Table of Contents
Leaps Trader Commentary
My wife left the house on Thursday rather than be around me with oil prices moving over $82.50 on the expiring October contract. If I had a dog I would have been kicking it. (Just kidding) Instead I was kicking myself all over the house. It is literally unbelievable to see the expiring October contract spike $2 to $84 at the close. What the heck was everybody thinking?
Looking back in hindsight the rebound from the August 22nd low of $68.63 was nearly vertical. There were only three red candles in the entire string. This was not random momentum buying. There were only two possibilities. Some hedge fund was either short a huge number of contracts hoping for a break back at $70 or a major refiner was stocking up for a potential winter supply shock. Since the majority of the WTI crude is consumed in North America I can't construct a scenario where it was being bought by China or India for their strategic petroleum reserves. They would likely buy oil closer to home to avoid shipping costs.
I read a commentary by another analyst also scratching his head at the unexplained blowout in prices. Lately we have all been pointing at the falling dollar as a reason for rising oil prices since it takes more dollars to buy the same barrel of oil. Unfortunately oil prices rose about 5.3% over the last week when the price of the dollar only fell -1.2%. That leaves 4% unexplained. James Williams pointed out that oil is fungible and the price of WTI and Brent Light Crude, also priced in dollars, should be roughly equal minus the cost of shipping at about $1.50 per barrel. Brent only gained +1.2% for the week and almost exactly the dollar difference. Using any offshore scenario that leaves about $3 of the gain in WTI still unaccounted for. Williams also discounted the storm impact in the Gulf. Some rigs were evacuated as Tropical Depression 10 wandered from Florida to Louisiana just as a precaution but there was no material impact to oil production. Williams pointed out that if the storm was the cause of the spike the price of natural gas would have spiked even more since we depend more on gas from the Gulf than oil. Gas declined all week instead of rallied and that kills the storm excuse. Furthermore gas should be trading at $13.33 per MCF based on the value of oil at $82. Both fuels normally trade on a BTU parity basis but the recent spike in crude prices disconnected from gas/btu prices and that made it even more confusing.
There is no physical reason for the price of WTI to be so high. The EIA report last week showed falling demand in every category. Gasoline, distillates and jet fuel all were lower. Several have been lower for weeks. There is clear evidence of a slowing economy in the slowing demand for crude products. Distillates consumption has fallen -1.0% over the last four weeks. Jet fuel consumption is down -1.6% over the last four weeks. Gasoline demand was up only slightly over the same period in 2006, by 44,000 bpd or +0.5%, but the number of drivers is up by +1.3%. That suggests individual driving mileage is down and higher prices are forcing conservation. Gasoline demand is actually at a three month low.
The market is in full backwardization and that makes it unlikely refiners were the reason for the rise in crude. Why would they buy expiring October crude for $84 when they could buy November for just over $80? Answer, they would not do it. Refiners don't wait until the last minute to buy crude. They plan for months in advance and schedule their buys. If you know in advance how many barrels you are going to refine every day for months in advance you are not going to wait until a week before the contract expires to buy the oil. Refiners are very skilled in buying ahead of time in order to lock in the best price. They hedge their buys to reduce costs and know well in advance where and when their oil is coming from. The last $10 in gains on WTI did not come from some major refiner stocking up on October oil. Especially when they could have bought November for $4 less or December for $6 less. Backwardization works in favor of refiners not against them.
Crude oil supplies fell again last week by 3.9 million barrels but that was still a result of shipping disruptions and shipment planning by refineries. If you know that driving demand is going to plummet after Labor Day you won't schedule a long string of tankers full of Middle East oil to arrive in September. Imports normally fall in September. That lowers inventory on hand as refiners begin to make the switch to winter fuels. Add in the shipping disruptions from the Mexican hurricanes and you get even more dislocations. Despite the drop in supplies the current crude inventory levels are still +7.5% over the 5-year average and definitely not a cause for concern over shortages. The chart below from the EIA shows the decline in existing inventories (red line) from the decade high levels back in July to just over the five-year average range in blue. There is simply no cause for concern.
