Table of Contents
Leaps Trader Commentary
All the bears have gone silent. Heck, even the bulls have gone silent. I got a kick out of the TV reporters trying to explain the end of week rally in oil. Bob, what caused that rally in oil yesterday? Bill, we really don't know Bob, there are no fundamentals supporting it. Looks like the new storm in the Atlantic or Turkey crossing the border into Iraq. In other words, I don't know. It was like that all day Thursday and Friday.
The worst thing about it is I don't know either. Nobody does except possibly Merrill Lynch analyst Mary Ann Bartels. She explained after the close on Friday that hedge funds were long oil and commodities and shorting the S&P, Russell and NDX futures. After sounding so knowledgeable she ended her interview by saying Merrill expected oil to pull back next week. Famous last words. Nearly every analyst in the country has expected that for the last 8-weeks and they have been wrong.
I am pretty sure tropical depression 15 now in the Atlantic and 1,000 miles off the coast of Florida and heading east is not a threat to the gulf. By the time you read this it will not even be on the hurricane-tracking map.
Those reporters claiming Turkey was to blame for the new record close may have been half right. Turkey is being terrorized by Kurdish rebels hiding in Iraq. Turkey has warned that they could cross over the border into Iraq to bring the fight to them. If this happens there are worries that oil flows in the pipeline across Turkey from northern Iraq could be at risk.
On the national scene Energy Secretary Samuel Bodman said prices are being driven higher by fundamentals, supply and demand imbalance and not speculation. That is what he is supposed to say. The IEA said on Friday that oil supplies held by the worlds largest industrialized countries had fallen below the 5-year average. That sounds like a fundamental reason for higher prices but that level still provides for about 175 days of demand. That is a long way from a shortage.
I could post a dozen comments here from various analysts that think the slight drop in oil inventories this week was an anomaly and could be corrected next week. Imports for the week fell an average of -350,000 bpd or 2.5 million bbls for the week. Inventories were down -1.7 mb. Since there are a million reasons a tanker can be delayed in its 30-day trip across the ocean it could just be a timing issue rather than some OPEC conspiracy designed to move oil prices higher.
I think it no longer matters if the mythical October decline appears. The cycle has been thrown into disarray and even if it did appear there may not be a rebound into the winter months.
Because prices did not fall on schedule the stock prices for the companies we really wanted to buy have risen out of our range. Without a crash instead of a dip we may have to wait until spring to get our next batch of entries. I know that is not a pleasant thought but I really don't want to buy anything energy related at this level. Oil closed at a new high on Friday. Do you really want to be going long here?
Petrochina (PTR) was up +23 on Friday. This came after Warren Buffet said he significantly reduced his holdings in PTR to only 3.1%. That should be a sell signal, right? You would think but the impending IPO on the Shanghai exchange has Asian investors throwing money at the stock in hopes of the IPO rubbing off on the regular shares. We can scratch that one off of our list. We can take all the Chinese targets off our list since the Asian markets rallied after the weeklong holiday.
The first round of energy earnings begins next week with Noble (NE) and Slumberger (SLB). They should give us a preview of the sector performance.
I am leaving tomorrow to head for Houston where I will get to talk to Boone Pickens, Matthew Simmons and Henry Groppe along with dozens of other oil industry experts. I hope to have some new insights when I return the following week. Until then we will continue to nurture our existing portfolio and gaze wistfully at Petrochina's gains.
November Natural Gas Futures Chart - Daily
November Gasoline Futures Chart - RBOB Daily
Changes in Portfolio
Portfolio Listing & Top Picks
Most Recent Plays
NOV - National Oilwell Varco
NOV split 2:1 at about $74 and we never got a pullback to our breakdown target at $70. The breakout target was hit on Thursday's spike and we are now back in the play. The Thursday sell off knocked NOV back under $80 but I have confidence it will continue higher.
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.
Breakout Trigger: $80, hit 10/11/07
Position: 2008 May $90 Call NON-ER @ $7.20
XLE $77.17 +2.06 Energy Spyder - PUT *** stop at $76.50 ***
That last spike higher on Wednesday got us. I am still going to be short crude on every dip but after two tries on the XLE I am giving up on this position. Even when oil was weak the strength in the service sector was supporting the XLE.
Breakdown Trigger: $74.75 hit 9/25/07
Position: Dec $73 Put XBT-XU @ $3.20, exit $1.96 10/10, -1.24
MDR - $60.87 +2.68 McDermott International
The -$5 dip on Thursday barely slowed MDR and the rebound was almost instant. No news and no earnings date yet.
Breakout trigger: $53, hit 9/20
Position: 2009 $60 LEAP Call OYZ-AL @ $9.00
UPL $66.49 +1.78 - Ultra Petroleum *** Stop Loss $52 ***
Still no weakness in UPL after 4-weeks of gains. Eventually this spike has to fade. No news and no earnings date.
Breakdown target: $52.50 Hit 8/30
Position: Jan 2009 $60 LEAP Call OZH-AL @ $8.00
CHK $37.49 +0.62 Chesapeake Energy
CHK continued to creep up on resistance at $38 on no news other than the announcement of the earnings date. As long as gas prices remain around $7 there is plenty of upside potential. The producers are doing a good job with their curtailments in supporting prices.
Earnings schedule: Nov 7th
Position: 2010 $35 LEAP Call WZY-AG @ $6.60 ** No Stop on LEAP **
HP $32.98 -.11 Helmerich & Payne *** Stop Loss $27.50 ***
HP has gone dormant on the Nabors warning. The dip on Monday was enough to trigger the insurance put so we are covered against any further declines.
