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Weekly Newsletter, Saturday, 11/17/2007

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Table of Contents

  1. Commentary
  2. Changes in Portfolio
  3. Portfolio Listing
  4. New Plays
  5. Existing Plays
  6. Watch List

Leaps Trader Commentary

Out With the Old, In With the New

The December crude futures contract is now in the history books and the January 2008 contract is now the current month. The December contract hit a new historic high at $98.62 back on November 7th as the perfect storm of concerns pushed prices towards that elusive $100 mark. The January contract has support at $91 and again at $89.50. It will be interesting to see if the same factors that whipped the December contract into a frenzy will be able to support January.

The OPEC meeting this weekend will be the first news item likely to move prices. OPEC spokesmen have flatly denied that any production items will be discussed and that those concerns will be discussed only at the December meeting. That does not mean every oil minister in attendance won't be stepping up to a microphone for their 5 min of fame once the meeting is over. This could be the first test for the new contract.

Helping to push prices lower was a sharp drop in gasoline demand over the prior week. Demand fell to levels not seen since May due to higher prices. Also depressing prices was a jump in inventory levels of crude by +2 million barrels. There is nothing on the horizon to change those metrics. No storms, no geopolitical storms and the buzz over oil prices seems to have eased. That $100 target is still floating in the distance and I would not count it out yet. October and November are normally the weakest months for crude and we hit new highs instead. Does that mean the normal December strength will continue? We hope so.

It was a volatile week for the LEAPs portfolio. Monday's sharp decline in the stock market triggered several watch list positions. Tuesday's sharp drop in crude hammered those new entries as well as the rest of the portfolio. The rebound in crude for the rest of the week was neutral for stocks although quite a few were up strongly on Friday as the contract changed.

We now have a full portfolio and analysts upgraded oil stocks on Friday saying even a drop in oil prices would still leave crude at historic highs and be very beneficial to exploration efforts and profits. When you think about it a simple 10% correction would only take us back to $88.76 and that was the historic high on this contract until three-weeks ago. It is also decent support so bring it on! Give everyone else a buying opportunity and we will ride out any volatility. Unfortunately most of the current entries have so much volatility built in we can't afford to by insurance puts. We will just grin and bear it. You can always sell calls against your leap for added insurance.

The high price of oil has prompted the press to run a flurry of stories on peak oil. None of which have been accurate but at least they are moving in that direction. We are going to offer a DVD in the end of year renewal special on the coming Oil Apocalypse that was done very well. The Q3 earnings reports gave us a view into the production shortfalls of the major players. Year to date production from Conoco is down -80,000 bpd, Shell -69,000 bpd, BP down -100,000 bpd and Exxon -23,000 bpd. That may not sound like much but it is the perfect picture of depletion. Those numbers take on a much larger meaning when you start comparing years instead of quarters. Since 2004 Conoco's production is down -14%, BP -8% and Shell -18%. Record high oil prices and production continues to fall. Even an idiot could see how this story is going to end.

I am going to cut this commentary short this week because I have a lot of stocks to cover today. If you have not taken advantage of these new entries I would suggest picking your favorites and trying some dip buying over the coming weeks.


January Crude Futures Chart - Daily

December Natural Gas Futures Chart - Daily

December Gasoline Futures Chart - RBOB 90-min

 


Changes in Portfolio

New Energy Plays
PBR $105.45 Petrobras *** Stop Loss $87 ***
SGR   Shaw Group *** Stop Loss $55 ***

New Non-Energy Plays
CSCO $29.94 Cisco Systems *** Stop Loss $27 ***
RIMM $107.53 Research in Motion *** Covered Call ***

Dropped Plays

None


New Watch List Plays Triggered
JEC $77.90 Jacobs Engineering Group *** Stop Loss $70 ***
VLO $67.66 Valero Energy *** Stop Loss $64.00 ***
COP $78.92 Conoco Phillips *** Stop Loss $74.00 ***
MRO $57.42 Marathon Oil *** Stop Loss $53.50 ***
CNQ $72.67 Canadian Natural Resources  
CLB $132.25 Core Labs  
FTI $54.54 FMC Technologies *** Stop Loss $49 ***

Portfolio Listing & Top Picks


New Plays

Most Recent Plays

PBR $105.45 - Petrobras *** Stop Loss $87 ***

I recommended entering the Petrobras position in the Monday night alert after it declined to close at $95. We saw a rebound on Wednesday to just under $110 and then the oil volatility knocked it back again. I really like Petrobras. They are rapidly becoming the biggest deep-water driller/producer around the world. They are not just drilling off the coast of Brazil but everywhere there is exploration potential. Their recent announcement of an 8 billion barrel find at 23,000 ft deep in 10,000 feet of water is just another example.

