Energy Hedge Fund, Annual Report 2013

30
SIMM Energy Hedge Fund
Annual Report for the Fiscal Year of March 29, 2013
This report is to be presented to the SIMM Advisory Board on Friday April 12, 2013 and be distributed to interested
university members, community members, and other parties of interest.

1
This report is for informational purposes only and does not constitute an offer to sell or a solicitation of an
offer to buy any security nor is it intended to provide investment advice. There is no guarantee that the energy fund
will have a return on invested capital similar to the returns of the other accounts managed by SIMM. The fact that
other accounts managed by SIMM have realized gains in the past is not an indication that the Funds will realize
any gains in the future. Prior performance is not indicative of future results.
An investment in the Fund is speculative and involves risk of loss of invested capital. There can be no
assurance that the performance objectives of the Fund will be achieved. The investment program utilized by The
Fund is subject to significant risks including risks from the use of short sales and leverage. Prospective investors
are urged to review The Fund’s investment objectives and understand the risk of loss associated, and consult with
financial, legal and tax advisors prior to investing in a Fund. Performance results shown are presented on a before
fee basis and are broken down into Net Asset Value (NAV) and cost basis return. An individual investor’s return
may vary from these returns based on different management fee and incentive arrangements, and the timing of
capital transactions. The statistical data regarding the indices has been obtained from BLOOMBERG
PROFESSIONAL SERVICE® and the returns are calculated assuming all dividends are reinvested. The indices
are not subject to any of the fees or expenses to which the funds are subject.
This presentation is being provided to you on a confidential basis and is intended solely for the information
of the people to whom it is being presented. This presentation is intended solely to assist you in deciding whether
or not to proceed with a further investigation of the SIMM Energy Hedge Fund. Accordingly, this presentation may
not be reported in whole or in part, and may not be delivered to any person without prior written consent of the
SIMM Energy Hedge Fund.
Disclosure

2
Investment Objective_________________________________________________________________________p3
Energy Trends and Events___________________________________________________________________p4-6
Energy Market Outlook_____________________________________________________________________p7-8
Our Focus__________________________________________________________________________________p9
Closed Positions_________________________________________________________________________p10-11
Open Positions_____________________________________________________________________________p12
Realized Profits & Loses_____________________________________________________________________p13
Commodity Prices _________________________________________________________________________p14
Dow Jones-UBS Performance ________________________________________________________________p15
Fund Risk Analysis_________________________________________________________________________p16
Fund Performance__________________________________________________________________________p17
Review and Forecast (Crude Oil, Gasoline, Natural Gas, Equities)__________________________________p18-28
Risk Management Guidelines_________________________________________________________________p29
Management Team__________________________________________________________________________p30
Biographies_____________________________________________________________________________p31-33
Table of Contents

3
Preservation of Capital
Generate returns to investors that exceed:
The annual historical return of the S&P 500
The performance of the SPDR Energy ETF (XLE)
Assuming no leverage, expected annual net returns to investors of 8% - 9%
The Fund requires on an annual basis, the following fee structure:
Two (2) percent of assets under management (AUM). These are to assist in the day-to-day operations of the
fund which include, but are not limited to:
Trading Costs
Reorganization Costs
Costs of Reporting
Twenty (20) percent of gains (realized)
There is no minimum investment
Prime Broker: Interactive Brokers
Redemption: Quarterly with 60 days’ notice
AUM as of Close 3/29/13: $266,121.58
Investment Objective and Compensation Terms

4
During our fiscal year, there have been numerous unique events that have controlled the direction and pace
of the energy markets. The volatile macroeconomic environment has been a defining factor, often shifting price
direction.
The Eurozone debt crisis has dominated the news especially in the first half of the year. Greece’s debt issues
were frequent headlines. Late spring and into the summer, there were multiple elections in the country that failed
to decide on leadership creating further instability in the country. Fears over Spain’s failing economy also came to
fruition as Spanish banks received a €100 billion bailout, 10 year Spanish bond yields rose to a record high, and
unemployment in the country reached over 25%. Even China’s seemingly unstoppable growth has slowed as GDP
growth has dipped below 10% per year; an average that it has maintained over the past three decades. Recent news
has suggested that China may be starting to show some signs of recovery. Their economy grew at a rate of 7.9%
which is up from 7.4% in the third quarter.
Growth in the U.S. has remained slow. The economy showed promising growth in the third quarter with
GDP growth of 3.1% but then disappointed at 0.1% for the fourth quarter. The Federal Reserve has pledged to
keep interest rates near zero, at a rate of 0.25% until at least mid 2015 to help boost business. They also enacted a
third round of quantitate easing (QE3) through the open-ended buying of $40 billion in mortgage backed securities
per month with no announced end date. Federal Reserve Chairman Ben Bernanke has suggested that interest rates
will be kept at historical lows until the current unemployment rate of 7.9% is reduced to 6.5%.
Energy Trends and Events

