Energy outperforms as better-bid convertibles market trades mostly in line; Whiting gains

By Rebecca Melvin

New York, March 2 – Energy convertibles continued to improve on Wednesday as the price of oil edged up again and energy shares bounced.

“I don’t know if it’s short covering or what, but energy is having a bounce,’’ a Connecticut-based convertibles trader said.

Whiting Petroleum Corp.’s 1.25% convertibles jumped another 3 points to trade at 43 near the end of the session. The bonds had gone out at 40 on Tuesday and were in the middle 30s last week. Shares of the Denver-based energy exploration and production company surged 85 cents, or 19.5%, to $5.20 on Wednesday.

Cobalt International Energy Inc.’s convertibles were also up a couple of points as shares of the Houston-based energy exploration and production company gained 9.5% to $3.00.

Chesapeake Energy Corp.’s convertibles jumped about 3 points on average with the Chesapeake 2.25% convertible bond up 5 points on the day, a trader said. Shares of the Oklahoma City-based natural gas company gained another 23% to $3.40 on Wednesday after climbing 24% on Tuesday.

Volumes were light in energy trades, however, the trader said.

The news that Aubrey McClendon, a founder and former chief executive of Chesapeake, died Wednesday in a fiery car crash the day after he was indicted on bid rigging charges didn’t have any influence on market moves, a trader said.

McClendon’s death came less than 24 hours after he was indicted by the Department of Justice on antitrust charges. He was due to appear in court Wednesday morning but never arrived there.

The charges alleged that the energy executive was involved in a “campaign” to keep oil and natural gas land lease bid prices down by agreements struck between companies over which ones would win the leases.

In a statement late Tuesday, McClendon vigorously denied the charges, saying he was singled out and that he would fight to clear his name.

With McClendon at the helm, Chesapeake issued many convertibles and the company became known as a “serial issuer.” While his name was recognized in the space and the shocking news riveted attention on Wednesday, there was no real impact on the market, a trader said. A second trader said, “Honestly, I don’t know about the impact on the space.”

Elsewhere in the convertibles market, there was “not a ton of movement,” and while there was a stronger bid to the market, volumes were generally light and pricing was mostly flat, or in line with the moves in the shares underlying the convertible issues, sources said.

In the early going there was little follow through on issues that were active on Tuesday and there was no deal news in the primary market for yet another session.

Market players are “mostly sitting around hoping that stuff that went south will come back,” a New York-based trader said.

In the broader markets, equities were mostly on pause after a rally on Tuesday. The Dow Jones industrial average closed up near its highs of the session, adding 34.24 points, or 0.2%, to 16,899.32; the S&P 500 stock index gained 8.10 points, or 0.4%, to 1,986.45; and the Nasdaq stock market edged up 13.83 points, or 0.3%, to 4,703.42.

Crude oil gained 26 cents, or 0.76%, to $34.66 per barrel for April delivery of West Texas intermediate. The move was despite data showing a huge build in stockpiles.

The Energy Information Administration reported crude inventories rose by 10.4 million barrels to a total of 518 million barrels. The build was much larger than the 3.6 million barrel increase that analysts expected.

Meanwhile there were hopes that production of crude would be curbed as producers that are part of the Organization of Petroleum Exporting Counties and others stepped up diplomatic efforts to tame the supply glut.

Volatility was lower on Wednesday. The CBOE volatility index dropped 4.35% to 16.93.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Inc. NYSE: CIE

Whiting Petroleum Corp. NYSE: WLL

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