Total stakes in Petroleo Brasileo Brasileiro (NYSE: PBR) represent 9.23% of the value of the positions reported in the filing, with just over 13 million shares held.  This is down from by 2.3 million from the fund’s last filing.

A stake in Hess Corp (NYSE: HES) represents 4.47% of the value of the protfolio reported in the filing.  Soros Fund managament held 5,886,40 shares, up by 1700 from the fund’s last filing.

Potash Corp (NYSE: POT) represents 4.3% of the fund’s reported portfolio.  The fund held 2,948,421 shares as of September 30th, up 971,386 since the fund’s last filing.

LSI Corporation (NYSE: LSI) represents 4.05% of the fund’s reported portfolio.  The fund held 249,687,000 shares as of September 30th, up 600,000 since the fund’s last filing.

SPDR Gold Trust (NYSE: GLD) represents 3.91% of the fund’s reported portfolio.  The fund held 2,450,320 shares as of September 30th, up 2,445,420 since the fund’s last filing.

Linear Technology Corp (NASDAQ: LLTC) represents 3.68% of the fund’s reported portfolio.  The fund held 277,978,000 shares as of September 30th, up 4,500,000 since the fund’s last filing.

Plains Exploration & Production Company (NYSE: PXP) represents 2.73% of the fund’s reported portfolio.  The fund held 6,113,815 shares as of September 30th, down 412,585 since the fund’s last filing.

Flextronics International (NASDAQ: FLEX)) represents 2.47% of the fund’s reported portfolio.  The fund held 157,805,000 shares as of September 30th, up 14,166,000 since the fund’s last filing.

Verizon Communications Inc (NYSE: VZ) represents 2.24% of the fund’s reported portfolio.  The fund held 4,578,953 shares as of September 30th, up 3,984,100 since the fund’s last filing.

Lawson Software Inc (NASDAQ: LWSN) represents 2.2% of the fund’s reported portfolio.  The fund held 143,028,000 shares as of September 30th, up 128,948,000 since the fund’s last filing.

AT&T Inc (NYSE: T) represents 1.83% of the fund’s reported portfolio.  The fund held 4,209,497 shares as of September 30th, up 3,418,497 since the fund’s last filing.

InterOil Corp (NYSE: IOC) represents 1.79% of the fund’s reported portfolio.  The fund held 2,817,650 shares as of September 30th, up 957,650 since the fund’s last filing.

DirectTV Group Inc (NASDAQ: DTV) represents 1.77% of the fund’s reported portfolio.  The fund held 3,984,666 shares as of September 30th, up 3,797,66 since the fund’s last filing.

Best Buy Inc (NYSE: BBY) represents 1.75% of the fund’s reported portfolio.  The fund held 2,892,800 shares as of September 30th, up 1,103,300 since the fund’s last filing.

Weatherford International Ltd (NYSE: WFT) represents 1.65% of the fund’s reported portfolio.  The fund held 4,922,313 shares as of September 30th, up 3,180,970 since the fund’s last filing.

Suncor Energy Inc (NYSE: SU) represents 1.47% of the fund’s reported portfolio.  The fund held 2,643,100 shares as of September 30th, up 1,958,700 since the fund’s last filing.

Goldman Sachs Group Inc (NYSE: GS) represents 1.23% of the fund’s reported portfolio.  The fund held 415,100 shares as of September 30th, unchanged since the fund’s last filing.

Walgreen Co (NYSE: WAG) represents 1.03% of the fund’s reported portfolio.  The fund held 1,699,600 shares as of September 30th, up 242,700 since the fund’s last filing.

Wal-Mart Store Inc (NYSE: WMT) represents 0.88% of the fund’s reported portfolio.  The fund held 1,116,040 shares as of September 30th, up 1,026,330 since the fund’s last filing.

Yahoo! Inc (NASDAQ: YHOO) represents 0.21% of the fund’s reported portfolio.  The fund held 25,000 shares as of September 30th, down 105,800 since the fund’s last filing.

Garrett W. McIntyre

• Apache (NYSE: APA) Raised to Outperform at Credit Suisse.
• Denbury Resources Inc. (NYSE: DNR) Cut to Neutral at Credit Suisse.
• ENI S.p.A. (NYSE: E) Raised to Overweight at JPMorgan.
• Exxon Mobil (NYSE: XOM) Started as Buy at Citigroup.
• Occidental Petroleum (NYSE: OXY) Cut to Neutral at Credit Suisse.
• Plains Exploration (NYSE: PXP) Cut to Neutral at Credit Suisse.
• Royal Dutch Shell (NYSE: RDS.A) Cut to Market Perform at Sanford Bernstein.
• SunPower (NASDAQ: SPWRA) Cut to Underweight at Morgan Stanley.

