New WPX mandatory slips with lower shares; energy sector weakens further; Jarden expands

By Rebecca Melvin

New York, July 17 – WPX Energy Inc.’s newly priced 6.25% mandatory convertibles edged up initially, but then moved lower on Friday after the Tulsa, Okla.-based energy exploration and production company priced an upsized $350 million of the preferred shares at the midpoint of price talk.

The WPX mandatories traded up to $50.50 to $50.75 from their $50.00 par and then fell to $49.00 when the common stock sold off, a New York-based trader said.

Back in established issues, the energy sector continued to weaken. Oil, gas and coal names across the board were down 1 or 2 points for the week, the trader said.

He attributed weakness to “a confluence of events” that have resulted in global oversupply and lower demand, with the Iran nuclear deal signed Tuesday adding to the existing sentiment.

The Iran deal signed by the United States, the United Kingdom, Russia, China, Germany, France and Iran includes lifting economic sanctions against the Islamic nation that will allow it to sell its oil output freely in global markets. Goldman Sachs has estimated that Iran could supply an extra 200,000 to 400,000 barrels of oil per day in 2016.

The convertibles of oil and natural gas exploration and production company Stone Energy Corp. were down about a point with the underlying shares of the Lafayette, La.-based company falling 8.5%. The Stone 1.75% convertibles due 2017 were quoted at about 89 versus an underlying share price of $9.70.

Whiting Petroleum Corp., another E&P company that was a fixture of trade this past week, was also weaker although its underlying shares fell by a lesser magnitude. They were down 2.5%. The Denver-based oil and natural gas exploration and production company said on Friday it was increasing its 2015 capital expenditures budget and production guidance following strong second-quarter production. It also announced additional sales on non-core properties.

Chesapeake Energy Corp. saw its convertible preferred shares slip a little bit every day this week, a trader said. On Friday they were seen trading around 62.

Among coal names, Alpha Natural Resources Inc. was down amid increasing expectations that the coal producer will file for bankruptcy protection from its creditors.

The company was reportedly in talks with loan holders and senior bondholders to line up $300 million to $400 million in debtor-in-possession financing, with a filing seen potentially in early August. The speculation followed on the heels of Walter Energy Inc.’s bankruptcy filing on Wednesday.

Alpha Natural’s 4.875% convertibles traded at 4.

Peabody Energy Corp. was also seen in trade, with those bonds seen at around 11.

Crude oil prices were lower. West Texas Intermediate crude oil for August delivery ended down 0.3% to $50.78 on Friday, after dropping 2.6% to $51.64 per barrel on Wednesday.

“People are trying to reduce their exposure [to energy],” a New York-based trader said. The weakness has spread to include even high-quality equities, he pointed out. For example, Schlumberger Inc. has a great quarter, but the company’s securities were still under pressure.

“It’s more of the same every day, just worse,” he said.

He said there was no reason to believe that the energy market would recover any time soon. “There is no reason why oil should be $75,” he said.

Elsewhere, Jarden Corp.'s 1.5% convertibles expanded by about 0.375 point after the Rye, N.Y.-based consumer products company priced an upsized 16 million shares of common stock at $54.50 each, another New York-based trader said.

New WPX slips from par

WPX Energy’s 6.25% mandatory convertible preferred shares traded down to $49.00 from its $50.00 par with the common shares fell $0.50, or nearly 5%, to $9.85.

Shares of the Tulsa, Okla.-based E&P company closed lower from that level, down 63 cents, or 6.1%, at $9.71.

“At first it was plus a half bid and not offered, but now it’s just offered,” a trader said.

“If hedge guys got their hedges off, they did OK. But those shorting the stock are going to be in a lot of pain right now,” the trader said.

WPX priced an upsized $350 million of the preferred shares at the midpoint of talk.

WPX also sold a concurrent upsized offering of 30 million shares of common stock at $10.10 each. Initially, the stock deal was talked at 27 million shares, and the mandatory deal was initially expected to be $300 million in size.

The company was also expected to price $1.2 billion of straight notes.

Proceeds of these offerings were earmarked to finance WPX’s acquisition of privately held RKI Exploration and Production LLC.

With the purchase WPX enters the Delaware sub-basin of the Permian Basin and it will help the company speed its production mix shift to crude oil.

The mandatories are redeemable if the acquisition is not completed by Nov. 30.

Whiting Petroleum announced Friday that its full-year 2015 production will be up about 7% to 59.7 million barrels of oil equivalent, compared with 2014. The company is also raising its capital spending to $2.3 billion for 2015 from $2.0 billion.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Chesapeake Energy Corp. NYSE: CHK

Jarden Corp. NYSE: JAH

Peabody Energy Corp. NYSE: BTU

Stone Energy Corp. NYSE: SGY

Whiting Petroleum Corp. NYSE: WLL

WPX Energy Inc. NYSE: WPX

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