then actually produce all they can to capture the high prices. They could also agree to produce the required amount but stair step it to keep prices high. You never know which way they will move.

What we do know is gasoline consumption will fall off a cliff next week. Summer is over, school has started and vacations are behind us. Weather will turn cooler and overall crude demand in the U.S. will slow. That will begin to push inventories higher as refineries begin to schedule fall maintenance cycles and the conversion from gasoline to heating oil. Historically this pressures prices and we get the lows around the 1st of October.

I use the terms historically and normally but there is no normal in the current oil sector. With demand running so close to production and depletion rates rising we will continue to see volatility in crude prices. I only hope that Felix will fizzle like Dean and our plan will come together culminating in a drop in crude prices and give us out winter position entries.

Natural gas producers are in the middle of a perfect storm for gas prices. A futures roll over last week provided some temporary relief from selling but the new October co0ntract was crushed on Friday to close at $5.46. This gave us our anticipated entry in Ultra Petroleum that we have been waiting for two months to arrive. Natural gas storage is at record levels going into fall and without a blizzard a week it is going to be a very bleak winter for prices. With plans to try and maximize storage levels to as much as 4 tcf there is still a little room for production but we are already at 3 tcf and +12% over the 5-year average. Without a hurricane crippling gulf production for months there are sure to be curtailments all across the producing spectrum. Eventually a real winter will return and the cycles return to normal. Gas production has fallen for the last three years but so has demand due to extremely warm winters.

If OPEC plays games with Q3 production and Felix turns into the gulf then we are going to miss quite a few entries heading into fall. That will require some new targets in other sectors rather than chase oil prices higher. We have about two weeks to watch before making any drastic changes. We should know how the production cycle is going to play out by the FOMC meeting on Sept 18th. All the wildcards should be played by then and we can setup for a Q4 rally.

If you did not get a chance to listen to some of those energy conference presentations I strongly suggest you retrieve last week's newsletter and follow the links. It is very educational.


October Crude Futures Chart - Daily

October Natural Gas Futures Chart - Daily

September Gasoline Futures Chart - RBOB Daily

 


Changes in Portfolio

New Energy Plays

None


New Non-Energy Plays

See Watch List


Dropped Plays

None


New Watch List Plays Triggered
XLE $69.83 Energy Spyder *** PUT *** Stop Loss $72 ***
UPL $53.40 Ultra Petroleum *** Stop Loss $48 ***

Portfolio Listing & Top Picks


New Plays

Most Recent Plays

XLE $69.83 - Energy Spyder *** PUT *** Stop Loss $72 ***

The short covering on Friday was due to tropical storm Felix arriving on the scene with most traders expecting a post Labor Day drop. Never a dull moment. Target $66 for an exit.

ETF Info:

Energy Select Sector SPDR Fund (the Fund) seeks to replicate the total return of the Energy Select Sector of the S&P 500 Index. The Fund utilizes a passive or indexing investment approach and attempts to approximate the investment performance of the Energy Select Sector Index, by investing in a portfolio of stocks that seek to replicate the Energy Select Sector Index. The Energy Select Sector Index includes companies from oil, gas and consumable fuels, and energy equipment and services industries. Energy companies in the Energy Select Sector Index develop and produce crude oil and natural gas, and provide drilling and other energy resources production and distribution-related services.

Breakout Trigger: $69.50 Hit 8/31

Position:
Dec $67 Put XBT-XO @ $2.55
Dec $67 Put GQQ-XO @ $2.70

GQQ-XO is a quarterly strike listed by mistake.

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UPL $53.40 - Ultra Petroleum *** Stop Loss $48 ***

I believe this was a great opportunity considering what I hear at the Enercom conference. They have identified three more producing zones at their Pinedale field that could substantially increase production. They also expect to receive some further downsizing on well placement allowing them to drill 2-4 times as many wells. They also expect to receive permission from the State of Wyoming to drill during the winter months effectively giving them an extra quarter or more of production per year. Now, we just need winter to show with some teeth this year and deplete the 3 tcf of gas currently in storage.

Ultra Petroleum presentation

Company Info:

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 primarily in the Green River Basin of southwest Wyoming and Bohai Bay, offshore China. As of December 31, 2006, Ultra owned interests in approximately 147,917 gross (79,566 net) acres in Wyoming covering approximately 230 square miles. The Company owns working interests in approximately 464 gross producing wells in this area and is an operator of 50% of the 464 gross wells. During the year ended December 31, 2006, domestic production was approximately 89.5% of the Company's total oil and natural gas production on a thousand cubic feet of natural gas equivalent (Mcfe) basis and 99% of the Company's estimated net proved reserves were domestic on a Mcfe basis.

