Oil prices retreat again, taking oil and gas bonds along for the ride; coal sector also weaker

By Stephanie N. Rotondo

Phoenix, Feb. 4 – It was once again the oil and gas show in the distressed debt market on Wednesday, as oil prices gave back most – if not all – of the previous day’s gains.

“Oil was way up, then it was way down,” a trader said.

West Texas Intermediate crude erased all of the previous day’s gains, falling $4.15, or 7.82%, to $48.90 a barrel. Brent crude lost $31.4, or 5.42%, ending at $54.77.

The drop in oil prices was attributed to a fresh report out from the Energy Information Administration, which showed that U.S. crude stockpiles increased 6.3 million barrels last week – the fourth week in a row the data point has gained ground. That brings the total stockpile up to 413.06 million barrels, the highest level seen since the government began keeping track in 1982.

For Quicksilver Resources Inc.’s 9 1/8% notes due 2019, the oil price decline resulted in cutting the value of the bonds in half, moving the issue down to 5½ from 10 previously.

The 11% notes due 2021, however, managed to hold steady at 10.

Energy XXI Gulf Coast Inc.’s 7½% notes due 2021 meantime fell 2½ points to 49 and Lightstream Resources Ltd.’s 8 5/8% notes due 2020 dropped “7 and change” points to 61¾, a trader said.

However, Alta Mesa Holdings LP’s 9 5/8% notes due 2018 continued to attempt to recover the massive losses seen on Monday, rising almost 9 points to 67¼.

The company said Friday that its planned sale of certain Eagle Ford Shale assets was terminated. Come Monday, that resulted in losses of as much as 30 points. But the paper regained at least 7 of those points in Tuesday trading.

Midstates Petroleum Co. Inc.’s 10 ¾% notes due 2020 were also firmer on the day, putting on “a couple points” to close around 57¾, according to a trader.

Energy preferreds were also weakening. A trader noted that Seeking Alpha had published some articles on Breitburn Energy Partners LP and Vanguard Natural Resources LLC that said those companies’ bonds were “ridiculously cheap to the preferreds.

“It should be the other way around,” he said, adding that Breitburn was recently downgraded by Credit Suisse and Vanguard by Barclays.

Breitburn’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) closed down 23 cents, or 1.05%, at $21.74. Vanguard’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) fell 35 cents, or 1.16%, to $21.50.

In Goodrich Petroleum Corp. preferreds, the 10% series C cumulative preferreds (NYSE: GDPPC) dropped $1.14, or 12.19%, to $8.21, as the 9.75% series D cumulative preferreds (NYSE: GDPPD) declined 59 cents, or 6.65%, to $8.28.

A trader said Goodrich’s 8 7/8% notes due 2019 were off almost a point at 41 1/8.

Coal gives up gains

The coal sector also gave up the gains it incurred on Tuesday after Arch Coal Inc. reported a smaller-than-expected quarterly loss.

A trader said Arch’s 7¼% notes due 2021 and its 7% notes due 2019 both closed a quarter-point lower, at 25½ and 26½, respectively. The 7¼% notes due 2020 fell almost a point to 30.

Walter Energy Inc.’s 8½% notes due 2021 held in at 13½, but its 9½% notes due 2019 slipped a quarter-point to 65.

And in Alpha Natural Resources Inc. debt, the 6% notes due 2019 were seen falling a quarter-point to 27¾, though the 9¾% notes due 2018 improved by a point to 38½.

On an adjusted basis, Arch Coal reported a loss of 37 cents per share on Tuesday, coming in above analysts’ expectations of 38 cents per share.

The narrower loss was attributed in part to a 29% decline in operating costs.

Revenue was up 3.6% at $745.2 million. Analysts polled by Thomson Reuters had projected revenue of $729 million.

Looking into 2015, the coal producer said it was expecting expenses in the Powder River Basin and Appalachian regions to soften during the year, helped by lower diesel prices.

Arch is forecasting that it will sell 130.3 million to 143 million tons of coal during the year, which compared to 134.4 million tons sold in 2014. It also gave an estimated capital budget of $145 million to $160 million.

The company spent $147.2 million in capital improvements in 2014.

Additionally, Arch said it was suspending its dividend as it looks to shore up cash amid weak coal prices.

© 2015 Prospect News.
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