Energy bonds mixed despite higher oil prices; TXU off after filing plan; Solarzyme gains

By Paul Deckelman

New York, April 14 – Bonds from some oil and natural gas companies were gainers in Tuesday’s market, pushed higher by a resumption of the upward move in oil prices.

Traders said that issuers benefiting included Halcon Resources Corp., Midstates Petroleum Co. Inc. and California Resources Corp.

However, other energy names, including offshore driller Transocean Ltd. and Energy XXI Ltd., failed to share in that upside.

Another gainer was Canadian-based but Colombia-focused Pacific Rubiales Energy Corp.

Elsewhere, the bonds of bankrupt power-generating company Energy Future Holdings Corp. – widely known in the market under its old name of TXU – were off after the issuer filed a plan of reorganization outlining how it hopes to restructure $42 billion in debt and exit Chapter 11.

In the convertibles market, Solazyme Inc. traded up, along with its underlying stock shares, on the news that the company, a developer of renewable oils from algae, will work with Flotek Industries Inc. to commercialize and market an advanced oilfield additive.

Energy mixed, though oil rises

“Oil feels a little better today,” a trader said, “and that’s always good.”

Ahead of Wednesday’s expiration of the May forward trading contract, the benchmark U.S. crude grade, West Texas Intermediate, ended up $1.38 per barrel on the day at the New York Mercantile Exchange, closing at $53.29.

European benchmark Brent crude gained 50 cents per barrel to finish at $58.43 per barrel.

Prices firmed on signs of falling U.S. oil output, with North Dakota’s February production down by 15,000 barrels per day from January levels.

With oil prices gaining, the trader said, credits like Midstates Petroleum’s 10¾% notes due 2020 “moved up 1 or 2 points” to end in a 56 to 57 context, “but on not a lot of volume.”

California Resources’ 6% notes due 2024 were seen ½ point better at 93 bid, while Halcon Resources’ 8 7/8% notes due 2021 were up by a deuce on the day at 80 bid.

However, the rise in oil credits was by no means universal.

Energy XXI’s 11% notes due 2020 ended down by ½ point at 96¾, on volume of over $10 million.

Several issues of undersea energy drilling contractor Transocean were seen lower, in active trading, including its 6.80% bonds due 2038, off ¼ point at 77 3/8 bid, on over $11 million of volume.

Transocean’s 6 3/8% notes due 2021 were also ¼ point off, at 87¾ bid, with over $10 million having traded.

A trader said that Linn Energy LLC’s 7¾% notes due 2021 were finishing at about 85 to 86 bid, but on “no real volume.”

In the emerging markets space, Toronto-based and Colombia-focused Pacific Rubiales saw its bonds continue to rally, a New York-based trader said.

“In spite of the rally, Pacific Rubiales bonds are almost 10 points below the mid-March Rubiales concession news,” he said. “And oil is $10 a barrel higher since. We expect Pacific Rubiales to continue toward those levels.”

The company’s 5 1/8% notes due 2023 had moved up to 62 5/8 bid from 59¾ bid on Monday, with over $5 million traded.

TXU off after plan filed

Away from the oil patch, traders saw a downturn in bonds issued by Energy Futures Holding Corp., after the Dallas-based electric utility operator and merchant power generator – formerly known as TXU Corp. – filed its proposed plan of reorganization with the U.S. Bankruptcy Court in Wilmington, Del., which is overseeing its restructuring,

The company’s 11¾% notes due 2022 were seen off 1½ points on the day at 115½ bid, on volume of over $17 million. Its 12¼% notes due 2022 were also ending around the 115 mark, down 1¾ points on the session.

Its 10¼% notes due 2015, on the other hand, were seen about unchanged at 10 1/8 bid, with over $10 million traded.

The plan is a revamped version of an earlier one the company had submitted months ago – opposed by many of its creditors – calling for the company to be split into two entities.

Solarzyme soars

In the convertibles market, Solazyme’s 5% convertibles due 2019 traded last at 55 following initial trades were around 50 on Tuesday. That level was up from 46 bid, 48 offered previously, a Connecticut-based trader said.’

The bond “traded in bits and pieces, all over the place,” the trader said.

Solazyme shares surged to as high as $4.13, but settled higher by 74 cents, or 23%, at $3.95.

Whether the bonds settle in around the mid 50 context will depend on how the stock does, the trader said.

Solazyme’s stock and bonds surged on news that it is working with Flotek to commercialize and market an advanced oilfield additive.

Flotek is focused on oilfield chemistry and is expanding sales of its additive Encapso in the Middle East.

“We are excited to add Flotek as a strategic partner as we continue to focus on broadening the market and customer base for Encapso,” Solazyme chief executive Jonathan Wolfsen said in a release.

Of the strategic agreement, the convertibles trader said: “We don’t think it’s a game changer.”

Solazyme priced $150 million of the 5% convertibles a year ago. Pricing collapsed in November after the developer of renewable oils from algae reported a third-quarter earnings miss and warned on revenue going forward due to production issues at its Moema, Brazil plant.

Rebecca Melvin and Christine VanDusen contributed to this review.

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