5
Another issue dominating headlines to close 2012 was the pending fiscal cliff which would of implemented
tax increases and spending cuts that many feared would send the U.S. into another recession. Shortly before the
midnight, January 1st
deadline, lawmakers came to a compromise that averted the potential economic disaster.
More recently, Congress has been deadlocked by the “sequester” issue which also enacts more budget cuts,
heavily affecting government employees, especially at the Pentagon, where reduced pay, hours and layoffs will go
into effect. Republicans and Democrats failed to come up with a deal, forcing these budget cuts. Many fear that
this will hurt growth with President Barack Obama pledging that the “sequester” may slow an economic rebound
but will not hinder the recovery over the long-haul
Commodities, especially the crude oil complex, have been affected by the cyclicality in the global markets.
The two most widely used oil benchmarks, West Texas Intermediate Crude (WTI) and Brent Crude were heavily
affected by the aforementioned global macroeconomic events. Hydraulic fracturing has allowed for a rebirth in
U.S. oil production that has boosted supplies to levels not seen in over 20 years. This “shale boom” has led the
International Energy Agency (IEA) to forecast the U.S. to be energy independent by 2020. Imports of foreign oil
are near half of their peak of 12 million barrels per day between 2004 and 2007. The heavy supplies of domestic
oil have created a bottleneck in Cushing, Oklahoma, which is the delivery point for WTI futures contracts. The
combination of heavy production and difficulties transporting the commodity out of Cushing has put downward
pressure on prices and has contributed to the decrease in the spread between Brent and WTI. The recent expansions
of the Seaway Pipeline shows promise to help alleviate this bottleneck but will not be fully operational until the
end of 2013. Middle East tensions have also had an effect on prices. Iran continued to threaten to close the Strait
of Hormuz, which about 20% of the world’s oil travels through, because of nuclear sanctions.
Energy Trends and Events (Continue)

6
After a decline at the beginning of the summer, which corresponded with a drop in oil prices, gasoline prices
surged this summer on supply concerns. Refinery outages throughout the U.S. and Europe kept supplies tight in
New York Harbor where RBOB gasoline futures prices reached a five-month high of $3.342 a gallon and prices in
California briefly shot up over $6 a gallon in some locations. Surging gasoline prices helped increase the crack
spread during the second half of the summer, improving refiner margins, and elevating our refiner holdings.
Hurricane Sandy also had a significant effect on gasoline prices. Damage from the hurricane temporarily shut
down one of the largest refiners in the New York City creating a massive gas shortage. Both New York City and
the State of New Jersey saw gas lines stretching for blocks, some over 12 hours long, forcing both the city and the
state to utilize an odd-even license plate rationing system.
Natural gas has also had an eventful and historic run over the past few months. The same technology that has
created a new oil boom in the U.S. has led to even larger growth in natural gas production. This growth, along with
an extremely warm winter in 2011-2012, has led to record inventory levels and has severely depressed the price,
reaching its lowest level in over a decade of $1.89 in April. The cheap price also led to a significant amount of
coal-to-natural gas switching by power plants this summer as the commodity was a cheaper alternative then coal to
use as fuel for power. Record cooling demand, due to the hottest summer in 50 years, helped prices recover some
their losses, recovering from their April low. More recently, this winter has seen temperatures that were colder
than last years but still above average. This has led to lower inventories than but with supplies 14% higher than the
5-year average, prices have stayed well below $4.
Energy Trends and Events (Continue)Energy Trends and Events (Continue)

7
The 2013 outlook for the energy markets is positive despite tepid US growth and major issues in the
Eurozone. The US economy appears to be slowly recovering as we saw Real Gross Domestic Product (GDP)
increase 0.4% in Q4 of 2012. Despite this, projections for US GDP growth are conservative at 1.4%. This slow
growth could hurt energy demand but we are still encouraged by the overall improving figures. The Fed’s decision
to keep interest rates low and to continue to stimulate the economy through QE may help stimulate continued
growth going forward. Intervention by the Fed has a simulative affect on hard assets such as energy commodities
as it devalues the dollar, which artificially inflates the prices of these assets. This could potentially push
commodity prices much higher. We believe the shale gas boom in the US will overall keep energy prices lower
than their historical norms due to abundant inventory not seen in over 20 years.
The Eurozone remains a huge concern for the international economic environment and for energy markets.
Eurozone manufacturing continues to decline with the seemingly unstoppable German economy seeing a slip in
PMI growth in March. These factors along with the new economic crisis in Cyprus provide grave concerns for
overseas economic growth which could hurt energy demand. Overall, despite an interconnected global economy,
we believe that many of the US based energy assets we trade will only be partially affected by these developments
since the record amount of production of these commodities has made prices too cheap for consumers and
investors to pass up.
Overall global crude oil consumption is expected to increase by 1.12% to 90.2 million bbl/d with US oil
production expecting to increase 12.67% to 7.25 mb/d in 2013. This increase in production is primarily due to the
advancement in horizontal drilling and multi-stage hydraulic fracturing, which is expected to reach 33% of total
U.S. oil production by 2014.
Market Outlook