Because of the volatility in oil and in Petrobras itself over the last two weeks we can't afford to buy put insurance. I would be comfortable selling a short-term call against your LEAP but I am not going to recommend a specific strike here. Let your conscience be your guide.

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.

LEAPs Alert Entry 11/12 @ $95

Position: 2009 $90 LEAP Call VDW-AR @ $17.10

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SGR - Shaw Group *** Stop Loss $55 ***

The Shaw Group is service provider to the energy, chemical, environmental and infrastructure industries. Basically they build things like power plants, pipelines, platforms and lots of infrastructure to the energy sector. Reportedly they are currently bidding or preparing bids on over $1 trillion in projects. The mammoth scale of the current requirements around the globe is staggering. They have been one of the sleeper momentum stocks with very little press. They were off about 22% in three days to close at $61 on Monday. There is strong support at $60 and the 100-day average at $57. I recommended Shaw Group on Monday night after the big drop. Because they are not specifically oil based they do not react directly to the volatility in oil prices. I suggested spending the extra $6 to go to 2010 instead of 2009 LEAPs.

Company Info:
The Shaw Group, Inc. provides engineering, design, construction, and maintenance services to energy, environmental, infrastructure, and emergency response markets worldwide. The company has four segments: Environmental and Infrastructure (E&I), Energy and Chemicals (E&C), Fabrication and Manufacturing (F&M), and Maintenance. The E&I segment offers various services, including the identification of contaminants in soil, air and water, as well as the subsequent design and execution of remedial solutions; and project and facilities management and other related services for non-environmental construction, watershed restoration, emergency response services, and outsourcing of privatization markets. It primarily serves federal, state, and local agency clients, as well as private sector. The E&C segment provides a range of project-related services, including design, engineering, construction, procurement, technology, and consulting services primarily to the energy and chemical industries. The F&M segment engages in the supply of fabricated piping systems for energy generation facilities; and fabrication of piping systems, as well as provides a range of engineering, procurement, and construction services for chemical customers worldwide. The Maintenance segment offers routine and outage/turnaround maintenance services, including restorative, repair, renovation, modification, and predictive and preventative maintenance services, as well as small project capital construction services, tank design construction and maintenance, insulation, painting, and scaffolding services to customers in the energy and chemical industries. The Shaw Group offers its products and services primarily to multi-national industrial corporations, regulated utilities, independent and merchant energy providers, governmental agencies, and equipment manufacturers. The company was founded in 1987 and is headquartered in Baton Rouge, Louisiana.
LEAPs Alert Entry 11/12 @ $61

Position: 2010 $70 LEAP Call YCW-AN @ $20.40

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New Watch List Plays Triggered
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JEC $77.90 Jacobs Engineering Group *** Stop Loss $70 ***

Check any news source on the web and you will find dozens of articles of contract awards to Jacobs. Their Q3 profits rose +43% and they raised guidance for all of 2008. JEC hit our breakdown target of $80 on Monday's market implosion and then remained volatile for the rest of the week. Support is $75.

Jacobs Engineering Group Inc. announced that it will host a live internet broadcast of its presentation to financial analysts in New York City on Tuesday, November 20, 2007. The presentation will focus on results for Fiscal Year 2007 and the outlook for Fiscal Year 2008. Interested parties can view slides and listen to the presentation, which begins at 8:00 a.m. Eastern Time, by logging onto the Internet at http://www.jacobs.com. An archived version will be available at the same site within a few hours of the presentation's completion and will remain accessible through Tuesday, November 27, 2007.

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: $80.00 Hit 11/12

Buy APR 2008 $90 Call JEC-DR @ $6.50

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VLO $67.66 Valero Energy *** Stop Loss $64.00 **

We finally got the dip on Valero but with all the worry over refiner margins I am not sure we still want it. I am adding a stop at $64 and we will play what the market gives us. We were triggered on this entry when it touched $67.50 on Monday.

