DO - $74.67 - Diamond Offshore
Diamond is holding its gains and the news of the BP find in the deep water means a lot more drilling over the next ten years. Oil prices are impacting the stock price but $70 is strong support.
Maintain a $60 profit stop on the October $70 insurance put.
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's 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 private and independent oil and gas companies and government-owned oil companies.
Breakdown target triggered @ $70 (8/29)
CSX - $30.30 - CSX Corp
CSX held its gains giving up only 9 cents for the week despite the failure of transports in general. No complaints here!
To be on the cautious side let's take out insurance against a September correction. The November $30 put gives us almost dollar for dollar protection well into Q4. If support at $29.50 breaks we could easily see $24-$26. This could give us a nice return and a free ride into 2009.
CSX Corporation (CSX) based in Jacksonville, Florida, owns companies providing rail, intermodal and rail-to-truck transload services that combine to form transportation companies, connecting more than 70 ocean, river and lake ports. CSX's principal operating company, CSX Transportation Inc. (CSXT), operates the railroad in the eastern United States with approximately 21,000-mile rail network linking commercial markets in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec. CSX Intermodal Inc. (Intermodal) is a coast-to-coast intermodal transportation provider, an integrated intermodal company serving customers from origin to destination with its own truck and terminal operations, plus a dedicated domestic container fleet. Containers and trailers are loaded and unloaded from trains, with trucks providing the link between intermodal terminals and the customer.
Position: 2009 $35 LEAP Call OBC-AG @ $4.90
WLT - $51.70 - Walter Industries
Walter bled about -$3 for the week but still has a far better looking chart than the rest of the coal sector. Just in case I am adding an insurance put all the way out in December. This will allow me to sleep at night if coal implodes like housing. Strong support at $40 is possible so better safe than sorry.
Walter Industries, Inc. (Walter) is a diversified company with seven operating segments: Mueller, Anvil, Industrial Products, Natural Resources, Homebuilding, Financing and Other. The Company's seven segments are further grouped into Water Products, Natural Resources, Homebuilding and Financing, and Other. The Water Products group, which consists of Mueller, Anvil and Industrial Products segments, manufactures water infrastructure and flow control products. The Natural Resources segment consists of coal mining and methane gas operations. Walter markets and supervises the construction of detached, single-family residential homes, primarily in the southern United States, through the Homebuilding segment. The Financing segment provides mortgage financing on such homes and purchases mortgages originated by others. The Other segment includes the manufacturing of foundry and furnace coke, slag fiber and specialty chemicals, as well as the Company's land division.
Breakout target: $52 triggered 8/23
Entered $52 8/23
ATPG - $38.78 - ATP Oil and Gas Corp ** No Stop **
ATP held its gains and even tried to move higher before being scuttled on Friday. I removed the stop now that we have an insurance put and we can rest easy.
Insurance put: No stop on the put.
ATP is getting plenty of airtime. Cramer had an on-air interview with the CFO of ATP. You can watch the video here after a brief commercial interlude. Definitely a compelling case to buy ATP. http://tinyurl.com/nm3rw
Entry $38.16 (8/20)
ACI - $30.31 - Arch Coal Inc ** Closed **
Arch crumbled below support at $32 and triggered the profit stop on the insurance put. We exited for $3 for a profit of $1.50. This reduced the cost in the LEAP from $4.20 to $2.70. The LEAP closed at $2 on Friday giving us a -70 cent loss.
With coal turning blacker by the day I elected to take the small lump and exit.
The CEO said in an interview on June 28th that a lot of legacy contracts were expiring soon and that had great implications for their bottom line. Arch saw profits jump 10-fold in the first quarter as new contracts took effect. He said coal would be so short that users would want to secure future contracts to guarantee supply. Coal prices have risen sharply since 2004 doubling in most US basins and tripling in some. Because Arch sells its coal under long-term contracts it has yet to see these prices. Customers of Arch had been locked in at 2003 prices. He said over the next three years the vast majority of their contracts would expire. He said Arch would be selective on which they would renew at current prices. With a strong balance sheet they can take a different view of sales. He said it was the best environment seen in over 20 years for coal. The US currently has 310 gigawatts of electric power and 50% is fired by coal. The US is adding 90 gigawatts with 20 GW being completed by 2010. This will consume another 65 million tons of coal or an increase of roughly 6.5% over current production not counting increases in other areas.