US Crude Inventory Chart
You should also note that refinery inputs in the second chart above are flat to down in August/September. There was no voracious oil appetite sucking crude off the market like it was the last cup of coffee in the morning pot. Everything was orderly and right inline with prior consumption trends.
After analyzing all the reports, listening to the various sound bites and reading every scrap of oil commentary I could find I am right back to the "somebody was short" scenario. It is the only one that makes sense and believe me hundreds of analysts and commentators have literally turned over every rock to try and find out why the October contract went vertical on August 23rd and never looked back.
Remember, the normal scenario is for a drop in crude prices beginning in late August and continuing to a bottom in late September and sometimes even early October. A major fund like Amaranth could have cornered the market in crude shorts and then been crushed when the combination of hurricane threats, OPEC moves, refinery outages, etc, kept prices artificially high. Amaranth went under trying to corner the natural gas market. We may hear next week that some other fund imploded covering their crude shorts. They would not have disclosed any news in advance since it would have pushed prices even higher as speculators crowded the market. Then again, we may never know who it was.
All we can hope is that the closing +$2 spike on the October contract was the last desperate act of hedge fund bleeding dollars from a failed bet. Making their pain worse was the constant shorting by thousands of investors and other funds thinking that at any moment the price was going to crack and drop $5 in a massive expiration sell off. I know I contributed thousands of my own dollars shorting every spike only to be stopped out on the next move higher. We shorts fed the rally and tortured any trader that was short in large quantities. The final closing spike could have been the punctuation mark of a failed career or a failing fund. Time will tell.
October Crude Oil Chart - 30 min
While this crude price scenario may have been causing some funds some serious pain the only material pain for us was watching our potential entry points get farther and farther away from reality as each day passed. We can't turn back the clock and we can't undo the gains some of these stocks have seen. We can rest assured that once the artificial support to prices is gone there will be a correction in crude prices and in energy stocks. Whether those stocks will come back to our entry targets is unknown.
I do know we do not want to chase them higher. Every bubble eventually bursts and we know from experience the resulting free fall can be painful. The current price of oil cannot continue without any material decrease in supplies somewhere in the world. On the contrary, the supplies of oil will be growing as OPEC opens the spigots to capture every dollar of this artificial spike they can. The basket of OPEC crude rose to a record price of $75.78 on Friday. The OPEC basket is based on the prices of different oil types from all 12 OPEC nations. If this price surge were to continue eventually Saudi Arabia and OPEC would act to lower prices. Continued price hikes will eventually curb demand and cause the price to fall much further than OPEC would like. They love the high prices but they can't afford to let this upward spiral continue. It produces more drilling around the globe, conservation, alternative fuels and ill will. Every cycle in the past 100 years has always ended badly when the price shot up out of control. The last price war in the late 1990s sent oil to $10 a barrel and caused severe disruptions in the financial affairs of the OPEC nations. Since then slow and steady wins the race for OPEC and this is not slow and steady. The various oil ministers for several OPEC countries made comments on Friday that this spike was unsustainable and not supported by fundamentals. This is true but somebody was supporting it artificially and regardless of how deep their pockets were the OPEC countries have far more oil than any hedge fund has money.
The end is near.
While the current price of oil is artificial the actual end of the age of cheap oil is very near. The proverbial peak in oil production may be a couple years away but the potential for oil demand to exceed oil production is much closer.
Late Friday China said oil consumption would climb by +5% per year through 2015 to reach 10.5 mbpd. Since it has already grown by +4.5% in 2007 just through June the odds are very good that estimate is too low. In 2005 China's rate of consumption was 6.5 mbpd and growing by +7.5% per year. If we extrapolate their growth by a more reasonable 7.5% per year that translates to 13.5 mbpd in 2015. China expects automobiles to surpass the 100 million mark in China by 2015. That is up from barely 2 million only a decade ago.