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 Hit 11/12

Position: 2009 $75 LEAP Call VHB-AO @ $10.00

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

COP $78.92 Conoco Phillips *** Stop Loss $74.00 ***

We were triggered on Conoco when it hit our $80 entry on Monday. The weakness in Conoco is from the low crack spreads on high priced crude. It will change once crude begins to fall. 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 hit 11/12

Position: 2009 $90 LEAP Call OJP-AR @ $8.60

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MRO $57.42 - Marathon Oil *** Stop Loss $53.50 ***

Marathon fell to hit our trigger at $57 on Tuesday and selling continued to touch the 200-day average at $55 before the rebound began. I believe the 200-day is decent support and I put a stop under that Tuesday low.

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: $57 Hit 11/13

Position: 2009 $65 LEAP Call VXM-AM @ $7.50

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

CNQ $72.67 Canadian Natural Resources

CNQ performed an almost textbook drop to the 100-day average and immediately found buyers. I don't think we could have asked for a better entry.

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: $75.50 11/12 email alert

Position: 2009 $90 LEAP Call OKR-AR @ $9.10

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

CLB $132.25 - Core Labs

We got a gift from Core Labs when it fell -$25 off its highs to give us our entry at $130. That was exactly the 50-day average and strong support it appears from the quick stop.

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 11/12

Position: 2009 $140 LEAP Call ZYM-AH @ $21.30

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

FTI $54.54 FMC Technologies *** Stop Loss $49 ***

FTI split the difference between the 50-day and 100-day to give us our entry. So far it has failed to give up support at $54 despite the weak market. I am putting a stop at $49 just in case.

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 hit 11/12

Position: APR $65 Call FTI-DM @ $4.75

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New Non-Energy Plays
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CSCO $29.94 Cisco Systems *** Stop Loss $27 ***

Cisco gave back almost 20% post earnings but was actually positive on Monday. I think Cisco is in the right spot globally even if U.S. sales are lagging. The stock is cheap and the options are cheap. I added them to the portfolio in Monday's alert. As long as they stay over the 200-day average at $29 we are in good shape.

Company Info:

Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol-based networking and other products relating to the communications and information technology industry worldwide. The company offers routers that interconnect computer networks and moving information between networks; switching systems, which provide connectivity to end users, workstations, and servers; application networking solutions to deploy and deliver business applications; home networking products, such as voice and data modems, network cards, media adapters, Internet video cameras, network storage, and USB adapters; hosted small-business systems, including integrated voice and data products; and Cisco security solutions to protect information systems. It also provides storage area networking products that deliver connectivity between servers and storage systems; unified communication products, which integrate voice, video, data, and mobile applications on fixed and mobile networks; video systems, including digital set-top boxes and digital media technology products; and in-building and outdoor wireless networking products. Further, the company offers cable access, service provider VoIP services, and optical networking products. It provides its products and services through its direct sales force, systems integrators, service providers, resellers, distributors, and retail partners to large enterprises, small and medium-sized businesses, and small/home offices.

Alert entry 11/12 @ $29.11

Position: 2009 $30 LEAP Call VYC-AF @ $5.00

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

RIMM $107.53 Research in Motion *** Covered Call ***

RIMM was been knocked back from $137 to $102 on absolutely no news. RIMM options are extremely expensive and that gives us the opportunity to profit by adding RIMM as a covered call. RIMM was $102, the $150 LEAP was $18.50. If RIMM moves over $150 by next January that gives us $48 in stock appreciation and $18 in premium received. That is $66 profit on a $102 stock. I cannot conceive that RIMM will not continue higher since they are just breaking into the Asian markets and their new products in the U.S. are selling like hotcakes.

Company Info:

Research In Motion Limited engages in the design, manufacture, and marketing of wireless solutions for the mobile communications market worldwide. It provides platforms and solutions for access to email, phone, short messaging service, Internet, and Intranet-based applications. The company offers technology that enables third party developers and manufacturers to enhance their products and services with wireless connectivity to data. Its portfolio of products includes BlackBerry wireless platform, the RIM Wireless Handhelds product line, software development tools, radio-modems, and other hardware and software products. The company's BlackBerry wireless solution comprises wireless devices, software, and services. It also enables the use of personal information management functions, such as calendar, address book, task list, and other functions associated with personal organizers. The company also offers BlackBerry Mobile Data System that allows users to access data from enterprise applications and the Internet; and BlackBerry Internet Service, which allows the integration of up to 10 supported email accounts on the same BlackBerry smartphone. Research In Motion also licenses BES software, as well as offers client access licenses, technical support, and upgrades. The company distributes its products through carrier partners and resellers. Research In Motion was founded in 1984 and is headquartered in Waterloo, Canada.

