Energy bonds up as crude oil rises; Seventy Seven loan firms; Freeport-McMoRan gains continue

By Paul Deckelman

New York, Feb. 17 – The recently battered bonds of the energy sector were firming on Wednesday, traders said, helped by signs that world crude oil producers may finally start curbing their output – specifically, oil producer Iran welcoming plans by fellow producers Russia and Saudi Arabia to cap crude oil production at January levels.

That helped to drive crude prices higher. Both Brent and West Texas Intermediate posted hefty gains, rebounding from Tuesday’s losses.

And that in turn helped to give a lift to such names as Whiting Petroleum Corp., which continued to rebound solidly after having been beaten down on Friday by a massive credit ratings cut by Moody’s Investors Service.

Other oil and gas issues seen higher included Chesapeake Energy Corp., California Resources Corp. and Denbury Resources Inc.

Already helped by the overall energy rise, Seventy Seven Energy Inc.’s bonds and term loan B moved higher following the announcement of the company’s quarterly numbers.

Metals mining and energy concern Freeport-McMoRan Inc.’s paper continued to rise, helped by news of a planned company asset sale.

A trader saw AK Steel Holding Corp.’s bonds and shares better, helped by the prospect that higher oil prices may lead to increased drilling activity, which would translate into orders for steel with which to build drilling rigs.

Whiting rebound rolls on

For a second straight session, Denver-based Whiting Petroleum’s bonds were on the rebound after having gotten hammered down on Friday when Moody’s Investors Service dropped the company’s corporate family rating by multiple notches.

A trader on Wednesday saw Whiting’s 5¾% notes due 2021 up 3¾ points, locating the bonds at 45¼ bid, on “fairly active” trading of nearly $20 million.

A second trader had the bonds doing even better, seeing them go home at 47 bid, which he called up 5½ points on the day.

And he said that Whiting’s 5% notes due 2019 rose 4 points on the session to end at 47½ bid, with over $14 million traded.

He had seen the two issues gain 1¾ and 2¾ points, respectively, on Tuesday.

Whiting’s bonds were bouncing back from a badly oversold condition encountered at the end of last week after Moody’s cut its corporate family rating on the company to Caa1 from Ba2. The rating agency cited the likelihood of weak cash flows this year and into the next as hedges start to expire. On top of that, it said that the oil and gas producer has a heavy debt load, increasing the possibility of a debt restructuring.

“While we recognize the steps that Whiting has undertaken in response to weak pricing levels, we believe the ability to further adjust to a lower price environment will be more challenging and the timing and execution of assets sales more uncertain,” Moody’s said in its statement.

Energy issues improve

Whiting was also helped by the upturn in world crude oil prices on Wednesday, as were many other energy issues.

“Energy was active today, with oil making a rebound – a pretty decent move.”

Among the oil and natural gas names seen moving up were Chesapeake Energy’s 8% notes due 2022, which gained 1 point, closing at 37½ bid, on volume of over $15 million.

A trader saw Denbury Resources’ 4 5/8% notes due 2023 up ½ point at 18¼ bid. The company’s 6 3/8% notes due 2021 gained a deuce on the day to finish at 25 bid.

California Resources’ 6% notes due 2024 improved to 12 bid, 13¼ offered, a gain of 1 point on the day.

The news that oil producer Iran would welcome plans by fellow producers Russia and Saudi Arabia to cap crude oil production at January levels helped to drive crude prices higher. Both Brent and West Texas Intermediate posted hefty gains, rebounding from Tuesday’s losses.

WTI for March delivery rose by $1.62 per barrel Wednesday on the New York Mercantile Exchange, settling at $30.66, its second gain in the last three sessions; it had been off by 40 cents per barrel on Tuesday.

Brent crude for April delivery shot up by $2.32 per barrel in Wednesday dealings on the London ICE Futures Exchange, settling at $34.50, in contrast to Tuesday’s $1.21-per-barrel loss.

