Most oil issues firmer as crude rebounds; Bristow struggles after earnings miss

By Paul Deckelman

New York, May 26 – Traders in distressed bonds said that their sector was mostly quiet on Friday, in line with generally reduced trading in the larger high-yield bond market ahead of the three-day Memorical Day holiday observance in the United States.

They said that most energy-oriented names were doing better on Friday, bouncing back after falling Thursday in line with a steep slide in world crude oil prices. Investors were disappointed that OPEC and key non-OPEC producers had only extended their existing plans for curbing global daily oil output and had not increased the size of the planned output cuts.

The bonds of such oil names as California Resources Corp. and Denbury Resources Inc. as well as offshore energy driller Transocean Ltd. were all seen benefitting on Friday from a sizable snapback on the world crude markets.

Some energy issues, however, failed to share in the rebound, including Chesapeake Energy Corp.’s new 10-year notes, which priced earlier in the week. That paper was in retreat on Friday.

Bonds of Bristow Group Inc., which provides helicopter transport services mostly to the offshore energy drilling industry, were under pressure on Friday, in line with a sharp downturn in the company’s shares in the wake of its latest quarterly earnings report, which missed analysts’ expectations for the most part and which was said to have offered uninspiring guidance.

GenOn Energy Inc.’s paper was on the downside in the wake of a Standard & Poor’s ratings downgrade, although the power producer is continuing with its previously announced distressed-debt exchange.

Oil issues mostly better

Amid a generally quiet pre-holiday market – with many participants out altogether or leaving early ahead of the three-day Memorial Day weekend in the United States – traders saw energy names largely better, in line with the rebound in crude prices.

Los Angeles-based oil and gas company California Resources’ 8% notes due 2022, for instance, were seen by a trader Friday to have “picked themselves up” after losing more than 2 points in active dealings on Thursday. They closed Friday up 3/8 point at 77 1/8 bid on volume of over $15 million.

Plano, Texas-based sector peer Denbury Resources’ 6 3/8% notes due 2021 gained ¾ point on the day, going home at 77¾ bid.

Yet another sector name on the upside was that of offshore energy drilling contractor Transocean, whose 6½% notes due 2020 were seen by a trader up 1 7/8 points on the day, going home at 103 bid.

Crude price roller-coaster

California Resources, Denbury and many other energy names had finished lower on Thursday in line with a more than $2.50 per barrel slide in world crude prices, prompted by investor disappointment that the Organization of Petroleum Exporting Countries and key non-OPEC oil producers, while agreeing to extend the current regime of output cuts through next March, did not agree to bigger output cuts to prop up crude oil prices.

Oil prices had risen sharply – around $5 per barrel – during the two weeks leading up to the OPEC meeting on expectations that the current system of daily output curbs would not only be extended but would be increased to take even more oil off the global markets

When that did not happen, crude prices went into a freefall

The July contract for the benchmark U.S. crude grade, West Texas Intermediate, lost 11 cents per barrel in Wednesday trading on the New York Mercantile Exchange, its first loss after five consecutive upside sessions – and then plunged by $2.46 per barrel on Thursday.

It was the same story on the London ICE Futures Exchange, as July contract North Sea Brent oil fell by 19 cents per barrel on Wednesday and then swooned by $2.50 per barrel on Thursday.

Those declines hammered the shares and bonds of the various crude producers and associated companies – California Resources 8% notes had plummeted 2¼ points Thursday, with over $29 million traded.

However, by Friday, traders and analysts said that the selloff in crude which had also dragged the energy stocks and bonds lower along with it had run its course.

They said that sector investors seemed to have gotten over the initial disappointment, with the bonds of most E&P names seen up off their Thursday closing lows as crude prices themselves regained some of their lost ground.

July WTI was up by 90 cents per barrel in Friday trading on the NYMEX, settling in at $49.80.

July Brent was up by 69 cents per barrel in London Friday, settling in at $52.15.

Some oils buck the trend

However, in this case, at least, the proverbial “rising tide” was not lifting all boats.

Chesapeake Energy’s new 8% notes due 2027 fell by 11/16 point on Friday to end at 99 5/16 bid, with around $13 million of volume.

The familiar Oklahoma City-based natural gas and oil exploration and production company had priced a quickly shopped $750 million of those notes at par on Monday. While they had gotten as good as around the 101 bid level during the week, they were seen ending Friday at or below their par issue price.

Another reported outlier was Houston-based EP Energy Corp. Its 9 3/8% notes due 2020 lost more than 1 point on the day to finish at 93¼ bid.

Bristow bonds battered

A trader said that Bristow Group Inc.’s 6¼% notes due 2022 surrendered more than 5 points on the session Friday, flying home at 65 bid.

The slide in its bonds coincided with a sharp fall in the Dyce, U.K.-based helicopter transport company’s New York Stock Exchange-traded shares, which sank by 24 cents, or 3.15% on Friday, to $7.36, on heavier-than-usual volume of 3.8 million shares.

Those shares were downgraded on Friday by SG Cowen to just “market perform” from “outperform” previously. It set a $7 per share price target – half of its previous $14 per share estimate.

The Cowen analysts cited the company’s larger-than expected fiscal fourth-quarter loss and reduced cash-flow projections.

Bristow at midweek reported quarterly numbers, including a $1.15 per share loss, more than double the 46 cents of red ink that Wall Street had been expecting. Revenues of $323.6 million were down by 13.8% from a year earlier and missed analysts’ expectations of around $325 million or $326 million.

GenOn retreat continues

A market source said that Princeton, N.J. power generator GenOn’s 9½% notes due 2018 fell by 3 points on Friday to 72 bid.

That followed the announcement Thursday that S&P Global Ratings had lowered its issuer credit rating on GenOn Energy to CC from CCC- and cut its secured and unsecured debt to CCC and CCC-, respectively, from CCC+ and CCC.

In downgrading the bonds, S&P said the action stems from the company’s recent SEC filing indicating that GenOn was pursuing an exchange with existing debtholders.

“The negative outlook reflects our expectation of a near-term event of default, either via a distressed exchange or through a voluntary bankruptcy filing,” the ratings agency said.

© 2015 Prospect News.
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