Alert entry 11/12 @ $29

Covered LEAP Call:

LONG RIMM currently $102.60
SHORT 2009 $150 LEAP Call XTB-AJ @ $18.50


 


Play Updates

Existing Plays

FWLT $140.50 -10.27 - Foster Wheeler

The volatility in FWLT is incredibly strong with $15 moves every other day. So far the support at our entry point of $135 is holding. Once the market quits selling the momentum stocks we should be in business.

The board just approved a 2:1 split subject to shareholder approval around January 8th.

Breakdown trigger: $135 hit 11/06

Position: 2009 $150 LEAP Call ZHF-AW @ $29.10

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FXI $178.37 -3.63 FTSE/Xinhua China 25 Fund *** Stop $165 ***

The weakness in the Chinese markets is continuing but the FXI appears to have found support at $180. 1.3 billion Chinese will be buying stocks again soon.

The FXI has PTR, CEO and SNP as components making it an energy mutual fund with 22 other China stocks for added benefit.

Breakdown trigger: $190 hit 11/05

Position: 2009 $210 LEAP Call VHF-AA @ $32.50

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PTR $189.90 -11.99 - PetroChina *** Stop Loss $170 ***

PTR is holding at our entry point of $190 and waiting for the Chinese markets to recover. No change in play.

Previous commentary:

After a $75 drop on profit taking we finally got an entry on PTR once again. The entry target was $190 and the stock declined to 190.32. Before I could get an email alert out to readers PTR rebounded to $194. The impact on the LEAP was minimal since it had not really adjusted to the low level from its recent price drop. PTR was called the first trillion-dollar stock last week after going public in Shanghai for $9 billion. Exxon is the second largest at $488 billion in market cap. Petrochina is seen as the figurehead for the Chinese stock market bubble. With earnings only half that of Exxon but twice the market cap it suggests one of those valuations is terribly wrong. Obviously it is PTR but with 1.3 billion wannabe investors in China and the Shanghai share price of only 59 cents it is very easy for buyers to afford it even at the trillion-dollar market cap. Granted there is a lot of fluff in PTR right now but eventually the Chinese markets will rebound.

Breakdown trigger $194.32 Entered on rebound from $190 on 11/08

Position: 2009 $220 LEAP Call ZJK-AZ @ $32.20

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

XOM - $85.10 -1.75 Exxon Mobil

Exxon continues to be volatile and declined with oil prices to $85 and did not recover. Our worst-case risk came to pass at just above the 200-day average of $83.25. XOM is holding at $85 and passing time.

Breakdown trigger: $88 Hit 11/01

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

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

CAM - $89.33 -$6.09 Cameron International *** Stop Loss $83 ***

I am disappointed with CAM for breaking the 50-day but glad it chose not to break the 100-day average at $86. That should be the worst case but of course that remains to be seen.

Breakdown target: $95 Hit 10/30

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

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

SLB $93.46 -1.30 - Schlumberger

No specific news on SLB and resistance at $100 is still firm but support at the 100-day average of $95 broke on the market implosion on Monday. We have risk to $85. but $90 appears to be holding. No specific news.

Breakdown target: $95.00 hit Oct-22nd

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

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

CVX $85.98 -1.28 - Chevron

Chevron was upgraded by UBS on Friday from sell to hold. I guess we should appreciate small favors in a rocky market. No other news and we are still well above the 200-day at $82.50. We are only down -$1 from our entry point at $87. No stop today.

Breakdown trigger: $87 hit Oct-22nd

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

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OII $66.01 -2.99 Oceaneering International

OII gave up ground with the rest of the sector on Monday and fought all week to get it back. Monday's support test at $62 dates back to early August. Hopefully it will hold.

Earnings Nov-1st: +40%

Breakdown trigger: $72 hit on Oct-22nd

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

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

NOV $64.44 -6.69 - National Oilwell Varco

NOV was one of the strongest momentum stocks of 2007 and that momentum finally failed on Monday. Support at $70 was crushed for a -$10 intraweek dip. NOV recovered somewhat by Friday's close but it was still an ugly week. NOV is resting on its 100-day average at $64 but that won't help if the market does not recover. I am holding on to NOV because our option premium at risk is only $3.20. If the market recovers we could easily double that with any material momentum recovery.