JON C. OGG

Chesapeake also had to rewrite its joint venture agreement with Plains Exploration & Production Company (NYSE: PXP). The $1.65 billion deal counted on higher gas prices and steadier production from Chesapeake’s Haynesville Shale. Chesapeake has granted Plains a one-time option, exercisable from June 15, 2010, through June 30, 2010, to skip paying the final installment on the purchase. If Plains should exercise its option, it will need to return 50% of all the joint venture assets to Chesapeake. Chesapeake estimates that the value of Plains’  investment will have about doubled by the end of 2010. Plains remains on the hook for paying for 50% of Chesapeake’s drilling costs through December 2010.

Chesapeake’s shares are down around 7% this morning, and Plains’s shares are down about 6%. As Chesapeake’s share price falls, will the rumors about a takeover by BP plc (NYSE: BP) start up again?

Paul Ausick
March 2, 2009

Chesapeake wants the ability to sellanother 50 million shares? That’s a dilution of a bit more than 8% oncommon shares outstanding at the end of the third quarter of 2008. Justthe idea that Chesapeake might need that sent shivers of doubt up manyspines.

After all, the company has been raising truckloads of cash by sellingassets. Since March, BP plc (NYSE:BP), StatoilHydro (NYSE:STO), andPlains Exploration (NYSE:PXP) have together kicked in about $6 billionin cash for pieces of Chesapeake. Othertransactions have yielded another $4 billion. How much cash does thecompany need?

The answer is, "A lot." Chesapeake states the problem succinctly in itsthird quarter 10-Q: "We anticipate that our remaining 2008 and 2009budgeted exploration and development capital expenditures, togetherwith other capital expenditure requirements, will exceed our cash flowfrom operations and our borrowing capacity under our revolving creditfacilities."

The company used the cash from asset sales to repay its outstandingdebt. Then, of course, it re-borrowed the money. Chesapeake has alsoissued more than 50 million shares of common stock this year and twodebt offerings totaling more than $4.7 billion.

In it’s third quarter 10-Q filing, Chesapeake noted that it wasreducing capital spending for the fourth quarter of 2008 to $2.4-$2.8billion and planned spending for 2009 would drop to the range of$7.0-$8.3 billion. That is still a lot of money, but the first thing togo would almost certainly have been additional acquisitions. That wouldmean no or very little growth. Thus, the filing to issue new stock tofund acquisitions.

The market remains unhappy with Chesapeake this morning. The shareprice is off more than 7%, to under $16. The 52-week trading range is$11.99-$74.00.

Paul Ausick
December 1, 2008

The deal is similar to the oneChesapeake made with BP for BP’s 25% stake in Chesapeake’s FayettevilleShale assets. StatoilHydro pays $1.25 billion in cash at closing andagrees to fund 75% of Chesapeake’s cost of drilling its remainingassets up to a total of another $1.25 billion. The rest of the salesprice gives StatoilHydro the rights to 32.5% participation in any newleases Chesapeake acquires. The transaction is expected to close by theend of 2008. Chesapeake also sold a working interest in its HaynesvilleShale assets to Plains Exploration (NYSE:PXP) earlier this year.

Chesapeake’s CEO commented, "These joint ventures clearly demonstratethe enormous value of Chesapeake’s shale natural gas assets and theunique capability of our organization to develop them." Right.Developing assets by selling them. That’s a good one.

Paul Ausick
November 11, 2008

First, of course, is access to cash, either through borrowing or equityissues. Plains makes it clear that reducing its debt is a significantreason for this sale. The announcement notes that this sale will reducethe company’s debt by "at least $1 billion", about half it’soutstanding long-term debt on June 30th. The company had also plannedto invest $1.35 billion in capex in these properties, and now theydon’t have to do that either.

It isn’t clear whether or not Plains could have raised cash byborrowing or a stock issue, but the company obviously decided not totake the risk. Its long-term debt-to-cap ratio was about 50%, and itsshare price was much closer to its 52-week low than to its high.Issuing new stock would only have diluted its share price further.

