Chesapeake gains on asset sale, oils up as prices rise amid Canada fire; Weatherford walloped

By Paul Deckelman

New York, May 5 – Oil and natural gas issues were the focus of the day in the distressed-debt market on Thursday, particularly Chesapeake Energy Corp.

Its bonds were solidly higher after the big natural gas producer announced plans to sell some of its surplus acreage to Newfield Exploration Co., generating $470 million of proceeds.

It also announced quarterly results in line with analysts’ expectations.

Energy sector peers like California Resources Corp., Continental Resources Inc. and Whiting Petroleum Corp. were all seen having moved higher as oil prices improved; a large wildfire in Canada’s oil-producing region potentially threatening a disruption in crude supply was cited as a proximate cause for the upturn.

But things were less bullish for two companies providing services to the energy industry.

Oilfield services provider Weatherford International plc’s bonds fell sharply after the company reported disappointing quarterly results.

And CHC Group Ltd., which provides helicopter services to oil and gas companies, crash-landed in the bankruptcy courts Thursday, hurt by the energy industry downturn. Its bonds were active, though little changed on the session.

Away from the energy universe, communications satellite company Intelsat SA’s bonds lost altitude, with traders saying the company had pulled back after recently healthy gains.

Chesapeake churns higher

A trader said that Chesapeake Energy’s bond were “clearly the star of the day,” rising on news of an asset sale by the Oklahoma City-based oil and natural gas producer.

A trader saw its 8% second-lien notes due 2022 ending in a 66 to 67 bid context, calling them up 3 points.

“They traded as high as 69 today,” well up from Wednesday’s levels around 63½ bid, he said, “then they came off those highs a little.”

He saw the 8s as the most active issue in the company’s structure.

He also saw considerable activity in Chesapeake’s floating-rate notes due 2019, pegging those bonds up more than 3 points on the day at 63 bid, although they came off their highs of 66 bid.

Volume on the issue was more than $21 million.

The bonds shot up after the company announced that it will sell $470 million in assets in Oklahoma to Newfield Exploration as part of its plans to shore up finances. It said it expects further divestitures during the second and third quarters.

Chesapeake also lowered its forecast for 2016 production costs to $3.40 per barrel to $3.60 per barrel of oil equivalent from $3.60 per barrel to $3.80 per barrel of oil equivalent.

It said that it continues to weigh all options, including the use of additional secured debt, private transactions with bondholders and other types of exchange offers and open market purchases.

Its quarterly results were mixed, with earnings in line with estimates and revenue missing expectations.

Chesapeake’s net loss narrowed to $964 million in the just-finished quarter, from $3.78 billion a year earlier. The year-earlier period included one-time items of $3.8 billion. Excluding an $853 million impairment charge, the loss was 10 cents per share. Revenue fell to $1.95 billion, which missed analysts’ expectations for $2.55 billion in revenue.

Oil issues gain

Apart from Chesapeake, traders saw brisk upside activity in various energy exploration and production company bonds, helped by higher crude prices.

The benchmark U.S. crude grade, West Texas Intermediate for June delivery, gained 54 cents in Thursday trading on the New York Mercantile Exchange, settling at $44.32 per barrel, its second straight gain after three straight sessions before that of decline.

The key international benchmark grade, Brent crude for July delivery, broke out of a four-day rut in Thursday dealings on the London ICE Futures Exchange, ending the session at $45.01 per barrel, up 39 cents.

That was a contrast to Wednesday, when prices had been weaker on oversupply concerns, weighing on the various bonds.

The supply concerns faded on Thursday on the news of a raging wildfire in Canada’s oil-rich province of Alberta.

That caused as much as a third of Canada’s daily crude capacity to be cut and some major pipelines closed after more evacuations were ordered.

With a better price environment, energy issues moved up.

California Resources 8% notes due 2022 jumped by 4¼ points to 66½ bid on volume of more than $21 million.

Continental Resources’ 5% notes due 2022 were 1½ points better at 91½ bid, with over $20 million traded.

Whiting Petroleum’s 5 ¾% notes due 2021 gained ¼ point to close at 75½. Over $19 million of the notes changed hands.

Weatherford whacked down

Oilfield services provider Weatherford International failed to share in the oil sector’s rally; its bonds moved sharply in the opposite direction after the company reported a wider-than-expected first quarter loss.

“They were pretty active,” as trader said, seeing the company’s 9 5/8% notes due 2019 active around a 99 bid, 100 offered context.

He said that its 4½% notes due 2022 were actively trading within a 77 to 78 bid range, while “two days ago, they were at 86 bid, so they were down a bunch and the stock was down after their earnings miss.”

He likewise saw its 5 1/8 notes due 2020 dropping to 82 bid from 89 earlier.

“The various Weatherford issues were down anywhere from 5 to 8 points,” he said.

Excluding certain items, Weatherford lost 29 cents a share in the first quarter – worse than the 25 cent average loss that Wall Street had been expecting.

It also lowered its guidance on free cash flow for this year by $200 million to a range of $400 million to $500 million.

CHC hovers after filing

The news that CHC Group – which provides helicopter service to offshore energy locations – had filed for Chapter 11 “caused their bonds to go up a little,” a trader said.

He quoted the company’s 9¼% notes due 2020 up around 46 bid on the day, versus 44¾ bid before the news.

However, another trader saw the bonds ending about unchanged at 44¾ bid, on volume of over $11 million.

Intelsat bonds ease

Away from energy-related names, a trader said that there was a fair amount of activity in Intelsat paper, at lower levels.

He saw the communications satellite company’s 7¾% notes due 2021 dropping to 32 bid from the prior level of 34 bid, with over $16 million traded.

He said that he had not seen any fresh negative news out on the company, instead suggesting that the downturn was due to “profit-taking. They had a pretty good run-up recently.”

Pernix converts seen lower

Elsewhere, Pernix Therapeutics Holdings Inc. shares plunged 46% on Thursday after the Morristown, N.J.-based specialty pharmaceutical company reported a disappointing loss for its first quarter.

The Pernix 4.25% convertibles due 2021, of which $130 million priced in April 2015, weren’t heard in trade, but they were indicated down more than 5 points to about 27, according to a market source. The initial conversion price on the Pernix bond is $11.47. But the shares were trading at about $0.60 on Thursday.

-Rebecca Melvin contributed to this review

© 2015 Prospect News.
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