Position: Jan 2009 $35 LEAP Call ZQA-AG @ $4.50
HERO $27.70 +0.66 Hercules Offshore ** Stop Loss $24.00 **
Hero continues to improve and earnings have been scheduled for Oct-30th. No other news. Maintain the stop at $24.
Position: 2008 April $30 Call HIQ-DF @ $3.00
GLBL $26.05 -1.69 Global Industries ** Stop Loss $18.50 **
GLBL gave back most lf last week's gains after Acergy failed to hit estimates for the quarter. The booming sector was quickly cooled. No change in play.
Earnings schedule: Nov-1st
Position: 2008 March $25 Call GQO-CE @ $3.30
BHP - $84.75 +5.23 BHP Billiton ** Stop Loss $60.00 **
Off to the races again when Chinese markets rallied after their weeklong holiday. Thursday was another new high on no news.
Breakdown target: $55 hit 8/15/07
Position: 2010 $70 LEAP Call LPH-AN @ $9.00
CCJ - $43.85 +1.30 Cameco ** Stop Loss $30 **
This would be a new entry point for CCJ with a breakout over $44. The decline from the prior week has passed and a rebound is in progress. No news and no change in play.
Earnings schedule: Oct-31st
Breakdown target: $35 Hit 8/16/07
Position: 2010 $50 LEAP Call LTA-AJ @ $7.20
IWM $83.82 -.31 Russell 2000 iShares ** Stop Loss $79.50 **
The Russell paused with the rest of the market to wait for earnings to start next week. A breakout here could double our gains. Maintain the new stop.
Position: Jan $80 Call IOW-AB @ $4.25
BSC $123.16 +8.42 - Bear Stearns *** Stop Loss $110 ***
Unbelievable volatility for two weeks past earnings. +$8 the prior week, -$8 this week. Good thing we don't have a tight stop! With 15+ financials reporting this week we could get a sector bounce. The pessimism is dripping off the banks so an upside surprise is possible.
Breakdown target $100 hit 8/06/07
Position: 2010 $120 LEAP Call YBO-AD @ $25.60
CFC - $18.74 -1.51 Countrywide Financial ** Stop Loss $17 **
CFC reported loan volumes for September that were 44% below Sept-06 but that should not be a surprise to anyone. The speed at which Countrywide has shifted its loan focus to conforming loans surprised analysts. I raised the stop based on the stock probe against Mozilo.
The biggest news was a probe into stock sales by the CEO. Investigators are claiming he manipulated his announced stock sale program to liquidate $138 million in Countrywide stock as the subprime problem came into focus. Mozilo was still selling stock as of Friday.
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: $70.00
Buy APR 2008 $80 Call JEC-DP
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. COP announced a new $15 billion buyback at the end of September.
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: $43
Buy 2009 $50 LEAP Call ZGC-AJ
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: $65
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: $100
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: $115
Buy 2009 $120 LEAP Call ZYM-AD
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: $80
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: $115
BUY 2009 $130 LEAP Call ZHF-AX
OII - Oceaneering International
Oceaneering International, Inc. is a global oilfield provider of engineered services and products primarily to the offshore oil and gas industry, with a focus on deepwater applications. Through the use of its applied technology capabilities, the Company also serves the defense and aerospace industries. The services and products the Company provides to the oil and gas industry include remotely operated vehicles, mobile offshore production systems, built-to-order specialty hardware, engineering and project management, subsea intervention services, nondestructive testing and inspection, and manned diving. Oceaneering International, Inc s business segments are contained within two businesses: services and products provided to the oil and gas industry (Oil and Gas) and all other services and products (Advanced Technologies). In July 2007, the Company announced the acquisition of Ifokus Engineering AS, a Norwegian designer and manufacturer of specialty sub-sea products.
Breakdown trigger: $72
Buy APR $80 Call OII-DP
FTI - FMC Technologies
FMC Technologies, Inc. (FMC Technologies) is a global provider of technology solutions for the energy industry and other industrial markets. The Company designs, manufactures and services systems and products, such as subsea production and processing systems, surface wellhead production systems, high-pressure fluid control equipment, measurement solutions, and marine loading systems for the oil and gas industry. It also produces food processing equipment for the food industry and specialized equipment to service the aviation industry. FMC Technologies business segments are Energy Systems (comprising Energy Production Systems and Energy Processing Systems), FoodTech and Airport Systems. In April 2007, the Company increased its stake in CDS Engineering BV to 91%. In June 2007, the Company acquired Technisys, Inc.
Breakdown Trigger: $50
Buy APR $55 Call FTI-DK
CAM - Cameron International
Cameron International Corp., formerly Cooper Cameron Corporation, is an international manufacturer of oil and gas pressure control and separation equipment, including valves, wellheads, controls, chokes, blowout preventers and assembled systems for oil and gas drilling, production and transmission used in onshore, offshore and subsea applications and provides oil and gas separation, metering and flow measurement equipment. It is also a manufacturer of centrifugal air compressors, integral and separable gas compressors and turbochargers. The Company's operations are organized into three separate business segments: Drilling & Production Systems (DPS), formerly the Cameron segment; Valves & Measurement (V&M), formerly the Cooper Cameron Valves segment, and Compression Systems (CS), formerly the Cooper Compression segment. In January 2006, the Company acquired the assets and liabilities of Caldon Company.
Breakdown target: $85
Buy 2009 $90 LEAP Call OKA- AR
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