Breakdown target: $52.50 Hit 8/30

Position: Jan 2009 $60 LEAP Call OZH-AL @ $8.00


 


Play Updates

Existing Plays

CHK $32.26 -0.78 Chesapeake Energy

Gas prices are crushing Chesapeake even though they are over 59% hedged for Q3/A4 at over $8.66 per mcf. No news.

CHK was recently upgraded to 5 stars by Morningstar.

Link to Enercom presentation

Position: 2010 $35 LEAP Call WZY-AG @ $6.60 ** No Stop on LEAP **

Insurance put:
Oct $30 Put CHK-VF @ 90 cents. Profit stop $28

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HP $31.49 +0.07 Helmerich & Payne *** Stop Loss $27.50 ***

No weakness in HP and it is creeping back to resistance at $31.50. No news other than a great looking chart.

Enercom presentation here

Position: Jan 2009 $35 LEAP Call ZQA-AG @ $4.50

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HERO $25.44 -$1.53 Hercules Offshore ** Stop Loss $24.00 **

Hercules took a pounding on Thr/Fri after a SVP resigned from the company. Lehman Brothers initiated coverage on HERO on Monday with an overweight rating and it did not help. No other news and no specific reason for the decline.

Enercom presentation

Position: 2008 April $30 Call HIQ-DF @ $3.00

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GLBL $24.18 +0.18 Global Industries ** Stop Loss $18.50 **

Global shook off Tuesday's dip and continued to creep higher as it overcomes some dedicated selling as it moves higher. Eventually whoever is unloading a large position will run out of stock and I think a breakout will appear. The 100-day average at $24.18 is exactly where it closed on Friday. There was no news.

Enercom presentation

Position: 2008 March $25 Call GQO-CE @ $3.30

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BHP - $63.15 +0.86 BHP Billiton ** Stop Loss $47.50 **

After a +$7 gain in the prior week any gain this week was appreciated and definitely unexpected. No specific news.

Breakdown target: $55 hit 8/15/07

Position: 2010 $70 LEAP Call LPH-AN @ $9.00

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NOV - $128.00 +7.00 National Oilwell ** Stop Loss 115.00 **

NOV continues to amaze us with its strong performance. After a +$12 run the prior week NOV added another $7 to hit $130 intraday on Friday. No specific news but positive sector news on oil service stocks helped power the gains.

2:1 split date: Sept 28th. Exit before the split

Breakdown target: $100 hit 8/16/07

Position: FEB $110 Calls NOV-BB @ $9.70

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CCJ - $40.38 +0.64 Cameco ** Stop Loss $30 **

CCJ is very close to a breakout over resistance at $40.50. It inked a deal to acquire 10$ of Western Uranium (WUC) and a 70% joint interest in WUC properties. Cameco continues to add to its exploration properties at a time when uranium prices are soft. They also signed additional mining agreements with the Kyrgyz government for additional rights to properties owned by Kyrgyzaltyn. Both those names look like I had my fingers on the wrong keys when typing. I have no idea where Kyrgyz is on a world map but I am glad Cameco is profiting from their knowledge.

Breakdown target: $35 Hit 8/16/07

Position: 2010 $50 LEAP Call LTA-AJ @ $7.20


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Non-Energy Positions
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RIMM - $85.41 +3.55 - Research in Motion

RIMM continues to rocket higher driven by its recent 3:1 split and constant news of a burgeoning subscriber base. There was no specific news but competitors can't seen to catch up.

For initial commentary see the July 1st newsletter.

Earnings schedule: Sept 27th.

Breakdown trigger: $56.00 hit 6/25

Call spread pre-split:
Position: LONG 2009 $180 LEAP Call VHO-AP @ $32.60
Position: SHORT 2009 $230 LEAP Call VHO-AF @ $10.47

Call spread post-split:
Position: LONG (3) 2009 $60 LEAP Call VHO-AL @ $10.87
Position: SHORT (3) 2009 $76 LEAP Call VHO-AU @ $ 3.62

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BSC $108.66 -8.44 - Bear Stearns *** Stop Loss $97 ***

BSC was hammered by the credit crunch and fears they will report devastating earnings on the 13th. Continue to keep the faith and we could be rewarded if they are better than the scorched earth view everyone is expecting.

Earnings are Sept-13th.