8
An increase in production may increase oil stocks throughout the country and may affect the price of West
Texas Intermediate Crude (WTI), the key benchmark for U.S. based crude oil. Current stocks in Cushing, OK, the
delivery point for WTI, are up 28.42% from a year ago further signaling a major shift in US oil production.
Despite this, we expect the addition of new pipeline capacity in Q3 of 2013 will help alleviate some of the buildup
in stocks, leveling prices instead of them reaching new lows. The improved infrastructure of delivering crude oil to
the Gulf Cost will relieve the inventory in Cushing and may continue to further tighten the Brent-WTI price spread.
These recent developments may also help reduce the United States dependence on imported crude oil from foreign
nations.
Natural gas should see some major price swings over the coming months. We believe that with inventories
10% above the norm and with the transition period from cold weather to warmer upon us, prices will decrease
leading into the summer. The summer months should see another bull run due to the relatively cheap prices of
natural gas. They may not be currently cheaper than coal, discouraging natural gas to coal switching by power
plants, but a forecasted hot summer and relatively cheaper prices then historical norms should push prices higher
due to heavy cooling demand. Over a more long-term period, we expect natural gas prices to rise significantly as
supply will eventually be drawn down due to increased demand. The approval of liquefied natural gas (LNG)
exporting by US based companies, such as Cheniere Energy, will be a big proponent of this. This will allow
companies with the capacity to produce LNG to greatly benefit from the abundant amount of cheap natural gas
currently being produced.
Market Outlook (Continued)

9
The Fund was founded under the principle focus of investing within the energy sector and products. This
entails investments being made in various areas throughout the energy markets. We utilize numerous securities in
order to capitalize and generate superior returns to investors.
Futures Contracts
Equities
Futures Options
Equity Options
Within the energy sector, The Fund has had a primary focus on making investments in the “traditional” areas
(crude oil, natural gas, and natural gas liquids). We have found investments involving positions in various energy
commodities, along with companies throughout the industry. The Fund reacts to changes in the market and adapts
to trends by taking both long and short positions.
Moving forward, we reserve the right to invest in other products not stated in our current investment focus.
Energy Hedge Fund Objectives

10
Closed Positions
Name Ticker Security
Trade
Date
Settlement
Date
Close
Date Position Average Cost Total Cost Closing Price Total Closing C
Chesapeake Put
CHK, 2012, 04/20, 21
Strike Equity Option 11/30/2011 4/20/2012 4/12/2012 long 2 $ (1.60) $ (320.04) $ 0.67 $ 13
Chesapeake Call
CHK, 2012, 04/20, 26
Strike Equity Option 11/30/2011 4/20/2012 4/20/2012 short -2 $ 2.29 $ 457.95 $ - $
WTI Crude Oil CL, 2012, 12 Futures 11/9/2011 11/16/2012 4/17/2012 long 1 $ (94.07) $ (94,072.32) $ 104.66 $ 104,66
TSO Equity TSO Stock 1/9/2012 N/A Open long 318 $ (22.64) $ (12,001.32)
HFC Equity HFC Stock 1/9/2012 N/A Open long 227 $ (26.50) $ (12,006.32)
CHK Equity CHK Stock 1/31/2012 N/A 10/3/2012 short 0 $ 19.64 $ 19,637.50
LNG Equity LNG Stock 1/31/2012 N/A Open long 674 $ (12.90) $ (17,512.08)
Brent Crude Oil COIL, 2012, 08 Futures 2/29/2012 7/16/2012 4/17/2012 long 2 $ (119.85) $ (239,704.80) $ 117.57 $ 235,14
Brent Crude Oil COIL, 2013, 06 Futures 2/29/2012 5/16/2013 4/17/2012 short -1 $ 113.07 $ 113,067.60 $ 112.41 $ (112,410
WTI Crude Oil
Put CL MAY12 101.5 P Futures Option 3/21/2012 4/17/2012 4/17/2012 short -8 $ 0.90 $ 7,181.44 $ -
USO ETF Put USO 19MAY12 38.0 P Equity Option 3/21/2012 5/19/2012 4/18/2012 long 30 $ (0.72) $ (2,151.73) $ 0.71 $ 2,13
Natural Gas NG, 2012, 05 Futures 4/4/2012 4/26/2012 4/25/2012 long 3 $ (2.14) $ (64,236.96) $ 2.08 $ 62,43
Natural Gas NG, 2012, 05 Futures 4/4/2012 4/26/2012 4/4/2012 long 3 $ (2.13) $ (64,043.04) $ 2.14 $ (64,156
Natural Gas NG, 2012, 06 Futures 4/4/2012 5/29/2012 5/17/2012 short -3 $ 2.26 $ 67,933.04 $ 2.53 $ (75,930
WTI Crude Oil CL, 2012, 12 Futures 4/17/2012 11/16/2012 7/10/2012 short -2 $ (104.66) $ 209,315.36 $ 86.98 $ (173,960
WTI Crude Oil CL, 2012, 07 Futures 4/17/2012 6/20/2012 5/8/2012 long 2 $ 103.84 $ (207,674.64) $ 96.98 $ 193,95
WTI Crude Oil
Call CL Aug12 98 Call Futures Option 5/8/2012 N/A 7/9/2012 long 2 $ 4.38 $ (8,764.64) $ 0.03 $ 6

