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Weekly Newsletter, Saturday, 11/03/2007

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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

Do I Hear $100

It was a great week for shorts. At least it was for shorts in the financial sector. I went to bed Tuesday night with 4 points in my pocket only to wake up Wednesday stopped out and naked. The volatility in crude futures is beyond belief. The monster swings and intraday ranges are leaving both bulls and bear as road kill in their wake.

On Wednesday the December contract hit $96.24 before dropping $4 to $92 at the open. After Friday's close crude climbed back to $96 for a second test of that level. Were it any other time of the year or a different commodity I would be looking at $96 as a double top but I believe we are destined to hit $100 and possibly even higher.

The geopolitical concerns are heating up again. On Friday the news pushing oil higher was a U.N. decision to draft some new sanctions against Iran to pass in November if Iran does not cooperate better with the International Atomic Energy Agency (IAEA). The news articles predicting a U.S. attack on Iran are becoming more numerous and even though the experts claim not a chance the public, including traders, seem to think it is a distinct possibility.

Also adding to the upward pressure was news that the +500,000 increase in production from OPEC slated to begin on November 1st could be delayed by ongoing maintenance at some Middle East fields. I know, you can't make this stuff up. It sounds like a conspiracy novel filled with international intrigue.

Hurricane Noel was also said to be complicating the picture. Evidently the tanker stream heading into the gulf was delayed for several days as Noel crossed from below Cuba through the Caribbean and past the Bahamas. This excuse I believe because no tanker captain is going to drive right through a hurricane and face being put in jail for spilling a million barrels of oil on some Caribbean beach. I am sure there was a parked flotilla of tankers well away from the storm just biding their time. That could easily cause another decline in crude inventories on Wednesday and be the catalyst for tagging $100 for the first time.

You would think $96 oil would be generating massive profits for the oil companies. Unfortunately as we saw last week that was not the case. The high oil prices during a period of slack gasoline demand created a serious squeeze in the crack spreads. That is the difference between what a refiner pays for oil and what they received for the refined products. Using raw numbers the profit on a barrel of oil declined to under $5 last week compared to over $20 several months ago. The crack spread shrinkage is producing profit shrinkage at the refiner level and that includes most of the large integrated producers.

Exxon (XOM) profits fell -10% for its biggest year-over-year decline in three years. Exxon said the cost of crude rose faster than the price of the products and earnings fell by more than $1 billion. Don't feel sorry for them they still pocketed a little over $9 billion in profits for the quarter. Exxon also reported a drop in crude production but that was swept under the carpet in the press releases. Production fell by -2% but if you factor out lost production from being kicked out of Venezuela, OPEC quota cuts, divestments and entitlements production actually rose +3%. Let's see if I understand that. If production in the comparison quarter was 100 barrels and I only produced 98 barrels this quarter then how did my production rise +3%? Obviously I am playing word games here but you get the idea. Production fell. Period. You can put lipstick on it but its still a pig. Exxon attempted to buy its way out of an earnings miss by repurchasing 90 million shares of its stock during the quarter. That is nearly a billion dollars of stock and it increased their earnings per share but not enough to keep them out of trouble. Their 5.4 billion outstanding shares made that a losing proposition. Personally buying 90 million shares a quarter instead of using the money to find and produce more oil is proof that the opportunities for profitable exploration don't exist.

Exxon reported that the Alabama Supreme Court through out a $3.6 billion judgment against Exxon for allegedly underpaying the state royalties for drilling in state waters off the coast. The ruling was 8:1 so this effectively ends the case with only a minor $51 million payment for compensatory damages. I would say that was a big win for Exxon. We were triggered on our Exxon entry when Exxon hit $88 on Thursday.

Chevron (CVX) reported earnings that fell 26%, the steepest decline in five years, to $3.72 billon. Analysts had been expecting some profit shrinkage from $2.29 to $2.07 per share but the $1.75 Chevron posted surprised everyone. Chevron actually lost $110 million in its U.S. refining division. Chevron lost some profits due to refinery fires including one in Mississippi that will not fully reopen until next year. Chevron also saw production slip by 100,000 bpd to an average of 2.6 mbpd. 100,000 bpd x $95 = $9.5 million per day in lost production revenue. Of course some of that was made up by higher prices received on the 2.6 mbpd they did produce but falling production is still the key here.

ConocoPhillips (COP) profits fell to $3.67 billion from $3.88 billion on a $2 billion drop in revenue. Still Conoco managed to repurchase $2.5 billion in stock during the quarter. That equates to about 30 million shares of the 1.6 billion outstanding or just under 2%. That increases their earnings per share by roughly 9 cents meaning their actual earnings per share using the prior outstanding share amounts was 9 cents less than they reported or a miss of -3 cents compared to a claimed beat by +6 cents. A J.P Morgan analyst said their actual earnings were only $1.94 per share after special items instead of the claimed $2.23 per share. Analysts were expecting $2.17 per share. COP said it expected to purchase another $3 billion in shares in Q4. Because of the earnings sleight of hand COP shares did not decline out of their current $85 range. That is a good trick if you can do it. Unfortunately if you are making $3.67 billion per quarter and buying back $3 billion in shares instead of putting that money back to work you will eventually run out of production and the charade will end. On the plus side COP said production should increase 50K to 60Kbpd in Q4. That is not from new exploration but from units returning to production after a summer maintenance cycle.

Sunoco also reported falling earnings from lower production, margin shrinkage and refinery outages. They still managed to buy back 2.8 million shares and continue their own earnings shell game.

On the positive side of the earnings ledger Occidental (OXY) posted earnings that jumped +13% compared to most estimates predicting a decline. OXY posted earnings of $1.58 per share compared to analyst estimates of $1.31 per share. OXY managed to pull off this surprise by increasing production by +7% to 570,000 boe per day. Finally, an oil company that is actually producing more oil instead of spending the money on their own stock.

Hess Corp (HES) missed analyst earnings estimates of $1.36 when they posted only $1.23 in earnings. Same story here with refining margins knocking over $100 million off earnings. HES did manage to increase production by 5,000 bpd to 357,000 bpd.

Captain Kirk may be rethinking his Tesoro acquisition strategy this weekend after TSO fell nearly $10 per share when earnings declined by -83%. The refiner said high oil prices crushed margins and knocked refining profits from $274 million to only $47 million for the current quarter or 34 cents per share. Analysts had been expecting 83 cents. The stock price fell back to $56 even with Kerkorian's announced decision to offer $64 per share for a 20% stake in the company. Not a fun week for Kerkorian. He should have no trouble getting investors to sell him stock for $64 today.

With oil and gas prices rising daily you would think Canada would be celebrating. Instead Alberta is raising taxes on exploration and production companies to the point where drilling which has already slowed will slow even further. Canadian Natural Resources (CNQ) said they would drill as many as 50% fewer wells in Alberta due to the planned royalty increases. This view is going to be the same for most Canadian exploration companies. The new tax structure is different for nearly every well drilled depending on the depth, flow rate at completion and price or oil and gas when it is produced. As prices go higher the royalty percentage goes higher as well. This is a clear example of taxing run amok and squeezing exploration companies and forcing them to drill elsewhere. We have already seen drilling activity fall in Canada as gas prices softened and the tax plan was being discussed. The service companies, SLB, HAL and NBR all warned that revenue was slowing in Canada due to decreased drilling activity. Looks like it will slow even more in the future.

In the Gulf of Mexico several service companies, SLB, HERO, BJS, etc, have said there is a profit squeeze underway due to lower activity levels and less production on completed sites. Roger Read, managing director of Natixis Bleichroeder, said the sector has been absorbing higher operating expenses in the Gulf of Mexico as energy properties become more mature. This is a key sentence: Read said, "The average discovery has dropped by 50% to 60% over the past five years, and costs have almost tripled."

I am starting a new section this week for covered calls using LEAPS. On some of these stocks the LEAP premiums are so large that it makes sense to buy the stocks and sell the leaps. The return on the investment can be very nice with very limited risk. It does require a little more capital but time works in our favor. I am going to start offering some naked LEAP puts on some positions over the next couple weeks. That is the same as a covered call only we won't buy the stock.


