Chesapeake Energy, California Resources miss on earnings; Intelsat remains strong; Cobalt spreads widen

By Stephanie N. Rotondo

Seattle, Aug. 4 – Fresh earnings out of the struggling oil and gas sector was prompting moves in the distressed debt market on Thursday.

Chesapeake Energy Corp. reported its second-quarter results, missing analysts’ estimates. But while the numbers missed, the company focused on its debt reduction efforts and noted that it was increasing production for the current year. In doing so, it helped its bonds move higher on the day.

California Resources Corp. also came out with earnings. Like Chesapeake, the figures missed estimates, but touted its debt-cutting.

Bonds were little changed in the wake of the announcement.

Away from oil and gas, Intelsat SA bonds continued to inch higher, a trader said.

The trader called the name “up another point in general,” seeing the 7¾% notes due 2021 ending around 27.

Another market source pegged the 6 5/8% notes due 2022 at 71 bid, up half a point.

Chesapeake rises

Chesapeake Energy reported a narrower loss for the second quarter, though the results still missed forecasts.

But asset sales and debt reduction efforts were in focus, which helped the bonds improve.

One trader said feeling behind the gains was “probably more forward looking than looking at the absolute numbers.”

He said the 8% second-lien notes due 2022 were “pretty active,” rising “about a point” to “around 92.”

The 6 5/8% notes due 2020 were meantime deemed up a deuce, “around 79-ish,” he said.

At another desk, the 6 5/8% notes were pegged at 79¼ bid, up 2 points.

For the quarter, the Oklahoma City-based company posted a loss of $1.79 billion, or $2.48 per share. That compared to a loss of $4.15 billion, or $6.27 per share, the year before.

Revenue dropped 54% year over year to $1.62 billion.

The net loss was due in part to a $1 billion impairment charge on gas fields, and a $1.05 billion reduction in the value of the company’s assets.

On an adjusted basis, the loss was 14 cents per share – worse than the 11-cent-per-share loss analysts polled by Bloomberg had expected.

That being said, Chesapeake noted that it had upped its divesture target to $2 billion from $1.2 billion to $1.7 billion previously. Those funds will likely be used to deal with the company’s $8.68 billion debtload – of which $1.28 billion becomes putable in 2017.

In addition to touting its asset sales, Chesapeake also said that its production guidance for the current year was increased by 3%.

However, it also said that production in 2017 would likely decrease by 5%.

California Resources steady

California Resources’ earnings weren’t all that stellar either, but the company’s ability to shave off about $700 million in debt from its peak debt levels in early 2015 managed to hold the bonds mostly steady.

A trader said the 8% second-lien notes due 2022 traded actively, trading off just a touch to a 55 handle. The 5½% notes due 2021 were “about unchanged” at 45½.

In the second quarter, the Los Angeles-based oil and gas producer reported a net loss of $140 million, or $3.51 per share. That compared to a net loss of $68 million, or $1.78 per share, the year before.

On an adjusted basis, the loss per share was $1.80, versus the $1.30 per-share-loss seen in the same quarter of 2015.

Revenues declined 50.4% to $317 million.

Analysts had expected to see an adjusted loss-per share of $1.34 on revenue of $437.47 million.

The company noted that it did not have any active drilling rigs during the quarter.

On Monday, California Resources announced plans to tender for four series of notes – on a priority basis – up to $525 million.

Holders will receive cash for their validly tendered notes.

Cobalt spreads out

Cobalt International Energy Inc.’s convertible bonds continued to be on the active side in Thursday trading.

However, a trader noted that the 2.625% convertible notes due 2019 were holding at levels seen on Wednesday, placing the issue at 38.5.

“That’s exactly where they were yesterday,” the trader said at mid-morning. “They are trading up a storm at that same price today.”

He did note that the 3.125% convertible notes due 2024 “might have come in a little bit,” trading in a range of 32.125 to 32.5.

“It’s surprising that they spread out that much,” he commented.

By afternoon trading, the trader said that trend was continuing.

“The 2.625% notes are constantly trading 6 points over the 3.125% notes,” he said.

At the end of the day, the 2.625% notes remained at the 38.5 level. The 3.125% notes, however, traded most of the day at 32, but fell to 31.75 late in the day.

The stock (NYSE: CIE) meantime closed unchanged at $1.04.

The name has been trading actively since Tuesday, when the company reported a wider net loss, along with a slew of other negative news items.

On Tuesday, the convertibles were under pressure, but came back in midweek trading.

For the quarter, net loss was $205.55 million, or 50 cents per share. That compared to a loss of $66.81 million, or 16 cents per share, the year before.

As of June 30, long-term debt was $2.03 billion, while cash and equivalents came to $833.8 million.

However, its cash on hand is likely to be reduced by $250 million, the amount received from Sonangol, Angola’s state oil company, for a planned purchase of Cobalt’s 40% stake in offshore oil blocks in the region. Cobalt said Tuesday that the $1.75 billion sale – first announced in August 2015 – was unlikely to move forward. This adds to Cobalt’s troubles, as it is currently under investigation by the U.S. Department of Justice for its operations in the African state.

The bad news did not stop there, as Cobalt also announced that its Goodfellow #1 exploration well in the Gulf of Mexico – a project started in March that had everyone’s hopes high – was dry.

The company noted that its wider loss was due in part write-off taken because of the dry well.

One final bit of disappointing news was that the company has reduced its workforce by over 60% in the last few months.

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