11
Closed Positions (Continued)
Name Ticker Security
Trade
Date
Settlement
Date
Close
Date Position Average Cost Total Cost Closing Price Total Closing C
Chesapeake Put
CHK, 2012, 04/20, 21
Strike Equity Option 11/30/2011 4/20/2012 4/12/2012 long 2 $ (1.60) $ (320.04) $ 0.67 $ 13
Chesapeake Call
CHK, 2012, 04/20, 26
Strike Equity Option 11/30/2011 4/20/2012 4/20/2012 short -2 $ 2.29 $ 457.95 $ - $
WTI Crude Oil CL, 2012, 12 Futures 11/9/2011 11/16/2012 4/17/2012 long 1 $ (94.07) $ (94,072.32) $ 104.66 $ 104,66
TSO Equity TSO Stock 1/9/2012 N/A Open long 318 $ (22.64) $ (12,001.32)
HFC Equity HFC Stock 1/9/2012 N/A Open long 227 $ (26.50) $ (12,006.32)
CHK Equity CHK Stock 1/31/2012 N/A 10/3/2012 short 0 $ 19.64 $ 19,637.50
LNG Equity LNG Stock 1/31/2012 N/A Open long 674 $ (12.90) $ (17,512.08)
WTI Crude Oil
Put CL MAY12 101.5 P Futures Option 3/21/2012 4/17/2012 4/17/2012 short -8 $ 0.90 $ 7,181.44 $ -
USO ETF Put USO 19MAY12 38.0 P Equity Option 3/21/2012 5/19/2012 4/18/2012 long 30 $ (0.72) $ (2,151.73) $ 0.71 $ 2,13
Natural Gas NG, 2012, 05 Futures 4/4/2012 4/26/2012 4/25/2012 long 3 $ (2.14) $ (64,236.96) $ 2.08 $ 62,43
Natural Gas NG, 2012, 05 Futures 4/4/2012 4/26/2012 4/4/2012 long 3 $ (2.13) $ (64,043.04) $ 2.14 $ (64,156
Natural Gas NG, 2012, 06 Futures 4/4/2012 5/29/2012 5/17/2012 short -3 $ 2.26 $ 67,933.04 $ 2.53 $ (75,930
WTI Crude Oil CL, 2012, 12 Futures 4/17/2012 11/16/2012 7/10/2012 short -2 $ (104.66) $ 209,315.36 $ 86.98 $ (173,960
WTI Crude Oil CL, 2012, 07 Futures 4/17/2012 6/20/2012 5/8/2012 long 2 $ 103.84 $ (207,674.64) $ 96.98 $ 193,95
WTI Crude Oil
Call CL Aug12 98 Call Futures Option 5/8/2012 N/A 7/9/2012 long 2 $ 4.38 $ (8,764.64) $ 0.03 $ 6

12
Open Positions
Open Positions

13
Net of transaction cost*
Realized Profits & Loses

14
Energy Commodity Commodity Type April 2, 2012 March 29, 2013
CL1 Comdty WTI Crude Oil 105.23 97.23
CO1 Comdty Brent Crude Oil 125.43 110.02
NG1 Comdty Natural Gas 2.15 4.02
XB1 Comdty RBOB 338.22 310.54
Commodity Prices
Biographies

15
April 2, 2012 – March 29, 2013
Dow Jones-UBS WTI Crude Oil Sub Index -10.35%
Dow Jones-UBS Brent Crude Oil Sub Index -4.71%
Dow Jones-UBS Natural Gas Sub Index 26.35%
Dow Jones-UBS Unleaded Gasoline Sub Index 8.81%
Dow Jones Credit Suisse Core Hedge Fund Index USD 2.17%
Dow Jones UBS Performance
Biographies

16
Risk Analysis Energy Select
Sector SPDR, XLE
S&P 500
SPX
United States Oil
Fund LP, USO
SIMM Energy
Hedge Fund
Sharpe Ratio 0.77 1.07 -0.45 0.49%
Sortino Ratio 0.57 0.81 -1.00 0.81%
Standard Deviation 1.10% 0.80% 1.50% 1.21%
Mean Return 0.05% 0.05% -0.04% 0.03%
Positive Periods in Days 136 (52.71%) 143 (55.43%) 141 (54.65%) 149 (57.75%)
Negative Periods in Days 122 (47.29%) 115 (44.57%) 117 (45.35%) 109 (42.25%)
Energy Hedge Fund Risk Analysis
Fund Performance

17
Cumulative Returns from 04/02/12 - 3/29/12 XLE SPX USO U839136
10.58% 11.41% -11.39% 6.46%
Cumulative Return Comparison
Time Weighted Return Comparison
*U839136 = Energy Hedge Fund

