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The touch by crude at $60 produced no real drop in oils. There was some minor profit taking but much of it could be attributed to light profit taking and index rebalance issues. We are also approaching month end and funds may want to lighten exposure to oil and "appear" more diversified as the quarter ends. 

We did not hit a trigger on the two entries from last week, GW and BP, and I added MRO as a play this week. I want to keep the portfolio around ten positions and will continue to keep the watch list light. 

I am adding Encana Corp this week as another watch list entry. ECA owns the largest independent gas storage network but that is not the primary focus of its business. ECA has been divesting itself of non-core assets in an effort to focus on its main business. It will divest itself of the gas network either through a competitive bid or IPO by early 2006. This represents a major cash generation point for ECA and they will use the cash to acquire more reserves. This is the kind of story we want in our LEAPS portfolio. Unfortunately ECA does not have leaps and we will have to use the Jan-06 calls. That should get us through the Fall demand cycle and allow us to take profits ahead of the spring dip. 

Dropped Entries

None


New Watch List Entries
ECA
$40.76
Encana Corp

Current Watch List

GW - $7.26 Grey Wolf Inc

** Breakdown Target $7.00 **

Grey Wolf, Inc. is a provider of contract land drilling services to the oil and gas industry. For the three months ended 3/31/05, revenues increased 99% to $150M. Net income totaled $23M, vs. a loss of $6.4M. Revenues reflect ongoing efforts for U.S. land drilling and a higher number of rigs working at higher day rates as well as solid results from the turnkey operations.

Breakdown Target
BUY 2007 $7.50 LEAP Call OKW-AU currently $2.65

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BP - $63.50 Diamond Offshore 

** Breakdown Target $62.00 **

BP p.l.c. produces & markets crude oil & petroleum products worldwide. It is involved in exploration and field development throughout the world and is engaged in the manufacture and sale of petroleum-based chemical products. For the 3 months ended 3/31/05, revenues rose 15% to $81.01B. Net income rose 34% to $6.60B. Results reflect increased sales from all the business segments, higher marketing & refining margins and inventory gains

Breakdown Target
BUY 2007 $65 LEAP CALL WAO-AM currently $7.80

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ECA $40.76 Encana Corp

** Breakout target $42.00 **
** Breakdown target $39.00 **

Company info:

With an enterprise value of approximately US$44 billion, EnCana is one of North America's leading natural gas producers, is among the largest holders of gas and oil resource lands onshore North America and is a technical and cost leader in the in-situ recovery of oilsands bitumen. EnCana delivers predictable, reliable, profitable growth from its portfolio of long-life resource plays situated in Canada and the United States. Contained in unconventional reservoirs, resource plays are large contiguous accumulations of hydrocarbons, located in thick or areally extensive deposits, that typically have low geological and commercial development risk, low average decline rates and very long producing lives. The application of technology to unlock the huge resource potential of these plays typically results in continuous increases in production and reserves and decreases in costs over multiple decades of resource play life. (source Encana)

Encana does not have leaps so we are going to use the January-06 calls. The demand cycle runs through November giving us plenty of time to rotate out and reenter on the spring demand dip. 

Breakout Target
BUY Jan 2006 $45 CALL ECA-AI currently $2.50

Breakdown Target
BUY Jan 2006 $40 CALL ECA-AH currently $4.60

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