Beaten-down energy names better bid, but few trades seen in holiday-shortened session

By Rebecca Melvin

New York, Dec. 24 – There was a bid in some of the very illiquid energy convertibles on Thursday ahead of the session’s early close for Christmas Eve, market players said.

Traders noted better bidders on Wednesday and Thursday, but trades were light as market action wound down for the Christmas holiday, a New York-based trader.

Financial markets closed early on Thursday and will remain shut on Friday.

One of the illiquid energy names that saw a bid on Thursday was Hornbeck Offshore Services Inc. That company’s 1.5% convertibles due 2019 were bid at 53, which was “probably very low,” the trader said.

Shares of the Covington, La.-based provider of offshore supply vessels started off higher but pared early gains to end down 33 cents, or 3.1%, at $10.29 on the day.

The Hornbeck bond had been 52 bid, 56 offered on Monday, he said, adding that generally energy convertibles were a little stronger, following stocks upward.

On Wednesday, U.S. convertibles were firmer on thin volume as a 4% gain in crude oil prices supported equities.

Energy names have been butchered in the past month and a half along with their underlying shares as oversupply fears further depressed oil and other energy prices.

But Whiting Petroleum Corp.’s 1.75% convertibles traded at 71 on Thursday against shares of the Denver-based oil and gas exploration and production company that closed down 57 cents, or 5.4%, at $10.08. The shares moved in the opposite direction of a $1.65, or 18%, surge to $10.65 on Wednesday.

The Whiting convertibles had been indicated up at 69.69 from 66.27 on Wednesday, according to market sources, and had been quoted down to 66.25 versus an underlying share price of $9.09 on Monday, when shares had fallen another 9% to an $8.31 close.

Whiting’s convertibles have been very weak as the energy market continues to reel under the oversupply problem, a trader said, and Monday’s action, when the bonds slipped on swap another 1 point to 1.5 point, represented a continuation of an ongoing trend. That was only marginally lower compared to a 7-point swap loss last week and a 13- or 14-point lost in the prior two weeks, the trader said.

All energy convertible names were lower as oil prices continued to drop. On Monday, West Texas Intermediate crude oil for February delivery was $34.66 per barrel, which was down 0.2%. But by Thursday, West Texas Intermediate crude oil for February delivery was back up to $38.10.

Prices were boosted Wednesday by government data that showed an unexpectedly large decline in U.S. stockpiles. The U.S. Energy Information Administration said inventories fell by 5.9 million barrels last week, which was better than many estimates that predicted an increase in stockpiles.

Chesapeake Energy Corp., the Oklahoma City-based oil and natural gas company, another name hammered by the slide in oil and energy prices in the last six weeks, was also seeing a bid on Thursday, particularly in the Chesapeake convertible preferreds, a trader said.

The newer Chesapeake 6.75% perpetual convertible preferreds, which priced in August, were seen up at $375.50 from $360.45 previously.

A Chesapeake 5.75% convertible preferred was seen at 176 compared to 169, and a second 5.75% Chesapeake convertible preferred was up to 170 from 163.6, according to a market source.

Chesapeake’s common shares were up another 5 cents, or 1%, to $4.45 as natural gas prices edged higher again.

U.S. natural gas futures for January delivery were $2.04 per MMBTU on Thursday afternoon, which was up from $1.984 per MMBTU on Wednesday and up from $1.70 per MMBTU last Friday, when the January contract traded at multi-year lows.

Other energy convertible mandatory issues had also been trading better, including those of Kinder Morgan Inc., Southwestern Energy Co. and WPX Energy Inc., according to a New York-based trader.

“Volume has been light but there are certainly better buyers of all the beaten up mandatories,” the trader said.

Looking ahead, the trader didn’t think that the trend would continue into next week, when markets will have another holiday-shortened trading week for the New Year’s Day holiday.

“It’s been a very long six weeks, and I think it will be very, very quiet next week,” he said.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Hornbeck Offshore Services Inc. NYSE: HOS

Kinder Morgan Inc. NYSE: KMI

Southwestern Energy Co. NYSE: SWN

Whiting Petroleum Corp. NYSE: WLL

WPX Energy Inc. NYSE: WPX

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