18
Crude oil is down over 9% since last April, putting in its yearly highs one day after the start of our fiscal
year. The main concern right now continues to be an increase in production and supply with weaker demand. US
domestic production for crude oil is now at 7.15 million barrels per day, up from 6.04 million per day this time last
year and currently at highs not seen since 1992. Crude oil supplies in Cushing, OK are at 49.46 million barrels, up
from 41 million barrels this time last year, and just off all-time highs of 51.8 million barrels in January of this year.
We have seen the Brent/WTI spread widen by 40% since last year, which is the difference in price between WTI
crude based in Texas and the global benchmark Brent based in Europe. With the amount of pipelines being built to
help reduce the glut of supply in Cushing, we expect the spread to narrow, which has happened in the past few
weeks. With the amount of exploration and production that has been happening on US soil, there has been less
reason to import crude oil. The US is now importing 8.8 million barrels of oil per day, lower than 9.7 million from
this time last year, and just off of 5 year lows. US Days’ supply of crude oil excluding those in the Strategic
Petroleum Reserve (SPR) have also hit 20 year highs, currently sitting at 26.9.
Portfolio Allocation
Risk Management Guidelines
Crude Oil Review

19
With all that has been listed in the review, we believe that oil prices will decrease in the future. Although
playing out with what our forecast was in our semi-annual report, we have seen Cushing supplies begin to increase
due to technological innovations and more pipelines being built. We also believe that the Brent/WTI spread will
begin to contract due to global weakness. We think that Brent prices will be headed lower in the future due to the
likelihood of European and Asian economies remaining slow. Prices of WTI crude will remain stable but may pick
up as equities continue to hit all-time highs, seeing as they both still have a relatively high correlation. There is also
the chance for less demand for WTI in the US due to better and cheaper alternatives in the future. We have already
seen exploration and uses for natural gas; also the likelihood for cars to run on fuels not made from oil has been
increasing. We will be closely following the oil markets as we head into the summer driving season, where we will
be tracking demand patterns across the US, seeing if there are possibilities to make money from trading WTI on
weekly inventory data.
Crude Oil Forecast

20
We have seen gas prices rise substantially from 2008, with 2012 marking the most costly year for consumers. Unrest
in the Middle East, along with several major hurricanes, caused prices to heighten in 2012, with a national average of $3.60,
up from $3.51 a year prior. A sticker shock helped to limit prices from exceeding a national average of $4.00 a gallon.
However, the west coast was not as fortunate, particularly California, where prices accelerated beyond $5.00 a gallon for a
stretch during the summer. This was due to two problems with refineries in the area. The Chevron refinery in Richmond had
a fire seriously inhibit production, and a power outage at ExxonMobil in Los Angeles hurt the area’s distribution as well.
Heightened prices forced consumers to cut back their gasoline consumption resulting in prices backing off the peak price
levels seen in September.
Hurricane Sandy struck in late October, causing the financial markets to close and millions to be effected by massive
flooding. Despite the levels of destruction, national gas prices declined following the natural disaster. Areas affected by the
storm saw gas lines stretch for miles and last hours. In these areas, prices skyrocketed for a relatively short period of time as
supply was constricted in New York City and New Jersey. Part of the reason prices dropped was due to the seasonal effect
which started in October, along with a sharp decline in demand. Also, Californian prices dropped $0.50 as refineries
reopened and started refining the less costly winter blend. Fewer consumers were able to travel given the state of the east
coast, and those with demand were simply unable to obtain gas.
Gas prices declined to their lowest levels in December. This was supported by investors pulling their money out of
oil and other commodities as the Fiscal Cliff loomed with uncertainty. At the start of 2013, analysts were initially
forecasting average national prices of $4.00 a gallon, but have since retracted these projections. This is due in large part to
prices experiencing seasonal increases earlier than usual. History has shown that gas prices rise throughout the spring and
peak in the late summer due to more drivers on the roads, when compared to the winter. However, since March 29, gas
prices fell 26 out of 30 days, causing analysts to reduce their average price peaks from $3.95 to $3.69 a gallon.
Gasoline ReviewGasoline Review

21
One major concern for fuel prices looking ahead in 2013 are the costs refiners are faced with complying with
a federal law to improve gasoline emissions. Carmakers recommend the amount of ethanol used in fuel not exceed
10% of gasoline however increased EPA quotas for next year have caused the price of ethanol credits to exceed $1.
This is a substantial increase from what it was last year at just a few cents. These costs will eventually be passed on
to the consumer, increasing pump prices. Not only does this hurt consumers’ pockets, but it also means more trips
to the pump. Ethanol is 33% less pure than gasoline, and can decrease gas mileage by 3.3%.
Despite the negative attention with soaring gas prices, there are some upside factors looking ahead that
could keep gas prices from breaking that $4.00 national average. The EIA projects the average retail price of
gasoline to average $3.56 per gallon, until December 2013. Middle-East stability will help to keep prices from
edging upwards. The more turmoil in the region leads to supply chain interruptions, and thus higher prices. A
positive note that will help hedge political unrest is news released from the EIA. The EIA stated monthly U.S.
crude oil production is on pace to exceed crude oil imports for the first time since early 1995. Greater production
will lead to lower refining costs and less reliance on the international oil supply. Also, when fuel prices start to near
that $4.00 mark, consumers begin to find ways to cut back. This decrease in demand will likely keep prices from
excelling beyond price levels of 2012.
Gasoline Forecast