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

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

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

MDR - $50.01 -6.12 McDermott Intl *** Stop Loss $45 ***

MDR cracked support with the rest of the services sector and fell -$6 for the week. Resting solidly at the 100-day at $50 I am hoping the worst is over. They were upgraded to a buy on Wednesday by Calyon Securities.

Earnings: Nov 8th, +37%

Breakout trigger: $53, hit 9/20

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

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UPL $66.88 -0.22 - Ultra Petroleum *** Stop Loss $62 ***

Ultra traded sideways for the week on rising gas prices and was one of the best performers in the portfolio. Definitely no complaints. No news.

Breakdown target: $52.50 Hit 8/30

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

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CHK $38.18 -2.04 Chesapeake Energy

CHK crumbled on Monday on no news and failed to recover. This was likely profit taking with the sector from the record high set the prior week. With gas prices rising any drop in CHK should be short lived.

Earnings: Nov 7th -34%, beat by 3 cents.

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

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

HP $34.08 +1.92 Helmerich & Payne *** Stop Loss $29.50 ***

HP reported strong earnings and rocketed to a new 2-month high on Friday. Just when the service stocks were falling to new depths it is nice to have one stock defying gravity.

Earnings: Nov-15th, +18%, beat street by +6 cents at 93 cents

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

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

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

HERO $26.36 +.26 Hercules Offshore ** Stop Loss $24.00 **

Insider buying in HERO helped lift it from the Monday sell off. No other news. Maintain the stop at $24.

Earnings Oct-30th. +63%

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

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

BHP - $74.73 -1.08 BHP Billiton ** Stop Loss $60.00 **

BHP fell $16 after it said it wanted to buy RTP for $174 billion. Late this week rumors were circulating that RTP may be considering an offer for BHP in what is called the Pac Man defense to a hostile takeover. The Pac Man defense is named for a 1980s video game where a smiley face runs around gobbling up evil icons until time expires and those icons begin to chase the Pac Man in return. BHP has twice the market cap of RTP and late Friday analysts were saying RTP would not try to fend off its rival using the Pac Man defense. They said BHP has more credit and could probably outbid RTP and the deal would come down to who the investors wanted to run the combined companies. Secondly if RTP bought BHP it would have to cede some control to an Australian headquarters and analysts don't think that would fly with English investors. I would expect continued weakness in BHP until the current bid process for RTP runs its course. A successful bid or a cancellation of the bid should give the stock a boost. It is the indecision that creates weakness.

Breakdown target: $55 hit 8/15/07

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

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

CCJ - $42.28 -4.95 Cameco ** Stop loss $40 **

What the heck? I was shocked when CCJ did not recover from the Monday meltdown like the rest of the energy sector. Initial support at $44 cracked and quickly became resistance that could not be broken. There was absolutely no news and I have to think it was just the same profit taking that hammered the solar stocks early in the week. Currently holding at $42 I am going to place a stop at $40.

Earnings: 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


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Covered LEAP Calls
****************************

LVS - $118.76 +2.85 Las Vegas Sands

The Sands continued its rebound and appears poised to break current resistance at $120 on any return to a positive market. They announced last week the planned Dec-20th opening of the Palazzo Hotel and Casino in Vegas. Reportedly this will be the most luxurious hotel in Vegas. No change in play.

Covered LEAP Call

LONG: 100 Shares LVS currently $117
SHORT: 2009 $140 LEAP Call ZAU-AY @ $20.00 No Stop

 


Leaps Trader Watch List

Dropped Entries

None


New Watch List Entries
BHI Baker Hughes
DNR Denbury Resources
FLR Fluor Corp

Current Watch List

BHI - Baker Hughes

Cratered with the service sector despite a good outlook from the company.

