The cost of insuring Woodside Petroleum Ltd.’s bonds from non-payment rose by a record as mounting costs from the Gulf of Mexico oil spill routed BP Plc securities.
Credit-default swaps on Perth-based Woodside, Australia’s second-largest oil and gas producer, increased 27.5 basis points to 217.5 basis points as of 3:20 p.m. in Sydney, after earlier climbing as much as 60, the biggest-ever daily increase, according to Deutsche Bank AG and CMA DataVision in New York.
“BP got hit hard in markets last night and this may be some kind of flow-on,” Michael Bush, head of credit research at National Australia Bank Ltd. said in a telephone interview. “Having said that, if there is a direct association between Woodside and BP, other than they both operate in the same sector, I don’t know what it is.”
BP’s U.S. shares slid 16 percent yesterday, the most since at least 1980, and the cost to protect against a default on its debt soared to a record after an estimate its damaged well is seeping more oil than previously calculated. Woodside got 3.64 percent of its revenue from its U.S. business unit in the year to Dec. 31, according to data compiled by Bloomberg.
The yield on Woodside’s 8.75 percent notes due in 2019 climbed 21 basis points to 6.2 percent today, the biggest increase since May 25, according to BNP Paribas prices. Woodside shares were up 2.1 percent at A$43.75 at 3:29 p.m. in Sydney today. Swaps on the company had risen 97.4 basis points yesterday since April 19, the day before the explosion on the Deepwater Horizon rig in the Gulf of Mexico. Woodside spokesman Roger Martin declined to comment.
Investors should sell protection on Woodside bonds because the current credit-default swap price is too high and the BP spill won’t have a material impact on the company, Deutsche Bank AG analysts Gus Medeiros and Colin Tan wrote in a note today. The swaps may decline to 150 basis points, they wrote.
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
BP’s securities slumped after Ian MacDonald, an oceanographer at Florida State University in Tallahassee estimated the well is leaking 26,500 barrels to 30,000 barrels a day into the Gulf of Mexico, six times more than the figure used by BP and the government from April 28 to May 27. There is a 50 percent chance BP won’t make its next quarterly dividend payment, Societe Generale said in a research note.
Losses in bonds of BP, Anadarko Petroleum Corp., based in The Woodlands, