Ultra, Midstates filings push energy default rate; oil, gas bonds down with crude prices

By Stephanie N. Rotondo

Seattle, May 2 – Distressed oil and gas bonds continued to struggle on Monday, as two more producers sought bankruptcy protections and domestic crude prices fell under $45 a barrel.

Ultra Petroleum Corp. filed for Chapter 11 late Friday. Another filing on Saturday followed from Midstates Petroleum Co. Inc. The latest casualties of waning commodity prices added $3.1 billion of debt to the high-yield bond default volume tally, according to Fitch Ratings. They also increased the default level for the energy space to 13%, a new record to the over 9.7% default rate seen in 1999.

Domestic crude was down 2.22%, falling under $45 a barrel as OPEC reported its production rose to 32.64 million barrels per day in April, almost hitting the most recent highs.

April also saw a rise in exports from Iraq and Russia.

Still, market participants are hoping there are signs the oil space is in process of rebalancing, especially as U.S. active rigs fell again last week – the sixth consecutive decline, according to Baker Hughes – and non-OPEC production was expected to experience its biggest production decline in nearly two decades.

While most of the sector was moving downward, Ultra and Midstates’ bonds were improving.

A trader said Ultra’s 6 1/8% notes due 2024 were “a little higher,” trading near 18. Midstates’ 10% second-lien notes due 2020 were meantime trading up to a 53 to 54 context, which compared to previous levels in the mid-40s, the trader said.

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