Arch Coal, Inc. operates as a coal producer in the United States. The Company's primary business is the production of steam and metallurgical coal from surface and underground mines throughout the United States, for sale to utility, industrial and export markets. Its mines are located in southern West Virginia, eastern Kentucky, Virginia, southern Wyoming, Colorado and Utah. As of December 31, 2005, it operated 21 mines, and controlled approximately 3.1 billion tons of proven and probable coal reserves. During the year ended December 31, 2005, the Company sold approximately 140.2 million tons of coal. The Company has three business segments, which are based on the low-sulfur coal producing regions in the United States, in which the Company has operations. These segments are the Central Appalachia region, the Powder River Basin and the Western Bituminous region. On December 31, 2005, the Company sold its 100% interest in Hobet Mining, Inc., Apogee Coal Company and Catenary Coal Company.
Insurance Put 8/06
Entry $36.50 (7/14)
MDR - $47.60 - McDermott ** Stop loss $38 **
Definitely no complaints here. MDR did give back some gains as anything related to oil took a beating. We have a September $45 put that should expire worthless unless the bottom really falls out. I am not going to put a stop on it but try and hold it for the $1.40 we have in it if MDR takes a dive before Friday. Personally I would be willing to take a buck if we can get it. MDR has been so strong I hate to spend another $1.40 for October protection but November is too expensive at $2.30. I hate to step down to $40 in November because that is very strong support. If we don't take our opportunity this week and MDR takes another -$3 dive then our October put possibility becomes too expensive as well.
I considered selling a call instead but should a hurricane appear headed for the Gulf we could see a strong bounce in MDR. That leaves me with only a stop on MDR or the October $45 put as viable options. I am electing to go with the October put.
Buy October $45 Put MDR-VI currently $1.40
Current recommendation: Buy @ $43
J. Ray McDermott is a leading provider of engineering, procurement, construction, and installation services for offshore oil and gas field developments worldwide. McDermott International, Inc. is a leading worldwide energy services company. McDermott's subsidiaries provide engineering, construction, installation, procurement, research, manufacturing, environmental systems, project management and facility management services to a variety of customers in the energy and power industries, including the U.S. Department of Energy.
3:2 split on June 1st reduced the strike price by 1/3 and increased the contract size to 150 shares.
Position 2007 $70 LEAP Call OYZ-AN @ $8.50
Position: August $36.625 Put MHH-TV @ $2.00, 6/13,
Position: June $60 Put MDR-RL @ $1.25 (5/22)
PTR - $107.44 - Petrochina ** No Stop **
PTR gave up -$5 and put our $110 put into the money. If the decline continues into next week we should hit our profit stop at $106 for close to a double on the put premium. I want to buy a December $100 put first think Monday morning. I don't see any relief for oil and I think that would be a wise move.
We have a 2008 LEAP and PTR could be $200 before expiration. As long as we maintain the positive trend the long-term price of oil should be our salvation.
Maintain a profit stop on the Sept insurance put at $106
Buy December $100 Put PTR-XT currently $2.20, no stop
Earnings schedule: August 24th, $10.1 billion, +29%
Petrochina is the fourth largest energy company in the world. It is a government monopoly but it acts like an independent. PTR is aggressively acquiring leases and rapidly expanding its drilling program. It currently has over 10.9 billion bbls of proven reserves and more than 44 TCF of gas. Warren Buffet owns $2.3 billion of PTR stock. It trades at less than $12 per BOE and has a 3.5% dividend yield. PTR owns 14,000 service stations and has 2,900 franchised stations. It is majority owned by China and has unlimited capital for expansion if China likes the deal. I expect several acquisitions by PTR over the next couple years but with a $208 billion market cap and China as the owner it will not be a target itself. China would never give up control of those oil assets. PTR saw its output rise +6.3% in Q1 to 267.7 million bbls when most companies were posting declines in reserves and production. Gas output rose +35.6%. PTR owns 75% of the oil and gas reserves in China and supplies 40% of its needs. This is as close to a permanent lock on a profit as we can get given the rapid growth of China's economy.
