Energy tanks with lower oil; Chesapeake extends losses; Priceline, salesforce.com move up

By Rebecca Melvin

New York, Feb. 9 – Another drop in crude oil prices on Tuesday led stocks and convertibles in the energy sector lower again, with Chesapeake Energy Corp. leading losses after a precipitous drop on Monday.

“We were pretty active in Chesapeake,” a New York-based trader said about Tuesday’s session.

The Chesapeake 2.5% convertibles dropped another 4 points and the Chesapeake 2.25% convertibles were down about 1.5 points, a second New York-based trader said. The Chesapeake 2.5% convertibles had lost more than 50% of their value on Monday.

The convertibles of other energy names that were lower included those of Whiting Petroleum Corp., Cobalt International Energy Inc. and Cheniere Energy Inc., although the underlying stock of Cheniere was notable in that it was positive on Tuesday. Southwestern Energy Co.’s mandatories were also lower on an outright basis but largely unchanged on a dollar-neutral basis, a trader said.

The energy sector was led lower by another drop in crude oil prices after the U.S. Energy Information Administration forecast rising inventories this year and cut its price forecasts, saying crude oil prices are likely to fall even further as a global oil glut worsened in January.

In its monthly report, the EIA also said that oil consumption may falter as risks to growth grow in Brazil, Russia and China.

West Texas Intermediate crude oil for March delivery fell $1.75, or 6%, to $27.94 a barrel on the New York Mercantile Exchange and is down 16% this month.

Brent crude oil fell $2.56, or 7.8%, to $30.32 a barrel on the ICE Futures Europe.

As the crash in oil prices remains ongoing, investors fear that many energy companies teeter on the verge of bankruptcy, and those bankruptcies become, in turn, a threat to the banks and investors that have loaned money to the faltering companies.

Elsewhere, some convertibles traded a little bit higher on an outright basis in line their underlying shares as market players sought shorter-dated, better-quality credits in light of uncertainty and volatility that have weakened equity markets.

Priceline Group Inc.’s 1% convertibles were up by more than a point on an outright basis to 120.5, according to Trace data, with shares of the Norwalk, Conn.-based travel site up about $17.00, or 1.8%.

Salesforce.com Inc. saw its convertibles higher with its stock up 6.6% after a rating upgrade by Jefferies to “hold” from “underperform.”

Salesforce.com’s 0.25% convertibles due 2018 traded back up to about 111 from 108.5 on Monday and 111 on Friday, as shares gained $3.53, or 6.6%, to $57.64.

Chesapeake drops further

Chesapeake’s 2.5% convertibles due 2037, which are callable in 1.25 years, traded down to 21.50, which was down from about 23 early Tuesday, and represented a collapse by more than 50% since Monday amid fears that the Oklahoma City-based natural gas producer may have to file for Chapter 11 bankruptcy or significantly restructure its debt.

The company denied that it is considering bankruptcy but said it has hired law firm Kirkland and Ellis LLP to help it look for ways to strengthen its balance sheet following a recent debt exchange.

The Chesapeake 2.25% convertibles traded down to about 14.5.

One series of the Chesapeake 5.75% convertible preferred shares slipped to about 68 from 72, and a second series of 5.75% Chesapeake convertible preferreds was seen down at about 66.

Chesapeake shares fell another 4.4% to $1.95.

Some pundits noted that Tuesday’s IEA report was nothing new, and that supply has been outstripping demand for some time, but selling started again with some intensity on Tuesday.

Other convertible energy names that were lower included Whiting’s 1.75% convertibles, which were down another 3 points, against shares of the Denver-based oil and gas company that slid 9% to $5.66.

Cobalt’s 3.125% convertibles were down about 2 points, while the Cobalt 2.625% convertibles dipped only about 0.5 point against shares that fell 6.3% to $2.66.

Meanwhile Cheniere’s convertibles were down about 1.5 points, even though Cheniere shares gained 81 cents, or 3.4%, on the day to $24.46.

Mentioned in this article:

Cheniere Energy Inc. NYSE: LNG

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Inc. NYSE: CIE

Priceline Group Inc. Nasdaq: PCLN

Salesforce.com Inc. NYSE: CRM

Whiting Petroleum Corp. NYSE: WLL

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