India is also on a strong growth path but several years behind China's feverish pace. The OPEC countries are also growing consumption at a fever pace accounting for 22% of the growth in consumption since 2000 and expected to consume an additional 400,000 bpd in 2007. Gasoline prices are heavily subsidized in most OPEC countries with some selling it for as little as 40 cents per liter. This encourages rampant consumption and rampant growth in these fledgling economies.
If we take the estimated maximum production for 2007Q4 of 86 mbpd and extrapolate these growth trends we get an alarming number. Demand in Q4 is expected to reach 88 mbpd for a short time according to the EIA. Since there are plenty of supplies in storage this is not an insurmountable problem at least this year. However, it will eventually be a major problem. With OPEC (Saudi Arabia really) spending billions of dollars to increase their production from 9.5 mbpd to 12 mbpd by 2010 and another $50 billion to increase it to 15 mbpd by 2020 that sounds like a lot of new production. If they are able to accomplish it this would be a miracle.
Now, take the 86 mbpd maximum production today. Add the 7 mbpd increase in China's demand by 2015, OPEC's 4.0 mbpd increase in demand through 2015, India's 3 mbpd increase and throw in a couple million more for the rest of the world and you have total demand by 2015 of +16 mbpd or 102 mbpd of real daily demand by 2015. To calculate the added production we can give Saudi full credit for jumping to 12.5 mbpd by 2010 or a +3 mbpd increase. Angola can probably add another 1 mbpd and maybe all the rest of the OPEC 12 could manage another 1 mbpd. That is +5 mbpd total and we have not taken anything into account for depletion at the annual 4% historical world average as claimed by BHI, XTO, APA, BP, XOM, etc. Ignoring depletion we need +16 mbpd of new production by 2015 and can only target +5 mbpd from the OPEC 12 by 2010-2012. Obviously we can't ignore depletion (-3 mbpd per year) and we can't ignore falling production in 7 of the OPEC 12 countries. Any way you add it up there is going to be more demand than we have oil production very soon.
Boone Pickens was on CNBC several times this week and he mentioned the 88 mbpd Q4 demand if we have a normal winter and the maximum of 86 mbpd in supply. These are IEA/EIA numbers not his but his point was simple. The countdown has begun to $100 oil and while it is probably not in 2007 it could easily be in 2008.
We may have missed the entry targets we wanted back in early September but we are still early enough in the overall cycle to continue to capitalize on future dips. The future of oil prices is already etched in stone and we should not worry about the week-to-week fluctuations. We will get some entries before the Q4 rally and we will make money. Be patient and the cycle will always reassert itself even if only at a higher level.
October Natural Gas Futures Chart - Daily
October Gasoline Futures Chart - RBOB Daily
Changes in Portfolio
Portfolio Listing & Top Picks
Most Recent Plays
XLE $75.79 Energy Spyder *** PUT ***
We were not triggered on the XLE put with our trigger at $71.35 untouched. I raised the trigger and the strike. I believe we are going to get a great entry here.
Breakdown Trigger: $74.75
Buy: Dec $73 Put XBT-XU, stop at $76.50 after entry
This is one entry I may be sorry I took. I love McDermott and it is not really tied to the price of oil. They are a manufacturer of oil field infrastructure and drilling platforms. They also are active in nuclear plant manufacture and operation. As long as oil does not really implode MDR should be fine with a minor pullback. There is strong support at $48-49 so we will tough it out on any decline.
