First step is to get all your ducks in a row. The oak I used is actually trim molding. 1/4 inch thick, 1/2 inch wide with one flat side and then one side the corners are chamfered. This stuff is very affordable, I paid .69 cents a foot at my local big box hardware store.
Step 1: Getting the Lead Out, Literally
So, after scouring the interwebs and only finding Chinese manufacturers on Alibaba that sell carpenter pencil lead by the thousands, I decided I'd have to very carefully carve out the lead from an existing pencil. I used a variety of tools, including a micro pull saw, pocket knife, and utility knife. By far the best though was an exacto knife with a new sharp blade. I broke the lead a couple times, but it was near the front and I was still able to use it.
Step 2: Mark Everything Out
I just used the lead itself to lay everything out. I marked the width out and then used a pair of dial calipers for the depth. I laid everything out on the end grain that way all my marks would line up between the two pieces. Then it was just a matter of transferring those marks down the length of each piece; I used a speed square to keep everything straight.
Step 3: Cutting the Groove
I live in an apartment so I couldnt really hammer away with a chisel to remove material. If this isn't an issue for you chisel away, just be careful on the depth, it really easy to go too deep. I used the above pictured tool the most. It's one of a set of wood carving tools. The technique that worked the best is scoring along my marked line to just above my desired depth and then coming in with the wood carver chisel to remove the material. Take your time. My tools weren't as sharp as I needed them to be so I had a lot of tear out and the fished daddo was pretty rough. But that's OK, we're filling this thing up with lead and glue. The glue will forgive our lack of precision on this build.
Step 4: Glue Up and Clamp
Once we have everything notched out, it's time to test for fit, then glue. You know its a good fit when you can put the lead in the bottom grooved wood piece and then place the top wood piece over it and there is no visible gap on long the side.
Place a good sized bead of wood glue in each daddo and carefully apply glue on each side of the lead, then assemble the pencil. Clamp the pencil along its length. Medium to large spring clamps are good for this, but use whatever you got. If you put enough glue in you'll get a lot squeezing out on the sides. This is OK, we will sand this down after its dried.
Step 5: Sanding and Finishing
I used a razor blade to scrape off the excess glue. Then hit it with various grits of sandpaper starting with 60 and working your way up to 220. Then apply your Finish of choice. I wanted to keep things natural so I just used a butcher block conditioner.
I wanted to apply paint to mine to give the pencil a more finished appearance. I had some "Oneshot" brand of enamel paint, so I used that, but you can use any paint that you have on hand. I was just painting the end of the pencil so I just dunked it in so I wouldn't have to deal with brushes and clean up. Give the paint time to dry, the it'll be time to "sharpen" our new pencil and call this project done! Let's go!!
Step 6: Sharpening the Pencil
To sharpen the pencil we will be cutting the top end of the pencil into a pyramid. The first step is layout the cut lines. To do this measure down from the top 1 1/2 inches. Draw a square line on all sides of the pencil based on that 1 1/2 inch mark. At the top of the pencil, on each side, place a mark at the center. Place a straight edge on the center mark and the corner of the 1 1/2 inch base line, draw a line. Then do this on the other side of the same face. What you'll end up with is a triangle on each face of the pencil blank.
Now we cut. There's a thousand and one ways to do so. I cut mine by hand. If you have power tools that's even better. A miter saw would be best to get accurate angled cuts. If you're cutting by hand use an exacto micro saw, or a micro pull saw, DeWalt makes good one. The key is to use a saw with a thin kerf.
Alternatively you don't have to sharpen your pencil in a pyramid like mine. You could go the rustic route and just eyeball your angles, but with hardwood you'll need to saw. That's it, we're done!
Step 7: Finished
I added a d-link to mine and put it on a retractable key clip for convince. The possibilities are endless as how you finish yours.