Investors in levered oil and gas credits are heading for the exits this week as 3Q19 earnings season gets underway and sector valuations continue to decline, according to a sellsider and five buysiders. Most notably, a block trade in California Resources (CRC) second lien bonds sent trading levels on the paper down by 10 points, said two of the sources.
Active sellers in credits such as Whiting Petroleum and Antero Resources also pressured prices across both issuers’ capital structures.
A USD 35m block trade in CRC’s USD 2bn 8% second liens due 2022 took place today with Goldman Sachs handling the trade, two of the sources said. The notes traded as low as 24.75 today, down more than 10 points from yesterday’s trades in 36-37 range, according to MarketAxess.
In an atmosphere that investors termed panic-like, much of the sector jitters crystallized around CRC, given its high leverage, tight liquidity and upcoming coupon payments on 15 December and 15 January, sources said. By mid-day, the company’s stock had shed 20% to trade at USD 4.72 per share.
CRC made the unusual decision to release its 3Q19 earnings early – post-market close today – after previously scheduling the release for Monday (4 November). Following the release, which showed a 10% decline in adjusted EBITDAX, but met production guidance, the company’s stock rebounded by 30.6% to trade at USD 7.30 per share and a USD 274m market cap.
The second lien notes also recovered later in the day to close this afternoon at 32, according to MarketAxess.
Meanwhile, Whiting’s structure weakened significantly after EFT Research published a report today valuing the stock at zero with current strip pricing excluding option value. The report also argues that Whiting has less than half of the roughly 2,000 drilling locations it claims to have.
Whiting’s USD 1bn 6.625% senior unsecured notes due 2026 traded at 62.044 to yield 16.672% today from trades in the 65-66 range yesterday and 67 on 24 October, according to MarketAxess.
The company’s stock last traded at USD 6.34 per share for a market cap of USD 578.83m, down 4.95% from yesterday’s close. Whiting is expected to report 3Q earnings next Tuesday (5 November).
Oasis Petroleum and Extraction Oil & Gas also both traded off ahead of their 3Q19 earnings reports next week. Oasis is scheduled to report on 6 November, with Extraction following on 7 November.
Oasis’s USD 1bn 6.875% senior unsecured notes due 2022 have softened from trades in the 94 context at the beginning of the week to the 88-89 range today, yielding as much as 13%, according to MarketAxess.
Extraction’s USD 750m 5.625% senior unsecured notes due 2026 have plummeted to 42.5 to yield 23.722% today from trades at 51 on Monday, according to MarketAxess.
And Unit Corp, which hasn’t announced its earnings date, has a USD 650m 6.625% senior unsecured note due 2021 that sold off nearly 10 points in the last month to levels of 66 to yield 37.871% from trades at 74 to yield 27.6% on 1 October, according to MarketAxess.
Ghosts of earnings past
Earnings from this week’s high yield oil & gas issuers have so far been less-than-stellar, supporting a continued meltdown of valuations underpinning the sector. Furthermore, several oil & gas issuers that have held non-deal roadshows in recent months – Whiting, Unit Corp, and CNX Resources – have not ultimately come to market with a deal.
Antero reported a 39% decrease year-over-year in adjusted EBITDAX to USD 258m. Its USD 1.1bn 5.125% senior unsecured notes due 2022 originally popped up to the 83-84 range on 29 October after the earnings release from the 79 context, but have since sold off several points to trade at 75.219 to yield 15.564% today, according to MarketAxess.
W&T Offshore disclosed a 22% year-over-year drop in adjusted EBITDA to USD 72m for 3Q19 from USD 92m in the corresponding period. Its USD 625m 9.75% senior unsecured notes due 2023 traded down to 93.75 to yield 11.756% today from trades at 95.488 to yield 11.165% on 15 October, according to MarketAxess.
CNX Resources also reported USD 159m of adjusted EBITDA for 3Q19, a roughly 22% decline year-over-year from 3Q18. The company’s USD 500m 7.25% senior unsecured notes due 2027 dipped initially on the earnings report to trade 76.5 before bouncing to pre-earnings levels in the 80-81 range after the earnings call, according to MarketAxess.