As each day progresses I never cease to be amazed at the number of oil stocks available to trade. After putting together the Oil Crisis report last December covering 350 energy companies I have since found dozens more. Many are only a footnote to the real action but there are new opportunities almost every week. A trader could go crazy trying to analyze and follow each one. While I see them fly by I still feel the best chance for profit comes from those with either large reserves or a niche in the market place. For example VLO is one of those niche players. I came close to playing Diamond Offshore last week but options were simply too expensive. Not every player is a play.
This week I am removing Grey Wolf for no movement. It's rise to stardom from May to June appears to have left it breathless.
BP came within 25 cents of an entry at our $62 trigger and while I can't officially add it to the portfolio as triggered I hope some of our readers felt it close enough to play.
Encana came within 42 cents of our breakdown entry and the same rules apply as those I mentioned for BP. I am leaving both on the watch list for future entries.
One of my major frustrations for this week was AHC, Amerada Hess. It failed to really drop on Wed/Thr and I had it pegged for inclusion this week. On Friday it jumped +4.34 and took itself out of contention this time around. Option premiums skyrocketed on the gain.
Sunoco (SUN) was another target and it also jumped +4.19 on Friday. There was a rumor that SUN was a takeover target and that helped fuel the gains.
I mentioned Talisman Energy several weeks ago (no leaps) and it is on the verge of a potentially strong breakout over $40.
UPL, EOG, RRC and KWK were mentioned in one research report last week as strong
plays in unconventional gas exploration and development. All broke out to new
highs on Friday.
Of the four only EOG and UPL have leaps. UPL was cheaper but
the slower mover of the two. I added EOG to the watch list for this week.
Current Watch List
EOG - $58.50 EOG Resources
** Breakdown Target $57.50 **
EOG is engaged in the exploration, development, production, and marketing of natural gas and crude oil, primarily in major producing basins in the U.S., as well as in Canada, Trinidad, & the U.K.
Joe Allman, natural gas analyst at RBC Capital Markets said EOG and companies like them generate a 30% to 50% rate of return on assets. Sometimes even 100% on certain projects. EOG grew +30% in 2004.
Breakout Target (same)
BP - $63.29 BP, PLC
** 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
ECA $41.20 Encana Corp
** Breakout target $42.00 **
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.
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)