Insurance put: Buy the NOV $50 Put MDR-WJ on MDR at $52.25
McDermott International, Inc. (MII) is an engineering and construction company with specialty manufacturing and service capabilities. MII is the parent company of the McDermott group of companies, which includes J. Ray McDermott, S.A. (JRMSA) and its consolidated subsidiaries; McDermott Holdings, Inc. (MHI) and its consolidated subsidiaries; McDermott Incorporated (MI), a subsidiary of MHI, and its consolidated subsidiaries; The Babcock & Wilcox Companies (B&WC), a subsidiary of MI; BWX Technologies, Inc. (BWXT), a subsidiary of B&WC, and its consolidated subsidiaries, and The Babcock & Wilcox Company (B&W), a subsidiary of B&WC, and its consolidated subsidiaries. MII is a worldwide energy services company operating in three business segments: Offshore Oil and Gas Construction, Government Operations and Power Generation Systems. In July 2007, JRMSA acquired Secunda International Limited.
Breakout trigger: $53, hit 9/20
Position: 2009 $60 LEAP Call OYZ-AL @ $9.00
UPL $57.87 +1.54 - Ultra Petroleum *** Stop Loss $52 ***
No news on UPL but another new six week high on Friday. No complaints but gas prices are going to tumble if oil retreats.
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.
Breakdown target: $52.50 Hit 8/30
Position: Jan 2009 $60 LEAP Call OZH-AL @ $8.00
CHK $35.56 +0.61 Chesapeake Energy
CHK in the news last week with Connecticut Gov. Jodi Rell calling for an investigation into price fixing by Chesapeake for shutting down some gas production until prices rise. CHK CEO Aubrey McClendon fired a letter right back demanding an apology for slander. He explained how on a BTU basis gas should be selling for $13.33 per MCF today with oil at $82. Instead gas is trading at 45% of parity at $6 because of the aggressive drilling programs of CHK and others in the industry. Sic em Aubrey!
CHK was recently upgraded to 5 stars by Morningstar.
Position: 2010 $35 LEAP Call WZY-AG @ $6.60 ** No Stop on LEAP **
HP $34.54 +1.39 Helmerich & Payne *** Stop Loss $27.50 ***
Now over the 100-day average. No news other than a great looking chart. Over $36.50 would be a new high.
Position: Jan 2009 $35 LEAP Call ZQA-AG @ $4.50
HERO $27.88 +.59 Hercules Offshore ** Stop Loss $24.00 **
No news and a little hiccup on Thursday but still a gain for the week. Maintain the stop at $24.
Position: 2008 April $30 Call HIQ-DF @ $3.00
GLBL $25.56 +0.85 Global Industries ** Stop Loss $18.50 **
No news but the rate of climb has accelerated. No complaints and no change in play.
Position: 2008 March $25 Call GQO-CE @ $3.30
BHP - $72.53 +6.59 BHP Billiton ** Stop Loss $60.00 **
No specific news but BHP is mentioned positively in some article nearly every day. Another new high and miners are a strong bet in today's global market.
Breakdown target: $55 hit 8/15/07
Position: 2010 $70 LEAP Call LPH-AN @ $9.00
CCJ - $43.89 -.79 Cameco ** Stop Loss $30 **
CCJ consolidated after adding nearly $5 the week before. No news and no change in play.
Breakdown target: $35 Hit 8/16/07
Position: 2010 $50 LEAP Call LTA-AJ @ $7.20
What a blast off on the Fed announcement. Now we just need to hang on and hope the bulls find some traction.
Position: Jan $80 Call IOW-AB @ $4.25
RIMM - $93.18 +5.92 - Research in Motion
RIMM has gone vertical again and with new products coming out in October to compete with the iPhone it is only going to get better. Earnings this week. We are pretty close to full value on this play so I expect to exit soon. We need some of the excess premium to bleed from the $76 short calls as they move farther into the money and we will exit.
For initial commentary see the July 1st newsletter.
Earnings schedule: Sept 27th.
Breakdown trigger: $56.00 hit 6/25
Call spread pre-split:
Call spread post-split:
BSC $117.32 +.13 - Bear Stearns *** Stop Loss $97 ***
Those were some ugly earnings down -88% but it is just possible they were not as bad as some feared. BSC is holding near its recent highs and next week would be the key. We need a trend to develop over $120 to maximize value here.