December Crude Futures Chart - Weekly

December Natural Gas Futures Chart - Daily

December Gasoline Futures Chart - RBOB Daily

 


Changes in Portfolio

New Energy Plays

None


New Non-Energy Plays
LVS $116.77 Las Vegas Sands

Dropped Plays

None


New Watch List Plays Triggered
XOM $88.05 Exxon Mobil
CAM $98.60 Cameron International

Portfolio Listing & Top Picks


New Plays

Most Recent Plays

LVS - $116.77 Las Vegas Sands

The Sands was knocked for a $40 loss on an earnings miss that most analysts did not understand. The Sands reported a loss of 14 cents per share compared to analyst estimates for a 31 cent profit. The stock was crushed to $109 from its $149 level only a couple days earlier. The loss was blamed on high cost related to the opening of the Venetian Macao in August and a series of lucky runs by some high rollers. A Goldman Sachs analyst, Steven Kent, said very few casino openings go smoothly. The Macao was open only 34 days in the quarter and it is still not entirely completed and in full operation. According to Goldman these results are meaningless.

I am putting the Las Vegas Sands in as our first covered LEAP call. The option premiums are huge on LVS and while I wanted to buy a LEAP I could not justify the $20-30 price tags. Instead we will buy the stock ($117) and sell the $140 LEAP ($20). That makes our breakeven price $97. If we are called away as I expect in Jan-2009 our return will be about 36%. Not bad for a 12-month investment but it is even better (72%) if it is done on margin. Straight margin on the stock side is $60 not counting the income offset from the call premium. If the play goes as expected the cash outlay would be just under $6000 with the profit around $4300 per 100-share contract.

Company Info:

Las Vegas Sands Corp. (LVSC) owns and operates The Venetian Resort Hotel Casino (The Venetian) and The Sands Expo and Convention Center (The Sands Expo Center) in Las Vegas, Nevada, and The Sands Macao Casino (The Sands Macao) in Macao, China. The Company is also in the process of developing additional integrated resorts and properties in Las Vegas and Macao, including The Palazzo Resort Hotel Casino (The Palazzo), which will be adjacent to and connected with The Venetian, The Venetian Macao Resort Hotel Casino (The Venetian Macao) and other casino resort properties on the Cotai Strip in Macao. During the year ended December 31, 2006, the Company was awarded licenses to develop Marina Bay Sands, an integrated resort in Singapore, and Sands Bethworks in Bethlehem, Pennsylvania. It is also exploring other integrated resort opportunities in Asia, Europe and the United States.

Covered LEAP Call

Buy 100 Shares LVS currently $117
Sell 2009 $140 LEAP Call ZAU-AY currently $20.00 No Stop


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New Watch List Plays Triggered
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XOM - $88.05 Exxon Mobil

Exxon imploded on earnings to hit our entry trigger at $88 on Thursday. I am not going to repeat the earnings info here that I spelled out in the commentary above. I am happy with the position at the 100-day average and our worst-case risk should be to the 200-day average at about $83.

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: $88 Hit 11/01

Position: 2009 $100 LEAP Call ODU-AT @ $7.90

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CAM - $98.60 Cameron International

CAM was hammered by earnings misses in the energy sector but responded by posting earnings of its own that rose +69% on a strong increase in demand for its drilling equipment. CAM earned $1.31 per share and analysts were only expecting $1.09. Were it not for misses by other companies CAM would have been off to the races. Instead we were lucky enough to get an entry very close to the low for the week. CAM said its orders received during the quarter rose +5.2% to $1.33 billion and backlog increased 22% to $4.13 billion.

Company Info:

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: $95 Hit 10/30

Position: 2009 $100 LEAP Call OKA-AT @ $18


 


Play Updates

Existing Plays

SLB $98.82 -0.69 - Schlumberger

SLB can't seem to find any traction with every other service company complaining about falling service revenues in Canada and the Gulf of Mexico. SLB has repeatedly said they are swamped with business around the globe and the gulf slowdown is not going to be material to them. Several recent sound bites have said things may be starting to look up in the gulf for Q4 now that hurricane season has passed. No specific news on SLB and resistance at $100 is still firm as is support at the 100-day average at $95.

Breakdown target: $95.00 hit Oct-22nd

Position: 2009 $100 LEAP Call VWY-AT @ $15.60

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CVX $88.48 -3.17 - Chevron

Chevron declined back to near our entry after reporting dismal earnings that fell -26% on weakness in refining profits. With oil at $96 that should not be a problem today. Hopefully the bad news is now priced in and we can start moving higher again after the VLO earnings this week. No stop today.