Breakdown target $100 hit 8/06/07

Position: 2010 $120 LEAP Call YBO-AD @ $25.60

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CFC - $19.85 -1.15 Countrywide Financial ** Stop Loss $15 **

Countrywide is holding just over the $18 exercise price Bank America worked out when investing $2 billion in CFC. All the damage appears to have been done and Countrywide is still funding loans. With Bank America behind them it makes the process of selling those loans a lot easier.

I believe Countrywide has a rocky road ahead but they will come out on top once the mortgage market opens up again. They are likely to face serious layoffs and a sharp reduction in revenue as they revert to primarily agency qualified paper.

Breakdown target $20.00 hit 8/15/07

Position: 2010 $30 LEAP Call YJD-AF @ $7.00
 


Leaps Trader Watch List

for crude prices to take their normal September drop.

Dropped Entries

None


New Watch List Entries

None

Current Watch List

JEC - Jacobs Engineering Group

Jacobs has been on a very strong growth path and the recent market weakness has knocked it back into range. It has oil and gas exposure but it not an oil and gas company.

Company Info:

Jacobs Engineering Group Inc. is a professional services firm that focuses on providing a range of technical, professional and construction services. It provides project services, which include engineering, design, architectural, and similar services; process, scientific, and systems consulting services; operations and maintenance services, and construction services, which include direct-hire construction and construction management services. It concentrates its services on selected industry groups and markets, including oil and gas exploration, production and refining; programs for various federal governments; pharmaceuticals and biotechnology; chemicals and polymers; buildings, which includes projects in the fields of healthcare and education, as well as civic, governmental and other buildings; infrastructure and technology and manufacturing. In April 2006, its Canadian subsidiary acquired Techna-West Engineering Limited. In October 2006, it acquired W.H. Linder & Associates, Inc.

No LEAPS

Breakdown target: $57.50

Buy APR 2008 $60 Call JEC-DL

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VLO - Valero Energy

Looking to buy Valero cheap on the fall dip.

Company Info:

Valero Energy Corporation owns and operates 18 refineries located in the United States, Canada and Aruba that produce refined products, such as reformulated gasoline blendstock for oxygenate blending, gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, low-sulfur and ultra-low-sulfur diesel fuel, and oxygenates (liquid hydrocarbon compounds containing oxygen). It also produces conventional gasolines, distillates, jet fuel, asphalt, petrochemicals and other refined products. It markets branded and unbranded refined products on a wholesale basis in the United States and Canada through a bulk and rack marketing network. It sells refined products through a network of approximately 5,800 retail and wholesale branded outlets in the United States, Canada and Aruba. During the year ended December 31, 2006, it sold all of its ownership interest in Valero GP Holdings, LLC. In July 2007, the Company sold its Lima, Ohio refinery to Husky Energy Inc.

Breakdown target: $62.50

BUY 2009 $70 LEAP Call VHB-AN

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COP - Conoco Phillips

I hesitate to add Conoco because of its Russian LUKOIL exposure but the company is doing everything else right. Now that it is out of Venezuela it should be more aggressive with other opportunities.

Company Info:

ConocoPhillips (ConocoPhillips) is an international, integrated energy company. The Company's business is organized into six segments. Exploration and Production segment primarily explores for, produces and markets crude oil, natural gas and natural gas liquids on a worldwide basis. Midstream segment gathers, processes and markets natural gas produced by ConocoPhillips and others, and fractionates and markets natural gas liquids, primarily in the United States and Trinidad. Refining and Marketing segment purchases, refines, markets and transports crude oil and petroleum products, mainly in the United States, Europe and Asia. LUKOIL Investment segment consists of its equity investment in the ordinary shares of OAO LUKOIL (LUKOIL). The Chemicals segment manufactures and markets petrochemicals and plastics on a worldwide basis. Emerging Businesses segment includes the development of new technologies and businesses outside the Company's normal scope of operations.

Breakdown target: $75

Buy 2009 $80 LEAP Call OJP-AP

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MRO - Marathon Oil

On July 31st Marathon announced its purchase of Western Oil Sands for $5.5 billion. This will be an immediate increase in production for Marathon of 31,000 bpd. The acquisition gives them 20% interest in the Athabasca Oil Sands Project in Alberta. The other partners are Shell 60% and Chevron 20%.