The second problem that this sale solves for Plains is dealing withwhat it calls the "challenging differentials" in wellhead prices fornatural gas. Natural gas from the Piceance Basin of western Coloradosells at a steep discount to natural gas from the Gulf or the shaledeposits of Texas and Arkansas. In fact, some wells in the West arebeing shut-in because the sales price of the gas doesn’t cover theoperating cost of the wells.

In its announcement, Plains says it will focus on its 20% investment inChesapeake’s (NYSE:CHK) 550,000 acres in the Haynesville Shale. Thecompany expects higher wellhead prices and much longer-lived productionfrom its estimated 8 trillion cubic feet of un-risked potential inHaynesville. The assets sold to Oxy have produced 13,000 barrels of oilequivalent per day, and total about 92 million barrels of provedreserves. The acquisition cost to Oxy was about $13.50/barrel.

In an economy that could afford to carry the risk, Plains wouldprobably have held onto the assets it sold today. Oxy can afford tohold them, but Plains can’t. Plains took advantage of a similarweakness at Chesapeake last July when it bought its share of theHaynesville play. Cash is once again king.

Paul Ausick
September 25, 2008

As part of the deal, BP pays $1.1 billion up front, in cash, at closing, and the remaining $800 million by funding drilling and completion expenses through the rest of 2008 and into 2009, until the money runs out. But that’s not the best part for BP. If Chesapeake acquires any future leaseholds in the Fayetteville Shale play, "BP will have the right to a 25% participation in any such additional leasehold."

Chesapeake’s CEO noted that the company has now off-loaded about $2.5 billion in drilling and expenses to new partners. In July, Plains Exploration (NYSE:PXP) coughed up $1.65 billion for a 20% share of Chesapeake’s Haynesville shale leasehold and BP ponied up another $1.7 billion for all of Chesapeake’s interests in 90,000 net acres in the Arkoma Basin. All told, since the beginning of the third fiscal quarter of 2008, Chesapeake has raised $4.2 billion in cash.

In August, Chesapeake moved about $2.25 billion in senior notes off its books and onto the books of a host of new subsidiaries. The company paid a consent fee to noteholders of $3.75/$1,000.

All this is an effort to shore up the company’s share price, after a nasty loss last quarter due to about $2.1 in mark-to-market hedging losses. But since volatility is the name of the game in energy markets, the company noted in its quarterly results that for the first 25 days of the third quarter, its hedges had gained $4.7 billion in value.

Unfortunately, commodity hedges don’t figure in much when it comes to investors’ actions. Selling off assets gets peoples’ attention. Chesapeake stock is down nearly 5% in early trading this morning.

Paul Ausick

Atlas Pipeline Partners LP (NYSE:APL) announced yesterday that it would discontinue its current hedging strategy in favor of returning to a strategy it had followed until June 2007. The company had hedged about 86% of its natural gas liquids production using crude oil derivative contracts. Because crude oil prices are skyrocketing, the hedges have become "less effective." The terminated contracts run through the next six quarters. Atlas raised its guidance from $1.90-$2.00 per common unit to $2.00-$2.20. That’s the good news.

The not-so-good news is that Atlas will take a charge against earnings of about $10 million for the second quarter, with a total dollar loss on the derivative contracts of approximately $250 million. The stock price is up less than 0.1% in early trading.

Tesoro (NYSE:TSO), an independent refiner/marketer, has also closed its crude oil derivative positions and expects a charge against earnings this quarter of $125 million. The company also lowered guidance by $0.30-$0.50, blaming the change on high energy costs. The refining business is not getting any easier.

Finally today, Plains Exploration and Production (NYSE:PXP) announced that it had acquired crude oil puts on 40,000 b/d of production for 2009 and 2010. The average deferred premium plus interest on the 2009 contracts is $6.19 per barrel and the strike price is $106.16 per barrel. The 2010 contracts carry a strike price of $111.49 per barrel, and an averaged deferred premium plus interest of $12.08 per barrel. Plains also acquired $10-$20 collars on 150 million cubic feet of natural gas production for 2008 and 2009. The company plans to use marked-to-market accounting for these hedges.

There are a couple of morals to these stories. First, try not to be a refining/marketing company. That one’s pretty obvious. Second, crude oil derivative contracts are not effective hedges in the current market. Their cost is too high and the continuously rising cost of crude almost guarantees that the hedge will be ineffective. Expect more of this kind of news from almost every oil and gas company that hedges physical barrels.

Paul Ausick
June 17, 2008