Falling oil prices hurt sector bonds; Consol weaker after warning of looming loss; coal mixed

By Stephanie N. Rotondo

Phoenix, July 20 – Distressed oil and natural gas names were in focus Monday as oil prices continued to wane.

West Texas Intermediate crude dropped 93 cents, or 1.83% to $49.96, marking the first time the product has fallen below $50 since April.

The weakness in crude has been attributed to supply concerns – that is, worries that there is too much oil on the market, especially the United States, which currently holds a record amount of crude in its stockpiles – this despite the fact that many domestic producers have ramped down production.

Fueling those concerns is the recent nuclear accord the United States inked with Iran, which lifted sanctions on the nation’s oil exports.

Since oil prices started to decline, oil and gas producers have seen their bottom lines shrinking. For one, Consol Energy Inc. warned Monday that lower energy prices will likely result in a loss for the second quarter.

That news didn’t do much to help the company’s bonds.

One trader said there were over 20 trades in the 5 7/8% notes due 2022, which he saw falling 2½ points to 75½.

“They were pretty active,” another trader said. “They were down a few points on their news.”

He pegged the issue in a 75 to 76 context, which was up from the day’s low around 74, but still “off a couple points.”

A third market source saw the 8% notes due 2023 declining almost 8 points to 83½.

In addition to warning of the quarterly loss, Consol also said it was planning to write down certain oil and gas assets, due to a continued decline in Nymex forward prices.

Elsewhere in the oil and gas space, a trader said Breitburn Energy Partners LP’s 7 7/8% notes due 2023 dropped 3 points to 71½.

A second trader called the issue off 3 to 4 points, seeing it trade in a 70 to 71 range.

The company’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) also took a serious hit amid crude oil’s sub-$50 slump.

The units finished the day at $15.78, down $1.12, or 6.63%. Nearly 238,000 shares were exchanged, well over the daily average of about 44,000 shares.

Coal sees some upside

While the oil and gas space weakened, there were some signs of strength in the coal arena.

Traders reported that Peabody Energy Corp.’s debt was moving upward, though there was no fresh news to act as a catalyst.

One trader deemed the 10% notes due 2022 up over a point at 49. The 6% notes due 2018 meantime gained half a point, he said, closing at 33 5/8.

“They recovered a couple points from their lows,” a second trader noted, placing the 10% notes at 49 as well.

However, some of Peabody’s sector peers did note fare as well.

Alpha Natural Resources Inc.’s 7½% notes due 2020, for instance, drifted down over a point to 22, according to a trader. That same trader pegged the 6¼% notes due 2021 at 3¾, which he said was half a point better.

But another source deemed the 6¼% notes a point weaker at 4½ bid.

Last week, it was reported that Alpha Natural was in talks with its creditors in hopes of lining up bankruptcy financing. That news came the same day Walter Energy Inc. filed for Chapter 11 protections.

© 2015 Prospect News.
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