Company Info:

Marathon Oil Corporation (Marathon) is engaged in exploration, production and marketing of crude oil and natural gas worldwide. The Company operates in three segments: Exploration and Production (E&P), which explores for, produces and markets crude oil and natural gas on a worldwide basis; Refining, Marketing and Transportation (RM&T), which refines, markets and transports crude oil and petroleum products, primarily in the Midwest, the upper Great Plains and southeastern United States, and Integrated Gas (IG), which markets and transports products manufactured from natural gas, such as liquefied natural gas (LNG) and methanol, on a worldwide basis, and is developing other projects. During the year ended December 31, 2006, Marathon completed leasehold acquisitions totaling approximately 200,000 acres in the Bakken Shale oil play. In July 2006, it completed a natural gas leasehold acquisition in the Piceance Basin of Colorado, in Garfield County in the Greater Grand Valley field complex.

Breakdown target: $48

Buy 2009 $60 LEAP Call VXM-AL

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SLB - Schlumberger

SLB posted blowout earnings on its global services business and had only good things to say about the future.

Company Info:

Schlumberger Limited (Schlumberger) is an oilfield service company supplying a range of technology services and solutions to the international petroleum industry. It 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, owned by Schlumberger and Baker Hughes, is an advanced surface seismic company. Schlumberger's products and services include the evaluation and development of oil reservoirs (controlled digging, pumping and testing services), well construction and production consulting, and sale of software programs. The Company also offers storage tank and seismic monitoring services. Schlumberger Limited is headquartered in Paris, France.

Breakdown target: $86.00

Buy 2009 $100 LEAP Call VWY-AT

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TSO - Tesoro

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 trigger: $45

Buy 2009 $50 LEAP Call ZGC-AJ

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PTR - PetroChina

Company Info:

PetroChina Company Limited is engaged in a range of petroleum-related activities through its four business segments: Exploration and Production, Refining and Marketing, Chemicals and Marketing, and Natural Gas and Pipeline. 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. PetroChina Company Limited was established as a joint stock company as part of the restructuring of the China National Petroleum Corporation (CNPC). On December 28, 2006, the Company acquired a 67% interest in PetoKazakhstan Inc. from CNPC International Limited, a subsidiary of CNPC.

Breakdown target: $130

Buy 2009 $150 LEAP Call ZJK-AJ

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XOM - ExxonMobil

I caved in and added Exxon to the list because of their performance in 2007. With 6 billion shares outstanding it takes a lot to move their stock price but they added +$30 since Sept-06.

Company Info:

Exxon Mobil Corporation (ExxonMobil) is an international oil and gas company. ExxonMobil operates facilities or market products in many countries, and explores for oil and natural gas on six continents. ExxonMobil is involved in the exploration and production of crude oil and natural gas; the manufacture of petroleum products, and the transportation and sale of crude oil, natural gas and petroleum products. ExxonMobil is a manufacturer and marketer of commodity and specialty petrochemicals, and also has interests in electric power generation facilities. In addition, the Company conducts research programs in support of these businesses.

Breakdown trigger: $81

Buy 2009 $90 LEAP Call ODU-AR

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CVX - Chevron

Company Info:

Chevron Corp. (Chevron), manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and foreign subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations of coal and other minerals, power generation and energy services. Exploration and production (upstream) operations consist of exploring for, developing and producing crude oil and natural gas, and also marketing natural gas. Refining, marketing and transportation (downstream) operations relate to refining crude oil into finished petroleum products; marketing crude oil and the many products derived from petroleum, and transporting crude oil, natural gas and petroleum products by pipeline, marine vessel, motor equipment and rail car. Chemical operations include the manufacture and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant oil additives.

Breakdown trigger: $80

Buy 2009 $90 LEAP Call VCH-AR

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CNQ - Canadian Natural Resources

Company Info:

Canadian Natural Resources Limited (CNRL) is an independent crude oil and natural gas exploration, development and production company head-quartered in Calgary, Alberta, Canada. The Company's operations are focused in North America, largely in Western Canada, the United Kingdom portion of the North Sea and Offshore West Africa. In November 2006, the Company completed the acquisition of Anadarko Canada Corporation from Anadarko Petroleum Corporation. The Company's crude oil and natural gas activities are conducted in three geographic segments: North America, North Sea and Offshore West Africa. These activities relate to the exploration, development, production and marketing of crude oil, natural gas liquids and natural gas. The Company's Horizon Project has been classified as a separate segment. Midstream activities include the Company's pipeline operations and an electricity co-generation system.

