Energy names surge as oil, natural gas prices rise, but Weatherford drops on JV abandonment; Hot Topic gains

By Paul Deckelman

New York, Jan. 2 – Activity in distressed debt and in the notes and shares of otherwise underperforming companies was relatively quiet Tuesday on the first trading day of the new month, first quarter and 2018, in line with a generally quiet session in the broader high-yield bond market, traders said.

But there was brisk volume in some energy related names, such as oil and natural gas exploration and production operators California Resources Corp. and Chesapeake Energy Corp., helped by strong commodity prices.

The former’s benchmark bonds – continuing a recent surge – firmed smartly as crude oil prices opened the new trading year at their highest point since 2014, pushed up by supply concerns stoked by the current political unrest in major oil producer Iran.

The latter company’s paper meanwhile popped along with natural gas prices, which are rallying on investor hopes for big demand, as much of the United States remains locked in an early-winter deep freeze.

But another energy-oriented name – oilfield services concern Weatherford International Ltd. – was lower in both the bond and convertibles markets, falling alongside its equity after the company announced it was scrapping its joint venture with Schlumberger NV in favor of divestment.

Away from the energy sphere, specialty retailer Hot Topic Inc.’s paper continued to trade at levels well up from where it was as recently as the day after Christmas.

CalRes climbs on oil price strength

Among specific names, the traders saw California Resources’ energy sector benchmark 8% senior secured second-lien notes due 2022 firming to 84½ bid, which a trader said was a 1½-point jump “on pretty good volume” of more than $19 million, topping the day’s Most Actives list.

A second trader suggested that “oil has been on a nice little surge into the end of the year,” and Los Angeles-based E&P operator Cal Res also “were rallying pretty good into the year-end,” continuing that positive momentum on into the new year.

The bonds’ gains came against a backdrop of world crude oil prices pegged at their highest Jan. 2 start-of-the-year levels since 2014 – the year that crude began a precipitous slide at mid-year, which carried into subsequent years; the oil markets are just now trying to fight their way out of that trough, helped along by new geopolitical supply concerns amid political and social chaos now going on in major producer Iran.

Prices for both February-contract West Texas Intermediate, the key domestic crude grade, and March delivery North Sea Brent crude, the key international grade, were actually off slightly on Tuesday from the levels at which they had closed out the 2017 trading year on Friday, when they had each posted a third consecutive day of good gains.

But WTI on Tuesday remained above the psychologically important $60 per barrel mark, – the first time in recent memory it has held such lofty levels – as it settled down just 5 cents on the day $60.37 in New York Mercantile Exchange trading.

Brent meantime lost 30 cents a barrel in London futures trading on Tuesday, but still held to a robust settlement price of $66.57.

Chesapeake churns upward

A trader saw Oklahoma City-based oil and gas concern Chesapeake Energy’s 8% notes due 2027 “pretty active, probably on the heels of natural gas being up with the cold weather here in the northeast,” and other parts of the U.S.

He saw those notes having firmed by 1½ on the day, to 98 3/8 bid, with over $15 million having traded.

Natural gas closed Tuesday up around 4 cents per 1 million British Thermal Units (equivalent to 1,000 cubic feet) at just above $2.95, after having surged at one point during the day above $3; those levels are up sharply from the commodity’s recent low close of just above $2.59 per MMBtu, recorded on Dec. 21.

Analysts believe gas will continue to firm on increased demand with the freezing weather covering much of the U.S. not expected to break anytime before the middle of the month, at the earliest.

Other energy names gain

A market source noted that “other energy names were up as well” along with Chesapeake and CalRes.

He saw the 6¾% notes due 2022 of Ferrellgas LP, an Overland Park, Kan.-based distributor of propane and related equipment and supplies, up a deuce on the day at 95 bid.

Plano, Texas-based E&P operator Denbury Resources Inc.’s 6 3/8% notes due 2021 were ¾ point better, at 77¼ bid,

And Calgary, Alta.-based shale oil producer MEG Energy Corp.’s 7% notes due 2024 were about ½ point better, at 85¾ bid.

Stormy weather for Weatherford

However, a trader said that oilfield services concern Weatherford International’s 7¾% notes due 2021 “were active – but off about 1 point, on pretty good volume” of more than $18 million, ending at 101 bid.

A second trader said the notes were down from recent highs of 102 3/16 bid, seen last Wednesday.

In the convertibles market, Weatherford’s 5.875% notes due 2021 dropped more than 5 points during Tuesday’s session. The notes were trading in the 101 to 104.205 range before ending the day Tuesday at 101.303, according to Trace data.

Those converts had ended 2017 in the 107-to -108 bid range.

Weatherford’s stock meantime dropped 17.03% to $3.46 at market close Tuesday, the first trading day since the company – based in Baar, Switzerland, with operational headquarters in Houston – announced it had abandoned its joint venture with Houston-based industry peer Schlumberger.

The stock was trading at 2 times their normal volume, a market source said.

“This is a horrible thing for them,” the source commented.

Weatherford announced later Friday that it had scrapped plans for a joint venture for its North American pressure pumping and well completion operations, opting instead to divest the business to Schlumberger for $430 million in cash.

Proceeds will be used to deleverage Weatherford’s $7.9 billion in debt, the company said.

Hot Topic notes sizzle

Away from the energy arena, a trader noted that specialty retailer Hot Topic Inc. “surged at the end of the year.”

He noted that those 9¼% notes due 2021 “were trading in early December around 68 to the low 70s – now they’re at 95,” calling them up an additional point on the day Tuesday.

He continued “if we go back, on Dec. 26, they were at 63¼. Then on the 27th, they were at 85½, and then 91, and they have progressed upward, with a couple of more trades today.”

He speculated that the notes “were in nervous hands – they must have been waiting for something” to happen.

He suggested that the notes may have gotten a boost when the closely held City of Industry, Calif.-based company put out earnings, “and I guess they weren’t as bad as people thought they might be.”

But he marveled that all of the upside action came within the space of a couple of days last week.

“They didn’t really start trading until the very end [of the week]. But something was up – and the bonds are up 30 [points]. Whatever it was, it was quick and decisive.”

Abigail W. Adams contributed to this review

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