Energy stocks rally amid conference and indicators; China economic data uplifts coal; after downgrade, CF looks up

By Colin Hanner

Chicago, Oct. 19 – Distressed debt saw big gains from the energy sector after several indicators pointed to renewed optimism in global oil supply, the state of energy production in areas around the U.S. and Chinese economic data.

“Signs of stabilization in the oil and gas sector continued, while coal production was up in the Cleveland and Richmond Districts but down in the St. Louis District,” according to the latest Beige Book, an economic report that gathers anecdotal information from 12 districts.

Four districts—Cleveland, Minneapolis, Kansas City and Dallas—reported an increase in drilling and/or exploration.

Oilfield services continued to be depressed in Dallas despite higher counts of rigs, and Atlanta reported a continual decline in crude oil inventories.

Optimism among two districts, Kansas City and Dallas, loomed, while many respondents in Dallas said, “they expect 2017 to be a better year than 2016.”

Uncertainty about the Organization of Petroleum Exporting Countries were somewhat put to rest on Wednesday at the Oil & Money conference, the energy industry’s leading conference. Amidst uncertainty of which countries will participate in supply cuts, Saudi Arabia’s Minister of Energy and Industry Khalid Al-Falih reaffirmed that several OPEC countries will take part in cutting production, and OPEC Secretary-General Mohammed Barkindo said Russia will not pull out of the agreement as previously speculated.

The Energy Information Agency released last week’s U.S. Petroleum Balance Sheet on Wednesday. The week ending Oct. 14 saw a 5.2 million-barrel decline in crude oil, or 1.1%, from the previous week.

Oil names trend up

The Oklahoma City, Okla.-based petroleum and natural gas exploration and production company, Chesapeake Energy Corp., saw gains. A market source said the 4 7/8% notes due 2022 were up 2 points to 87. The 6¼% notes due 2020 were up 1¼ to 96.75.

MEG Energy Corp.’s 7% notes due 2024 were the day’s second-largest gainer in high yield, up 3½ to 89¾.

Natural gas and oil exploration company California Resources Corp. was up again on Wednesday. Its 8% notes due 2022 were up 1½ to 75.

Plano, Texas-based Denbury Resources, Inc.’s 6 3/8% notes due 2021 were up ¾ to 87.75.

GenOn Energy’s 9½% notes due 2018 were up ¾ to 81¼.

Stone Energy Corp. rounded out oil and natural gas gainers, as their 7½% notes due 2022 were up ½ to 59½.

Third quarter economic indicators for the world’s second-largest economy were released Wednesday, and retail sales outperformed industrial production in China. Industrial output rose 6.1%, while retail sales rose 10.7%.

Though exports were less of an impact in the country in the 6.7% growth in the past quarter, and more focus was on investment and consumption, China continues to produce more steel as compared to a year previous.

Total output for crude steel was 603.78 million tons in the first nine months of 2016, and totals for September saw a 3.9% uptick from a year ago.

That means coal companies – like the rising Peabody Energy Corp. – continue to see increases that have characterized much of the past two weeks due to Asian markets. The St. Louis-based coal company’s benchmark deal at $200 a ton with Japan-based Nippon Steel & Sumitomo Metal Corp. may be the characterizing deal for the short-term prospects of coal.

Peabody’s 6% notes due 2018 traded “up 6 points to 43¼,” one trader said.

“There was heavy volume there,” the trader said.

The 10% notes due 2022 were up” 6¾ to 64 on similar heavy volume,” and the 6¼% notes due 2021 were up 5¼ points to 43.

Since Oct. 13, Peabody’s stock has increased more than 130%, or $2.13, to $3.76.

Market round up

CF Industries Holdings Inc., downgraded to junk by S&P Global Ratings on Tuesday, were again “very active” on Wednesday. The 4.95% notes due 2043 were up 4½ points to 86¾, and the 3.8% notes due 2023 traded up 2 points to 95 3/8, a trader said. Its 5.15% notes due 2034 traded up 3 points to 89¾.

The company’s 8% notes due 2022 traded up 2 points to 75¼.

Freeport-McMoRan Inc., unchanged in Tuesday’s session, were up on Wednesday. The 3 7/8% notes due 2023 were down ½ to 89¼.

iHeartCommunications Inc.’s 9% notes due 2022 traded up ¼ to 75¼, a trader said.

Intelsat Corp.’s Jackson-linked 7½% notes due 2021 were up 1 point to 77¼, a market source said, and its Jackson-linked 7¼% notes due 2019 were up 1 to 82¾.

The Santa Clara, Calif.-based tech company, Avaya Inc., though only trading its 10½% notes due 2021 on “a half dozen trades,” traded up 5 points to 34½.

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