Breakdown Trigger: $62.50

Buy 2009 $70 LEAP Call OKR-AN

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PBR - Petrobras

Company Info:

Petroleo Brasileiro S.A. - Petrobras (Petrobras) is a wholly owned enterprise of the Brazilian Government, which is responsible for all hydrocarbon activities in Brazil. The Company is engaged in a range of oil and gas activities. Petrobras operates in six segments: exploration and production, supply, distribution, gas and power, international and corporate. In June 2007, Petrobras announced that it completed transfer of all of the shares of Petrobras Bolivia Refinancion S.A. to YPF S.A. In March 2007, the Company, Braskem S.A. and Ultrapar Participacoes S.A. announced the acquisition of Grupo Ipiranga. In September 2006, the Company announced the closing of the acquisition by Petrobras America, Inc. (PAI), its wholly owned subsidiary in the United States Gulf of Mexico, of 50% of Pasadena Refining System Inc. In June of 2006, it completed the acquisition of 66% of Gaseba Uruguay-Grupo Gaz de France S.A.

Breakdown Trigger: $55

Buy 2009 $60 LEAP Call VDW-AL

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DO - Diamond Offshore

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 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 independent oil and gas companies and government-owned oil companies.

Breakdown Trigger: $93

Buy 2010 $100 LEAP Call VCT-AT

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CLB - Core Labs

Company Info:

Core Laboratories N.V. (Core Lab) is a provider of reservoir description, production enhancement and reservoir management services to the oil and gas industry. These products and services are directed toward enabling the Company's clients to improve reservoir performance and increase oil and gas recovery from their producing fields. It has over 70 offices in more than 50 countries. Core Lab derives its revenues from services and product sales to clients in the oil and gas industry. Its reservoir optimization services and technologies are interrelated and are organized into three complementary segments: Reservoir Description, which encompasses the characterization of petroleum reservoir rock, fluid and gas samples; Production Enhancement, which includes products and services relating to reservoir well completions, perforations, stimulations and production, and Reservoir Management, which combines and integrates information from reservoir description and production enhancement services.

Breakdown Trigger: $104

Buy 2009 $110 LEAP Call ZYM-AB

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FXI - China Ishares (includes CEO, SNP and PTR)

ETF Info:

iShares FTSE/Xinhua China 25 Index Fund (the Fund) is an index fund that seeks investment results that correspond generally to the price and yield performance of the FTSE/Xinhua China 25 Index (the Index). The Index is designed to represent the performance of the largest companies in the Chinese equity market that are available to international investors. The Index consists of 25 of the largest and most liquid Chinese companies. Securities in the Index are weighted based on the total market value of their shares. Each security in the Index is a constituent of the FTSE All-World Index. All of the securities in the Index trade on the Hong Kong Stock Exchange. The Fund invests in a representative sample of securities in the Index, which have a similar investment profile as the Index. From its inception, on October 5, 2005, through July 31, 2005, the Fund returned 14.57%, while the Index returned 15.3%.

Breakdown Trigger: $130

Buy 2009 $150 LEAP Call VHF-AZ

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SPW - SPX Corp

Company Info:

SPX Corporation is a global multi-industry manufacturing company. The Company provides flow technology, test and measurement products and services, thermal equipment and services, and industrial products and services. The Company's infrastructure-related products and services include wet and dry cooling systems, thermal service and repair work, heat exchangers and power transformers into the global power market. The Company has four business segments: Flow Technology, Test and Measurement, and Thermal Equipment and Services, and Industrial Products and Services. In October 2006, the Company sold its Dock Products business to management of Dock Products and an affiliate of Wynnchurch Capital, Ltd. SPX Dock Products, based in Carrollton, Texas. In December 2006, the Company acquired Aktiebolaget Custos within its Flow Technology segment. In April 2007, the Company completed the sale of its Contech business unit to Marathon Automotive Group, LLC.

Breakdown Trigger: $80

Buy 2009 $90 LEAP Call OWM-AR

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APA - Apache Corporation

Apache was upgraded to 5 stars by Morningstar in late August.

Company Info:

Enercom presentation

Apache Corporation is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. In North America, the Company's exploration and production interests are focused in the Gulf of Mexico, the Gulf Coast, East Texas, the Permian Basin, the Anadarko Basin and the Western Sedimentary Basin of Canada. It has interests in onshore Egypt, offshore Western Australia, offshore the United Kingdom in the North Sea (North Sea), and onshore Argentina. Its segments are the United States, Canada, Egypt, Australia, the North Sea and Other International. The Company also holds interests in many of its United States, Canadian and other international properties through operating subsidiaries, such as Apache Canada Ltd., DEK Energy Company (DEKALB), Apache Energy Limited (AEL), Apache International, Inc. and Apache Overseas, Inc. On January 6, 2006, the Company completed the sale of its 55% interest in the deepwater section of Egypt's West Mediterranean.

Breakdown trigger: $70

Buy 2009 $80 LEAP Call OWF-AP
 


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