Oil sector drops after unsuccessful OPEC supply talks; Valeant down on probe news; CHS keeps falling

By Colin Hanner

Chicago, Oct. 31 – Oil slumped after countries failed to come to agreements with cutting supply in the glutting market, causing energy sector bonds to decline in distressed-debt land on Monday.

Plano, Texas-based Denbury Resources Inc. was one of the day’s biggest decliners in energy, specifically its 6 3/8% notes due 2021, which were down 2¾ points to 82, a market source said.

Over the weekend, the Organization of Petroleum Exporting Countries High-level Committee met with non-OPEC oil-producing countries in Vienna and failed to reach a conclusion on whether to cut oil supplies to combat a glut that has kept prices low.

Producers will meet at the OPEC Ministerial Conference on Nov. 30 to attempt to reach a supply cut agreement.

“The negative impact of prolonged low oil prices, which has resulted in deep cuts in upstream investments, is expected to extend into an unprecedented third year,” an OPEC release said.

Monday also saw the merger of two gas and oil giants – General Electric Co. and Baker Hughes Inc. – which will now stand as the second-largest oilfield service provider in the world.

West Texas Intermediate crude fell $2.01, or 4.13%, to $46.69.

Brent crude fell $1.41, or 2.84%, to $48.30.

Precision Drilling Corp.’s 5¼% notes due 2024 were virtually unchanged on the day on two trades, hovering around the 88½ handle, a market source said.

The Calgary, Alta.-based oil and gas industry driller made several moves on Monday, first announcing that it plans to sell $350 million seven-year senior notes, then saying it will use the proceeds of the new issue to redeem $200 million of outstanding senior notes due 2019.

S&P assigned the new issue a BB-level rating and a 4-recovery rating. Moody’s Investors Service gave a B3 rating to the notes.

Canadian oil sands producer MEG Energy Corp.’s 7% notes due 2024 were down 1¼ points to 84¼, according to a market source.

Linn Energy’s 8 5/8% notes due 2020 were down 2 points to 32, a market source said. Its 7¾% notes due 2021 were down 1 point to 32, and its 6½% notes due 2019 were down 1 point to 32¾-33 zip code.

The 6½% notes due 2021 were up ½ point to 32.

EP Energy had one trade on the day in its 6 3/8% notes due 2023, per a market source, and were down 2 points to 67 9/10.

Its 7¾% notes due 2023 traded down 2 points to 69 and traded as low as 68½, a market source said.

Chesapeake Energy Corp.’s 5¾% notes due 2023 were up ½ point to 87½, a trader said, and its 4 7/8% notes due 2022 saw steeper declines on lower-volume trading, finishing at 82½ from 86¼ during Friday’s trading.

Rounding out oil producers were recent Chapter 11-filer Stone Energy, whose 7½% notes due 2022 were down 1½ points to 60½, and California Resources, which also saw a 1½ downward point swing to 69½ in its 8% notes due 2022.

Health scare

Valeant Pharmaceuticals International Inc. grabbed late-afternoon headlines with reports surfacing that U.S. prosecutors have been investigating former chief executive officer J. Michael Pearson and former chief financial officer Howard Schiller.

Authorities believe the two – and possibly more – might be behind accounting fraud charges having to do with Philidor Rx Services LLC, a company that may have been secretly run by Valeant.

Valeant did not comment on the allegations after the report came out.

Its 5½% notes due 2023 were down nearly 2 points to 78, a market source said, and its 7½% notes due 2021 were down 1¼ points to 89.

After dropping into distressed territory last week after a poor preliminary quarterly earnings release, Community Health Systems Inc.’s 6 7/8% notes due 2022 teetered between a 74½-77 handle but finished down 1½ points from Friday’s trading to 75, a market source said.

A trader had the notes down ½ point to 76.

The company’s 8% notes due 2019 were down 1-1½ points to an 88 zip code, a market source said.

Round up

Intelsat SA’s Jackson-linked 7¼% notes due 2020 traded as high as 76, but remained unchanged on the day at 75, according to a market source.

The communications satellite company announced that it will redeem the outstanding Jackson-linked 6 5/8% notes due 2022.

In coal, Peabody Energy Corp. continued its descending pattern of the past few trading sessions, particularly in its 6½% notes due 2020, which were down 1½ points to 44, a market source said.

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