Company Info:

Baker Hughes Incorporated supplies products and technology services, and systems to the oil and natural gas industries worldwide. It operates in two segments, Drilling and Evaluation and Completion and Production. The Drilling and Evaluation segment provides products and services used to drill and evaluate oil and natural gas wells. Its products include drilling fluids, completion fluids, drill bits, and fixed-cutter polycrystalline diamond compact bits. This segment also offers fluids environmental services; drilling and evaluation services, which include directional drilling, measurement-while-drilling, and logging-while-drilling services; and formation evaluation and wireline completion, and production services. The Completion and Production segment provides wellbore construction, cased-hole completions, sand control and wellbore intervention solutions, as well as offers oilfield chemical programs for drilling, well stimulation, production, pipeline transportation, and maintenance programs. The segment also provides electrical submersible pump systems and progressing cavity pump systems. In addition, the company offers permanent monitoring systems and chemical automation systems. Baker Hughes offers its products primarily through its sales organizations, as well as through supply stores, independent distributors, agents, licensees, or sales representatives. The company was founded in 1972 and is headquartered in Houston, Texas.

Breakdown target: $75

Buy 2009 $80 LEAP Call VBH-AP

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DNR - Denbury Resources

Company Info:

Denbury Resources, Inc. engages in the acquisition, development, operation, and exploration of oil and natural gas properties in the Gulf Coast region of the United States, primarily in Louisiana, Mississippi, Alabama, and Texas. It holds interests in the Barnett Shale area in north central Texas; land and marshes of south Louisiana; and carbon dioxide reserves in the east of the Mississippi river. As of December 31, 2006, the company had 721 gross oil producing wells and 402 gross natural gas producing wells; and approximately 126,185 MBbls of proved oil reserves and 288,826 MMcf of proved natural gas reserves. Denbury Resources was founded in 1951 and is headquartered in Plano, Texas.


Breakdown trigger: $50

Buy June $60 Call DNR-FL

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FLR - Fluor Corp

Company Info:

Fluor Corporation, through its subsidiaries, provides engineering, procurement, and construction and maintenance (EPCM) services worldwide. It has five segments: Oil & Gas, Industrial & Infrastructure, Government, Global Services, and Power. The Oil & Gas segment offers design, EPCM, and project management services to upstream oil and gas production, downstream refining, and integrated petrochemicals industries. It also provides consulting services ranging from feasibility studies to process assessment to project finance structuring and studies. The Industrial & Infrastructure segment provides design and EPCM, as well as consulting, planning, structuring, engineering, and construction management services to the transportation, mining, life sciences, telecommunications, manufacturing, commercial and institutional, microelectronics, and healthcare sectors with respect to new construction and refurbishment of existing facilities. The Government segment provides project management services to the United States government, focusing on the departments of energy, homeland security, and defense. The Global Services segment offers operations and maintenance, small capital project execution, site equipment and tool services, industrial fleet outsourcing, plant turnaround services, temporary staffing, materials and subcontract procurement, and construction-related support services. The Power segment provides EPCM, program management, start-up, and commissioning services to the gas, solid fuel, nuclear, and plant betterment markets. The company also operates independently and as a subcontractor, providing unionized management and construction services in the United States and Canada. Fluor Corporation was founded in 1912 and is headquartered in Irving, Texas.

Breakdown trigger: $125

Buy 2009 $140 LEAP Call XOB-AH

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APA - Apache Corporation

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

Company Info:

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: $90

Buy 2009 $90 LEAP Call OWF-AT

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RIG - Transocean Inc

Transocean is merging with Global Sante Fe (GSF), The merger is planned to be completed by year end. This will be a much larger and more diverse company and something we should own.

Transocean's pseudo-takeover offers shareholders no premium, but the $15 billion payout is a compelling concession. For each Transocean share, shareholders will get $33.03 per share and 0.70 share of the new company's stock. Meanwhile, for each GlobalSanteFe share, shareholders will get $22.46 in cash and a 0.48 share. In total, the companies will shell out $15 billion in cash, funded by a bridge loan from Goldman, Sachs and Lehman Brothers -- in other words, the pay-day will be funded by debt. The combined company will use the first two years of free cash flow to reduce its borrowings.

Company Info:

Transocean Inc. (Transocean) is an international provider of offshore contract drilling services for oil and gas wells. As of February 2, 2007, the Company owned/had partial ownership interests in, or operated 89 mobile offshore and barge drilling units. Its fleet included 32 high-specification semisubmersibles and drillships (high-specification floaters), 20 other floaters, 25 jackups and four other rigs as of February 2, 2007. As of February 2, 2007, Transocean also had three high-specification floaters under construction. The Company s primary business is to contract these drilling rigs, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells. Transocean also provides additional services, including integrated services.

No trigger until the RIG/GSF merger is done. The stock symbol will stay the same but the price will be materially different. We will enter after the deal closes.
 


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