Breakdown trigger: $87 hit Oct-22nd

Position: 2009 $100 LEAP Call VCH-AT @ $6.40

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OII $72.82 -5.73 Oceaneering International

OII reported earnings that increased 40%, raised full year guidance and gave initial guidance for 2008, all higher. YTD earnings have already surpassed all of 2006. Pricing was up +15% and days on hire increased by 10%. Fleet utilization was 88%. Demand was continuing to rise and the company had only good things to say. The stock price was held down by poor results by others in the sector. Strong support at $70 and no change in the play.

Earnings Nov-1st: +40%

Breakdown trigger: $72 hit on Oct-22nd

Position: APR $80 Call OII-DP @ $5.40

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W-H $55.77 -4.19 Energy Services ** Stop Loss $53 **

That was an ugly week for WHQ. The earnings misses by Exxon, Chevron and others muddied the sector and WHQ suffered. Since WHQ had already warned there was nothing to look forward to when they announced earnings on Tuesday. WHQ beat lowered expectations with $1.11 per share compared to $1.09 estimates by analysts. Earnings were helped by higher revenue in its drilling segment.

I added a stop just in case this decline becomes permanent.

Position: April $65 Call WHQ-DM @ $5.10

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NOV $73.99 +1.49 - National Oilwell Varco

NOV moved sideways for the week after its earnings and considering the misses elsewhere in the sector sideways was some thing to cheer about. No specific news for NOV.

Breakout Trigger: $80, hit 10/11/07

Position: 2008 May $90 Call NON-ER @ $7.20

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MDR - $60.52 +.18 McDermott International

MDR also moved sideways less than $2 from its historic high. No complaints here. MDR said it won a $400 million contract to supply steam generators for a coal fired plant in Illinois. Earnings are this Thursday. No other news.

Earnings schedule: Nov 8th

Breakout trigger: $53, hit 9/20

Position: 2009 $60 LEAP Call OYZ-AL @ $9.00

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UPL $68.20 +0.81 - Ultra Petroleum *** Stop Loss $52 ***

Ultra reported stellar earnings despite some adversity in the sector and sales of a principal asset. Production in the U.S. increased +26% and that was after 12% of the U.S. production was shut in for the quarter. Gas prices in the Rockies were pushed significantly lower by a perfect storm of events not specific to Ultra but Ultra was able to increase margins to 33% and cash flow by 71%. They are on track to increase production by 27% for the year even with the shut ins. The Cheyenne Plains Pipeline had a fire at a major compression station and that took 450 mcf per day of transport capacity offline causing serious problems upstream and the inability to get gas to market. Still Ultra posted a strong quarter. UPL hit a new high on Thursday at $71 before profit taking hit on Friday.

Ultra Petroleum presentation

Breakdown target: $52.50 Hit 8/30

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

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CHK $40.07 +1.26 Chesapeake Energy

CHK blasted off to a new high on Friday after reporting first gas sales from 11 wells on the DFW airport property. CHK said it started production of about 30 mmcf from the first 11 wells to be completed. CHK plans to drill 300-325 wells on the airport and produce up to 1 TCFe from the property. Development costs are said to be in the range of $2 per mcfe. CHK has drilled 33 wells so fat, is completing 18 and has 11 under production. They expect to produce 250 mmcfe per day by year-end 2011. Production is expected to continue for 50 years. Earnings are next Wednesday.

Earnings schedule: Nov 7th

Link to Enercom presentation

Position: 2010 $35 LEAP Call WZY-AG @ $6.60
10/28 Price update: Expired Oct Put +90 cents, $7.50

Insurance put:
Oct $30 Put CHK-VF @ 90 cents. Expired

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HP $31.84 +1.19 Helmerich & Payne *** Stop Loss $27.50 ***

HP rebounded despite no news and has so far eluded our stop. The earnings date was announced for Nov-15th. We still have the insurance put so we are covered against any further declines.