Breakdown target $100 hit 8/06/07
Position: 2010 $120 LEAP Call YBO-AD @ $25.60
CFC - $19.61 +.19 Countrywide Financial ** Stop Loss $15 **
Still chopping around the $20 level and no trend has yet emerged. We need some positive news on the mortgage sector to kick off the next chapter in this play.
Breakdown target $20.00 hit 8/15/07
Position: 2010 $30 LEAP Call YJD-AF @ $7.00
Leaps Trader Watch List
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.
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.
Breakdown target: $66.00
Buy APR 2008 $70 Call JEC-DN
VLO - Valero Energy
Looking to buy Valero cheap on the fall dip.
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
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.
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: $80
Buy 2009 $90 LEAP Call OJP-AR
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%.
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: $52
Buy 2009 $60 LEAP Call VXM-AL
SLB - Schlumberger
SLB posted blowout earnings on its global services business and had only good things to say about the future.
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: $95.00
Buy 2009 $100 LEAP Call VWY-AT
TSO - Tesoro
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
PTR - PetroChina
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: $145
Buy 2009 $160 LEAP Call ZJK-AL
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.
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: $85
Buy 2009 $90 LEAP Call ODU-AR
CVX - Chevron
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: $87
Buy 2009 $100 LEAP Call VCH-AT
CNQ - Canadian Natural Resources
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: $66.00
Buy 2009 $70 LEAP Call OKR-AN
PBR - Petrobras
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: $62
Buy 2009 $70 LEAP Call VDW-AN
DO - Diamond Offshore
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: $98
Buy 2010 $110 LEAP Call VCT-AB
CLB - Core Labs
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: $110
Buy 2009 $120 LEAP Call ZYM-AD
FXI - China Ishares (includes CEO, SNP and PTR)
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: $145
Buy 2009 $160 LEAP Call VHF-AU
SPW - SPX Corp
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
APA - Apache Corporation
Apache was upgraded to 5 stars by Morningstar in late August.
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: $78
Buy 2009 $90 LEAP Call OWF-AR
FWLT - Foster Wheeler
This is a long shot but a great entry if we can get it.
Foster Wheeler Ltd. operates through two business groups, which also constitute its segments: Global Engineering and Construction Group (E&C Group), and Global Power Group. The Global E&C Group designs, engineers and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, oil refining, and chemical and petrochemical, pharmaceutical, biotechnology and healthcare facilities and related infrastructure, including power generation and distribution facilities. Global Power Group designs, manufactures, and erects steam generating and auxiliary equipment for electric power generating stations and industrial facilities worldwide. On April 7, 2006, the Company completed the purchase of the remaining 51% interest in MF Power S.r.L., a joint venture that was 49% owned by the Company's Global E&C Group prior to the acquisition.
Breakdown trigger: $110
BUY 2009 $120 LEAP Call ZHF-AY
NOV - National Oilwell Varco
We want to enter this new position after the 9/28 2:1 split. I am putting the target at $60 to start.
National Oilwell Varco, Inc. (NOV) is a worldwide provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. The Company operates in three segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services. The Rig Technology segment designs, manufactures, sells and services complete systems for the drilling, completion and servicing of oil and gas wells. The Petroleum Services & Supplies segment provides a variety of consumable goods and services used to drill, complete, remediate and workover oil and gas wells, service pipelines, flowlines and other oilfield tubular goods. The Distribution Services segment provides maintenance, repair and operating supplies, and spare parts. In March 2006, NOV acquired Soil Recovery A/S. In November 2006, it acquired Rolligon Ltd. In December 2006, it acquired 87% of NQL Energy Services Inc.
Breakdown Trigger: $65
Buy 2008 Feb $70 Call NOV-BJ
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