22
Current Holdings: Natural Gas May 2013 4.30 Call
Depressed pricing due to low demand for heating or cooling fuels across the country called for an influx in
inventory. In April, prices dipped below $2 due to a historically warm winter which caused inventories to reach
record highs. Due to increasing temperatures through July, prices reached $2.95 (MMBtu) as cooling demand
increased. Many power plants converted from coal to natural gas over the summer to produce electricity used to
power A/C units. This spurred prices to rise over $1 to around $3.30.
Prices then began to drop through August and September as we went through transitional climates which
kept prices near the $2.85 (MMBtu) mark. Prices in October ended at $3.32 (MMBtu). Due to the energy shortages
caused by Hurricane Sandy, we saw demand increase nearly 10% over the last week of October in comparison to
the previous week. Inventories reached end of season records of 3,923 Bcf which were an increase of 3% year-
over-year.
As 2012 ended, weather remained relatively warm in conjunction with high inventory numbers which
brought Natural Gas to a December price of $3.34 (MMBtu). January and February ended with similar numbers at
$3.33 (MMBtu) each month due to a warm beginning to 2013. As a cruel blast of winter rolled through the country
in the beginning of March, prices began to increase as demand for heating fuels grew. High consumption due to
unseasonably cold weather has diminished inventories to 1,983 Bcf which was down 70 Bcf from the week before.
For the week ending March 20th
, prices rose to $3.96 (MMBtu) the highest level in over a year. Winter
temperatures were more normal in comparison to the winter of 2012, but overall prices remain low due to the shale
gas boom.
Natural Gas Review

23
Over the next few months, we are expecting to see a drop in prices for natural gas for multiple reasons.
Transitional temperatures should come into play across much of the U.S. causing a drop in price from recent highs.
We expect near term rig counts to continue to remain below last year’s averages due to an increase in production
per rig. Based on the past boom in drilling, we are expecting to see an increase in the production for current wells
as opposed to new wells being drilled.
We are expecting warm temperatures for the summer of 2013 to create demand for cooling, raising prices.
The National Oceanic and Atmospheric Administration (NOAA) has projected that a dry summer for much of the
west and southwest will continue to be plagued by ongoing draught conditions. These conditions are expected to
expand into areas of Texas, Florida, and along much of the eastern seaboard. Above average temperatures will
plague much of the lower 48 states.
Furthermore, we expect consumption to increase due to the expanded use of natural gas. Many automakers
are developing cars fueled by the commodity which would largely increase demand. We are also looking for
pipeline construction to increase shipping capacity across the U.S. by putting more pipeline infrastructure in the
eastern and northeastern regions of the U.S. An experimental “green corridor” spanning across 900 miles of
roadways along major trucking routes in Canada will be supplied with LNG fill stations spaced every 250 miles.
Natural Gas Forecast

24
Current Holdings: Tesoro Corp. (TSO), Valero Energy Corp. (VLO), HollyFrontier Corp. (HFC), Apache Corp.
(APA), Occidental Petroleum Corp. (OXY), Cheniere Energy Inc. (LNG), Pioneer Natural Resources (PXD),
Exxon Mobil Corp. (XOM), and Energy Select Sector SPDR (XLE).
Our largest gainer was Tesoro Corp. (TSO), which had an annualized return of 111.69%. Earnings per share
in Q4 missed by $0.07 at $1.34, but revenues beat by $1.21B at $8.27B. TSO was able to continue to benefit from
large crack spreads and discounted crude by maintaining a high refining utilization rate of 89%. In addition to the
over 225 retail stores added, which allowed a 20% year-over-year increase in retail fuel sales, TSO also announced
the completion of three of five major refining projects, the acquisition of BP’s Carson refinery in California and of
Chevron’s Northwest Product System which is expected to add over $0.5B in recurring EBITDA. The company
also announced that the final two major refining projects, an expansion to a diesel desulfurization unit at the
Mandan refinery, and the Salt Lake City conversion project, are scheduled to be online during Q2 2013.
The next leading equity in our portfolio is Valero Energy Corp. (VLO), which posted an annualized return of
106.74%. EPS in Q4 beat by $0.59 at $1.82, and revenues beat by $3.69B at $34.7B. Valero greatly benefited from
increased refining margins and lower operating costs. The company replaced imported crude at its Golf Coast and
Memphis refineries with cheaper domestic crude. VLO also announced that it plans to complete the separation of
its retail business by Q2 2013 and will distribute 80% of shares to shareholders, liquidate the other 20%, and bring
in $1.1B in cash. Other highlights are the completion of a pipeline from the Quebec refinery to Montreal, and the
completion of a hydrocracker at the St. Arthur facility. In Q4, Valero paid out $97M in dividends and purchased
4.2M shares, and also increased its quarterly dividend 14% to $0.20 per share.
Equities Review