Earnings scheduled for Nov-15th

Enercom presentation here

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

Insurance put:
Position: Nov $30 HP-WF. @ .50, Stop $28.50

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HERO $27.85 +2.81 Hercules Offshore ** Stop Loss $24.00 **

HERO posted strong earnings that rose +63% despite weakness in the gulf. Revenue rose more than 300% due in part to the Todco acquisition. Analysts were surprised by the lower than expected costs and better than expected integration of the Todco assets. Day rates in the Gulf declined by 9% to $77,200 but HERO said there were signs of improvement heading into Q4. Maintain the stop at $24.

Earnings Oct-30th. +63%

Enercom presentation

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

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BHP - $83.73 -2.43 BHP Billiton ** Stop Loss $60.00 **

BHP was all over the map last week and hit a new historic high twice on Monday and Wednesday. The volatility in the global markets is beating BHP like a rented mule but it never strays too far from the highs. BHP does not report quarterly earnings so no earnings risk here until February. No specific news.

Breakdown target: $55 hit 8/15/07

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

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CCJ - $47.59 -2.98 Cameco ** No Stop **

Cameco posted profits that rose +25.4% and roared off to a new 3-month high. That high was short lived before a Russian company (TENEX) requested a renegotiation of their contract for uranium. Basically Tenex said uranium has gone up since we signed the supply agreement and we want more money. CCJ purchases about 7 million pounds of uranium from Tenex annually. That uranium comes from dismantled Russian nuclear weapons. The agreement ends in 2013. To date nearly 12,000 warheads have been dismantled. The 1999 agreement has been modified twice before so this is not unexpected but it did cause a sharp drop in CCJ stock on Thursday. CCJ saw a +2.37 rebound on Friday as the explanation hit the wires.

Earnings schedule: Oct-31st

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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None
 


Leaps Trader Watch List

Dropped Entries

None


New Watch List Entries

None

We keep adding positions very slowly and there is still no correction in crude. I really do not want to chase these entries because a correction could be very ugly and I would rather chase the dip than be caught in it.

Current Watch List

JEC - Jacobs Engineering Group

Jacobs relative strength is making it very hard to target for an entry.

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: $75.00

Buy APR 2008 $85 Call JEC-DQ

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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: $67.50

BUY 2009 $75 LEAP Call VHB-AO

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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. COP announced a new $15 billion buyback at the end of September.

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: $80

Buy 2009 $90 LEAP Call OJP-AR

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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: $54

Buy 2009 $60 LEAP Call VXM-AL

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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: $73.00

Buy 2009 $80 LEAP Call OKR-AP

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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: $80

Buy 2009 $90 LEAP Call VDW-AR

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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: $105

Buy 2009 $110 LEAP Call VCT-AB

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CLB - Core Labs

We may have missed CLB for good. They reported blowout earnings and raised guidance on 10/24.

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: $130

Buy 2009 $140 LEAP Call ZYM-AH

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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: $85

Buy 2009 $90 LEAP Call OWF-AR

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FWLT - Foster Wheeler

This is a long shot but a great entry if we can get it.

Company Info:

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: $135

BUY 2009 $150 LEAP Call ZHF-AW

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FTI - FMC Technologies

Company Info:

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: $57

Buy APR $65 Call FTI-DM

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FXI - iShares FTSE/Xinhua China 25 Index Fund

ETF Info

iShares FTSE/Xinhua China 25 Index Fund (the Fund) 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 China equity market that are available to international investors. The Index consists of Class H and Red Chip shares 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 included in the Index that collectively has an investment profile similar to the Index. The Fund s investment advisor is Barclays Global Fund Advisors.

Breakdown trigger: $190

Buy 2009 $210 LEAP Call VHF-AA

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PTR - PetroChina

I can't stand not being in PTR so I brought it back into the watch list. Eventually there is going to be a correction and I want to capture it when it happens. We may have to wait months but it will come.

Company Info

PetroChina Company Limited (PetroChina) is engaged in a range of activities related to petroleum and natural gas 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 and production of crude oil and natural gas; the refining, transportation, storage and marketing of crude oil and petroleum products; the production and sales of chemical products, and the transmission, marketing and 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). CNPC is the controlling shareholder of the Company with 88.21% shares.

Breakdown trigger $190

Buy 2009 $220 LEAP Call ZJK-AZ
 


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