Oil and gas preferreds drop as OPEC projects weaker 2015 demand; TravelCenters frees up

By Stephanie N. Rotondo

Phoenix, Dec. 10 – The preferred stock market was trading off with the broader markets Wednesday following news that OPEC is expecting to see a worsening decline in oil demand in 2015.

On the heels of that, a trader said that “oil and natural gas guys are jumping around again.”

Bellwether name Goodrich Petroleum Corp. was certainly following that trend, despite gaining about 40% to 50% in value on Tuesday in response to a modest surge in oil prices.

The oil producer also put out a capital expenditure and operational update on Wednesday. Of note in the release was the announcement that the company is looking to sell its Eagle Ford Shale assets in the first half of 2015.

Back in the primary, a trader said that TravelCenters of America LLC’s $120 million of 8% $25-par senior notes due 2029 had freed to trade.

The deal priced before the market closed on Tuesday via Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, RBC Capital Markets LLC and UBS Securities LLC.

The trader quoted the issue at $24.60 bid, $24.70 offered at mid-morning. After the bell, a market source said the notes were trading around $24.60 for most of the day but went out $24.68 bid, $24.72 offered.

The issue had closed at $24.55 on Tuesday.

There was meantime little talk of any other new deals coming for the week, the trader said.

However, the trader speculated that banks – specifically JPMorgan Chase & Co. – might enter the market in early 2015 in order to raise more capital following a new capital requirements rule the Federal Reserve laid out on Tuesday.

Under the new rule, the eight biggest U.S. banks could be forced to raise as much as an additional 1% to 4.5% of risk-adjusted assets by 2019. Across the board, the Fed said banks would likely see a capital shortfall after the new rule goes into effect, but that JPMorgan might be the hardest hit, with a projected shortfall of as much as $22 billion.

The bank’s 6.3% series W noncumulative preferreds (NYSE: JPMPE) closed down a penny at $25.32 on Wednesday.

Goodrich under pressure

Goodrich Petroleum’s preferred issues were trading down with the market, which was being propelled by another decline in oil prices.

The 10% series C cumulative preferreds (NYSE: GDPPC) were off $1.18, or 12.05%, to $8.61, while the 9.75% series D cumulative preferreds (NYSE: GDPPD) fell $1.12, or 12.51%, to $7.83.

As for oil prices, West Texas Intermediate crude oil declined $2.51, or 3.93%, to $61.31 per barrel. Brent crude dropped $2.20, or 3.29%, to $64.64 – the first time the commodity has traded below the $65 mark in at least five years.

The pressure on oil came on the heels of news regarding OPEC and its projected demand for its product in 2015. The oil-selling group – which includes countries like Saudi Arabia, Iraq and Kuwait – reduced its projections by 300,000 barrels per day to 28.9 million per day – the lowest output level seen since 2003.

Additionally, Saudi Arabia, Iraq and Kuwait in particular were said to be offering the deepest discounts in six years to its Asian customers.

However, comments made by the Saudi oil minister concerned investors. Ali Al-Naimi intimated that he saw no reason to cut production of oil while responding to reporters’ questions at a United Nations meeting on climate change in Lima, Peru.

Along with the continued retreat of oil, Goodrich also had news of its own on Wednesday.

In a press release issued early in the day, the Houston-based company said it had cut its preliminary capex budget to $150 million to $200 million. Going into the fourth quarter, the company said it had $134.2 million of pro forma liquidity, not counting an expected $20 million reduction due to the sale of its East Texas Cotton Valley assets.

Goodrich opined that the funds would be enough to execute its capital plan.

The company also said that it was looking at ways to divest its Eagle Ford Shale assets, “which would significantly enhance the company’s flexibility to further expand its development activities under better market conditions.”

But Goodrich wasn’t the only oil name losing ground during midweek trading.

Vanguard Natural Resources LLC’s 7.875% series A cumulative redeemable preferred units (Nasdaq: VNRAP) were also weak but not as much as Goodrich on a percentage basis.

That issue finished down 19 cents at $19.05.

Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) ended the day off 29 cents, or 1.54%, at $18.50.

“I’m sure somebody is looking to dump it,” a source said, noting that the units were among the day’s most actively traded securities.

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