25
HollyFrontier Corp. (HFC) had an annualized return of 76.3%. Q4 EPS missed by $0.32 at $1.92, but
revenues beat by $0.21B at $5.14B. A major reason for lower than expected earnings was the increased costs per
barrel of production from $5.22 a year ago to $6.29 in Q4 which stem from unplanned downtime and turnaround
activity associated with the merger in July 2011. HFC also benefited from increased margins from their
advantageous location allowing them to take advantage of much cheaper domestic crude, generating a record
$3.1B of EBITDA in 2012. They completed turnaround at the Tulsa West refinery, and also completed and started
up a new coker furnace at the El Dorado refinery in Q4. The company paid out dividends totaling 39% of net
income and doubled the regular dividend from $0.10 to $0.20, as well as issuing five special $0.50 dividends
during 2012.
Apache Corp. (APA) struggled to maintain gains with an annualized return of -44.17% in our portfolio. The
company has seen a large drop in price of over 8% since their 2012 10-K earning release which disappointed
investors. Apache reported earnings for the full year of $3.767 billion and adjusted earnings per share of $9.63.
This beat analyst estimates of $9.589 earnings per share but investors were still overall disappointed in their
production outlook. Management announced that production might rise in 2013 by 3%-5% which is lower than
analyst estimates of 6.4%. This has disappointed the market, sending the stock lower despite its relatively attractive
valuation and deep assets. Despite these disappointments, Apache has made some positive moves in 2012. The
company produced $10.2 billion dollars in operating cash flow and increased oil/natural gas production by 6.3%.
Equities Review (Continue)

26
This was fueled by production growth within their massive assets in the oil rich Permian and Anadarko Basin. The
company also entered a deal with Chevron (CVX) to manage the Kitmat LNG project on the west coast of Canada.
This project will allow Apache to take advantage of the upcoming boom in the liquefied natural gas (LNG) market,
exporting LNG overseas where the commodity is in high demand due to its cheap price.
Occidental Petroleum (OXY) has also struggled in our portfolio with an annualized return of -38.54%.
Despite this, the company reported 2012 earnings of $5.734 billion and adjusted earnings per share of $7.09
beating analyst estimates of $6.94. The company has overall pleased investors with its focus on cost-cutting and
production growth. Starting in October, Occidental began a plan to reduce expenses by focusing on higher
returning assets, simplifying well design, and drilling in fewer geological plays. Company management has
claimed they are already well ahead of schedule on their timeline to reach their goal of a minimum of $300 million
in savings in operating costs. The shale-gas boom in the US has also greatly benefited Occidental. In 2012 they
had exceptional production growth from their US assets of 11%. The company also benefits from being an
independent oil producer since they can drill and produce crude without partnering with other firms allowing for
lower costs and greater profits from their wells. This helped them achieve an extremely impressive reserve
replacement ratio, a key industry metric measuring the amount of proved reserves to production, of 140%. This
means Occidental is replacing all their current reserves and growing production at an additional 40%.
Cheniere Energy, Inc. (LNG) posted an annualized return of 75.87%. Q4 EPS missed by $0.07 with a $0.19
per share loss, and revenues missed by $4M coming in at $67.4M. These losses are mainly attributed to major
development projects including the Sabine Pass Liquefaction Project and the Corpus Christi Liquefaction Project,
as well as lower of cost or market adjustments to existing inventory and lower export activity. Cheniere was given

27
permission by the U.S. Dept. of Energy to export about 15M metric tons per annum of domestically produced
liquid natural gas to FTA countries. This comes after Cheniere was the only company granted approval to export
by the Federal Energy Regulatory Commission.
Pioneer Natural Resources (PXD) had an annualized return of 17.06%. Q4 EPS missed by $0.05 coming in
at $0.83, but revenues beat by $35.12M at $818.7M. PXD averaged 156,000 barrels of oil equivalent per day which
was up 29% year over year and was at the top of their target range. Most of this growth came from the Spraberry
vertical, horizontal Wolfcamp Shale program, Eagle Ford, and the Barnett Shale Combo drilling programs. The
company announced they are initiating a $1B horizontal drilling appraisal program at their northern Wolfcamp and
Spraberry land for 2013 and 2014, and also announced that they are looking to complete a $1.74B transaction with
Sinochem expecting to close Q2 2013. For 2013, Pioneer is projecting production growth of 12% to 18%
depending on the price of WTI which they believe will range from $85 to $100.
ExxonMobil (XOM) has struggled to maintain significant gains with a 3.63% annualized return in our
portfolio. Earnings in 2012 were $44.9 billion while earnings per share for 2012 were $9.70. ExxonMobil has
continued to drive income growth through its downstream (refining) businesses, growing 196% for the year. The
company also is continuing to struggle to improve their exploration and production business whose growth was flat
for the year. To improve production the company purchased two companies, Denbury Resources and Celtic
Exploration, giving them promising assets in both the US and Canada. ExxonMobil also continues to diversify
their holdings by holding more natural gas assets. Their purchase of Celtic will help them improve natural gas
production which was surprisingly down 2.4% in 2012.