Seventy Seven loan improves

Another oil and gas-related name benefitting from the surge in oil prices on Wednesday was Seventy Seven Energy, the Oklahoma City-based provider of wellsite services and equipment to U.S. land-based exploration and production customers that was spun off by former corporate parent Chesapeake Energy in 2014.

On top of that boost, a trader said that its term loan B moved higher in the secondary market on Wednesday following the announcement of the company’s quarterly numbers.

The term loan B was quoted at 58 bid, 60 offered, up from 57 bid, 59 offered, the trader said.

For the fourth quarter, the company reported a net loss of $60.6 million, or $1.18 per fully diluted share, compared with a net loss of $9.4 million, or $0.20 per fully diluted share, for the fourth quarter of 2014.

Revenues for the quarter were $192.8 million, versus $494.9 million in the comparable period in 2014.

And adjusted EBITDA for the fourth quarter of 2015 was $56.3 million, compared with $104.6 million in the prior year.

Along with earnings news, Seventy Seven Energy reiterated in its press release that it has retained restructuring advisers and is actively exploring and evaluating various strategic alternatives to reduce the level of its long-term debt and lower its future cash interest obligations.

The strategies being examined include, among other things, debt repurchases, exchanges of existing debt securities for new debt securities and exchanges or conversions of existing debt securities into new equity securities.

The company went on to say that one or more of these strategic alternatives could potentially be done through voluntary bankruptcy proceedings.

“Based on current market conditions, the company believes that a restructuring of its long-term debt is needed to improve its financial position and flexibility and to better position it to take advantage of the growth opportunities that are likely to result from the current industry downturn,” the release added.

Over on the bond side of the fence, a trader meanwhile said that Seventy Seven’s paper was unchanged on Wednesday, with its 6 5/8% notes due 2019 at 10 bid, 12 offered and its 6½% notes due 2022 trading flat, or without accrued interest, in a 1-to-4 bid context.

Freeport firming continues

A trader said that pretty much as had been the case on Tuesday, Freeport-McMoRan’s split-rated (B1/BBB-) notes “were active volume-wise, and they moved up.”

He saw the Phoenix-based copper and gold mining company and oil and natural gas producer’s “whole structure up anywhere from 3½ to 4½ points.” The debt was given a big boost by the news that the company plans to sell 13% of its ownership interest in its Morenci unincorporated joint mining venture to its Japan-based partner, Sumitomo Metal Mining Co., Ltd. Freeport will thus reduce its stake in the joint venture to 72% from 85%, with Sumitomo and its affiliates upping their participation to 28% from 15%.

Freeport expects to reap $1 billion in cash from the transaction and use the asset-sale proceeds to reduce its debt.

Freeport also reported another piece of good news – savvy billionaire investor Carl Icahn is buying an additional 4 million shares of the company, bringing his stake to 9%.

Adding to the better than 3-point gains seen on Tuesday, Freeport’s 5.4% bonds due 2034, the company’s most active issue, rose another 2 points on Wednesday to end at 47¾ bid, with more than $50 million of those notes having changed hands.

Its 3.55% notes due 2022, up nearly 2½ points on Tuesday, tacked on another 3¾ points Wednesday to end above 55 bid, on volume of over $32 million.

Its 2 3/8% notes due 2018, which zoomed 6 points on Tuesday, were 3½-point winners on Wednesday, closing at 76½ bid, on volume of over $24 million.

AK Steel improves

The good news on the oil price front was seen helping steel producers, who expected to start selling steel to the fabricators of derricks, drills and other equipment used to produce oil and natural gas once prices pick up and drilling begins in earnest.

West Chester, Ohio-based AK Steel’s 7 5/8% notes due October 2021 were seen by a trader up 1½ point, at 36½ bid, though he said that this was on “a handful of trades.”

Another market source said its 7 5/8% notes due May 2020 rose 4½ points to 39½ bid.

The company’s New York Stock Exchange-traded shares meantime rose 18 cents, or 7.53%, to close at $2.57 per share, on volume of 8 million, almost twice the norm.

Sara Rosenberg contributed to this review

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