Cramer has been pounding the table on PTR saying it was not afraid to drill in communist countries, places torn apart by strife or run by two-bit dictators like Chavez or Morales. With the Chinese government and military behind it there is little chance of somebody trying to confiscate PTR assets.
PetroChina Company Limited operates a range of petroleum and related activities through four primary business segments: Exploration and Production Segment, Refining and Marketing Segment, Chemicals and Marketing Segment, and Natural Gas and Pipeline Segment. The activities include the exploration, development, production and sales of crude oil and natural gas; the refining, transportation, storage and marketing of crude oil and petroleum products; the production and sales of basic petrochemical products, derivative chemical products and other chemical products, and the transmission of natural gas, crude oil and refined products, and the sales of natural gas.
Position: 2008 $120 LEAP Call LJC-AD @ $16.20
Insurance put: (8/13)
Insurance combo: Closed
Insurance puts: (Closed 6/7)
Entry 5/14 $116.20
BTU - $38.64 - Peabody Energy ** Stopped $39 **
That was really ugly. BTU took a -$6 point header in three days on the collapse in natural gas prices and a warning that it would ship less coal than previously expected. Peabody warned that 2006 production could come in at the lower end of its prior forecast due to equipment problems and problems at one supplier location. Support at $43 evaporated.
We took s severe beating in BTU due mostly to several reversals of direction early in the play where our stops on covered calls were hit on strong gaps higher when coal was in favor.
BTU announced the acquisition of Australia's Excel Coal for $1.4 billion. The market liked the deal and BTU rose on the announcement. Excel is expected to boost its production from 5.6 million tons in 2005 to 15 million tons in 2007. BTU already produces about 60 million tons per quarter so at 2007 levels Excel will amount to about 6% of the 255 million ton total. The key to the equation is the distance from Australia to the high-demand markets like India and China as well as the volume of metallurgical coal Excel produces. If BTU is on the acquisition path James River (JRCC) and Foundation (FCL) have been rumored as targets as well as Massey Energy (MEE) and Consol Energy (CNX). Those would require a much stronger investment and face some regulatory hurdles.
We have been unbelievably unlucky on our insurance puts on BTU. Every one was filled near the highs for the day, low for BTU, and was followed promptly by a strong jump in BTU rendering our put worthless. I am hesitant to buy another one and I plan on selling an in the money calls when gas prices roll over. That collapse could last more than a month so we should be safe. I just want to get past the earnings before making any new moves.
Peabody Energy Corporation (Peabody) is the largest private-sector coal company in the world. During the year ended December 31, 2004, the Company sold 227.2 million tons of coal. It sells coal to over 300 electricity generating and industrial plants in 16 countries. The Company owns, through its subsidiaries, majority interests in 32 coal operations located throughout all the United States coal producing regions and in Australia. Most of the production in the western United States is low-sulfur coal from the Powder River Basin. In the West, it owns and operates mines in Arizona, Colorado, New Mexico and Wyoming. In the East, it owns and operates mines in Illinois, Indiana, Kentucky and West Virginia. The Company owns four mines in Queensland, Australia. Most of the Australian production is low-sulfur, metallurgical coal. In addition to the mining operations, the Company markets, brokers and trades coal.
