California Resources debt shakes off downgrade; Comstock slashes capex budget; Transocean gains

By Stephanie N. Rotondo

Phoenix, March 23 – The distressed energy space got a boost Monday as oil prices rallied.

West Texas Intermediate crude rose 76 cents, or 1.63%, to $47.33 a barrel for May delivery. Brent crude meantime gained 57 cents, or 1.03%, to close at $55.89.

The oil price rally came despite comments made by Saudi Arabia’s oil prime minister said the OPEC nation was producing at a near record of approximately 10 million barrels per day.

Ali al-Naimi, the oil prime minister, further commented that it would not cut production without the cooperation of non-OPEC producers.

“We tried, we held meetings [to discuss production cuts] and we did not succeed because countries outside OPEC were insisting that OPEC carry the burden and we refuse that OPEC bears the responsibility,” al-Naimi said.

Back in the day’s dealings, California Resources Corp.’s debt inched up, even as Moody’s Investors Services downgraded the company.

Comstock Resources Inc. was meantime up smartly following the company’s announcement that it had reduced its 2015 capital budget.

Even Transocean Inc. experienced a rebound. The bonds were down in the previous week after Standard & Poor’s downgraded the offshore drilling company and the company said it was scrapping more rigs.

CalRes downgraded

Moody’s cut its rating on California Resources on Monday, citing expectations of weaker financial performance.

But with the day’s gain in oil prices, a trader saw the company’s 6% notes due 2024 edging up half a point to 86¾, while the 5½% notes due 2021 rose half a point to 88½.

CalRes’ corporate rating was changed to Ba2 from Ba1, while the ratings on the unsecured notes were cut to Ba2 from Ba1. Moody’s said that while at the time of its spinoff from Occidental Petroleum Corp., a Ba1 rating was acceptable given $100 oil prices, the commodity’s decline no longer warranted such a level.

Pressures on oil prices weren’t the only factor, however, as Moody’s cited the company’s high leverage.

Comstock cuts budget

Comstock Resources joined many of its sector peers on Monday by cutting its capex budget for 2015.

The news, combined with a rise in oil prices, helped push up the company’s bonds.

At one desk, a trader said the 7¾% notes due 2019 rising 2½ points to 42, while the 9½% notes due 2020 closed “up almost 5” at 44½.

Another trader said the name was “pretty active” and were “up a bunch.” He saw the 7¾% notes ending “+/-43,” versus levels in a 38 to 39 context previously.

As for the $700 million of 10% notes due 2020 – a deal priced March 4 – the trader said that issue closed up around 96, up from 93.

For 2015, Frisco-, Texas-based Comstock is reducing its capex budget by 22% to $248 million.

Because of its success in its first Haynesville shale refract, the company will be able to release one of its drill rigs by the end of March. Additionally, the company is increasing the amount allocated to that project.

Due to the releasing of the one rig, Comstock will see a $2.4 million early termination fee.

Transocean rebounds

A trader said Transocean was “fairly active” and firmer in Monday trading.

He called the 6 3/8% notes due 2021 rose half a point to 84.

Another trader echoed that level, deeming it the most active of the structure with about $30 million in trades.

The second trader also saw the 6% notes due 2018 ending up half a point at 84. The 5.05% notes due 2016 were up a similar amount at par 7/8.

And, the 3.8% notes due 2022 closed up a touch at 74, while the 6.8% notes due 2038 held steady at 73 1/8.

On Thursday, the offshore oil driller said it was scrapping four rigs, which will cost the company $300 million to $325 million in noncash impairment charges in the first quarter.

Another four rigs have been stacked. The company said about a month ago that it planned to shutter seven other rigs.

Also on Thursday, S&P cut its long-term corporate credit rating and senior unsecured debt ratings to BB+ from BBB- on Thursday.

The change took into account the current oversupply in the oil market and the resulting oversupply of offshore drilling rigs. The agency also noted that it expected Transocean’s credit measures to weaken, despite plans to reduce its dividend.

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