28
The uncertainty in the global macroeconomic environment gives us an unclear picture of price direction for
our commodities, which greatly affects our holdings. For the crude oil complex, this uncertainty makes it difficult
to determine where the price of oil is heading and could make it difficult for refiners to retain such high margins. If
oil prices increase and the spread between WTI and Brent crude continues to narrow, our refiners will lose out on
potential profits that come from this spread being as wide as it currently is. In the earlier part of the year, the price
of domestic crude dropped in comparison to Brent crude. This widening spread gave a big boost to refiners with
access to cheaper domestic crude. Also affecting refiners’ margins will be increased government regulations such
as requiring a greater amount of increasingly expensive ethanol in their road fuels. Additionally, the U.S.
government recently announced that it is requiring refiners to reduce the amount of sulfur in fuels from 30 ppm to
10ppm by 2017. This is going to add a large extra expense to refiners which will suck up profits from beneficial
margins. With the expectation of oil prices to rebound and the tougher government regulations, it might be harder
for refiners to see the same record profits they saw in 2012. In the area of liquid natural gas, we expect the
agreements with the U.S. Dept. of Energy and the Federal Energy Regulatory Commission to give Cheniere a great
competitive advantage. Adding to the agreements the expectation that the price of natural gas will rebound from
recent lows, 2013 looks promising for natural gas producers.
Equities Forecast

29
Before each trade is implemented, all the possible foreseen risks involved must be presented and discussed
with management. A formal trade proposal must be put in writing as to have a record of the initial justification and
risks associated with the trade. This also allows us to review trades and critique them based on new information
and changes in the market.
Each position is monitored on a daily basis and is adjusted accordingly. Each analyst is assigned a position
to monitor and is to report to upper management on a weekly basis.
Positions limits include:
No equity position can make up more than 20% of the portfolio
Futures contracts initial maintenance margin cannot exceed 50% of the total portfolio value
Despite our ability to lever our portfolio through Interactive Brokers (4.5x), management at this time does
not view the risk to return ratio optimal to increase debt.
Management advises that all speculative positions consider a corresponding hedge position.

30
Management Team
Management TeamVasile Tivadar
Co-Portfolio Manager
Jeremy Tranzillo
Co-Portfolio Manager
Peter Eller
Crude Oil Analyst
Neil Scheible
Oil & Gas Equity Analyst
Christopher Matthews
Oil & Gas Equity Analyst
Mike R. Lawhead
Natural Gas Analyst
James Reed
Gasoline Analyst

30
Jeremy Tranzillo
Energy Hedge Fund: Co-Portfolio Manager, April 2012 – Present
Head of Fixed Income, January 2012 – May 2012
M.B.A. St. Bonaventure University, May 2013
B.A. Psychology, SUNY Geneseo, December 2006
Vasile Tivadar
Energy Hedge Fund: Co-Portfolio Manager, April 2012 – Present
Energy Hedge Fund: Geopolitical Analyst, January 2012 – May 2012
Fixed Income Sector Research Associate, January 2012 – May 2012
Risk Management, Research Analyst, January 2012 – May 2012
Industrial Sector, Research Analyst, September 2011 – December 2011
B.B.A. Accounting and Finance, St. Bonaventure University 2013
Peter Eller Neil Scheible
Energy Hedge Fund: Oil Analyst, August 2012 - Present
Long Fund: Utilities Sector, Associate, January 2013 - Present
Long Fund, General Analyst, January 2012 - May 2012
B.B.A. Finance, St. Bonaventure University May 2014
Energy Hedge Fund, Oil & Gas Equity Analyst, August 2012 - Present
MicroFinance, Fund Member, September 2012 - Present
B.B.A. Management Finance, St. Bonaventure University, 2012
B.B.A. Finance, St. Bonaventure University 2013
Biographies
Biographies

30
Christopher Matthews
Energy Hedge Fund, Natural Gas Analyst, August 2012 - Present
MicroFinance, Fund Member, January 2013 - Present
B.B.A. Finance, St. Bonaventure University 2013
James Reed
Mike R. Lawhead
Energy Hedge Fund, Natural Gas Analyst, January 2013 – Present
Long Fund, Consumer Discretionary, Analyst, August 2012 – Present
B.B.A. Accounting, St. Bonaventure University 2015
Energy Hedge Fund, Gasoline Analyst, January 2013 – Present
Long Fund, Consumer Discretionary, Analyst, August 2012 – Present
B.B.A. Finance and Marketing, St. Bonaventure University 2014
Biographies
Biographies

30
We would like to thank all of the alumni, professors, fellow students, friends, and family for helping us have
another phenomenal year. Being part of the Energy Hedge Fund has been not only a great learning experience but
something that has positively affected all of our lives. Thanks again for all your help, advice, and encouragement
throughout the year!
Sincerely,
The Energy Hedge Fund Team
Follow us on Twitter @SIMMEnergyFund
Thank You
Biographies

Energy Hedge Fund, Annual Report 2013

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Energy Hedge Fund, Annual Report 2013

Similar to Energy Hedge Fund, Annual Report 2013 (20)

Energy Hedge Fund, Annual Report 2013