Position: 2008 $55 LEAP Call LLW-AK @ $9.50
Insurance Put: (closed 6/30)
Insurance put: (closed 6/9)
April 8th covered call:
April 24th covered call:
Entry $48.00 (3/07)
CCJ - $40.67 - Cameco ** No stop **
CCJ gave back some of its gains but closed at the high end of its recent range. If you are still holding the initial 2007 LEAPS I would probably be looking to exit them on any bounce. They are still profitable and the trend is still up. However, if natural gas continues to fall it could bleed over into uranium despite it being entirely irrational. For bookkeeping purposes I am going to drop the 2007 LEAPS from tracking as of Monday.
Current recommendation: Buy @ $35
Earnings: July 27th, +138%
Original Play Description:
We were triggered on the breakout at $72.50 on Monday and again on the $67 breakdown target on Wednesday. Each trigger was for a 1/2 position giving us a full position with an average cost of $9.80 each. That turned out to be the closing price on Friday so if you missed either opportunity you did not miss anything. We are going to add another full position after CCJ splits on Feb-23rd.
This is my best single play in the list. Cameco just announced record earnings and raised their forecast for 2006 and beyond. They projected a +40% rise in revenue and a rise in margin from 23% to 28% for 2006. At the same time they announced a 2:1 split for Feb-23rd on the NYSE. They also raised the dividend to 32 cents from 24 cents payable on April 13th.
They also announced they were buying Zircatec for $108 million. Zircatec is a maker of nuclear fuel bundles for Canadian designed heavy water reactors. They said the acquisition would moderately boost 2006 earnings assuming no material changes in operations.
The combination of events including the purchase of Zircatec caused the stock to plunge from its all time high of $82.15 on Feb-1st to close at $69.97 on Friday Feb-3rd. That level remained support for the entire week through Feb-10th.
Cameco Corporation is engaged in exploring, developing, mining and milling uranium ore to produce uranium concentrates. The Company is also a commercial converter of uranium concentrates (U3O8) to UF6 (uranium hexafluoride), as well as a supplier of services to convert uranium concentrates to UO2 (uranium dioxide). Cameco, through its subsidiaries, has a 31.6% limited partnership interest in Bruce Power Limited Partnership, which operates six nuclear reactors in Ontario, Canada. Cameco also owns 53% of Centerra Gold Inc. (TSX: CG), a growth-oriented gold mining and exploration company engaged in the acquisition, exploration, development and operation of gold properties in Central Asia, the former Soviet Union and other emerging markets.
Breakdown target $67.00 hit
Pre-split average cost: $9.80
Additional Position: 2008 $40 LEAP LTA-AH @ $9.00 on 2/25.
Put insurance: (expired 6/18)
Monday Mar-20TH cost reduction strategy:
HAL - $30.80 - Halliburton ** Closed **
HAL finally cratered and gave back all of its gains from July. I gave up on the position and closed it. The LEAPS have been nearly worthless since the July crash when they aborted the KBR spinoff. They can't seem to get out of their own way but at least we will not have to look at them after today.
Earnings: July 21st, +44% or $0.55 cents
Halliburton Company is an oilfield services company, and a provider of engineering and construction services. The Company provides services, products, maintenance, engineering and construction to energy, industrial and governmental customers. Its six business segments are Production Optimization, Fluid Systems, Drilling and Formation Evaluation, Digital and Consulting Solutions, collectively the Energy Services Group, and Government and Infrastructure, and Energy and Chemicals, collectively known as KBR. In August 2004, the Company sold its surface well testing and sub-sea test tree operations to Power Well Service Holdings, LLC. In January 2005, the Company emerged out of the chapter 11 proceedings and can operate the businesses without Bankruptcy Court supervision.
Halliburton was awarded a two-year contract with Statoil worth $193 million for cementing, drilling and completion fluid. Statoil said they were the largest contracts of their type awarded in 2006. In addition to the initial term there are three two-year extensions, which should bring the final value to somewhere in the $1 billion range allowing for adjustments.
Original Position: 2007 $85 LEAP Call VHW-AQ @ $9.80
Our adjusted cost in the 2007 $80 LEAPS is now $11.25
Insurance Put: (5/22) Contracts doubled by 2:1 split (HAL-SS)
Insurance Put: (7/23)
Entry $39.50 (2/06)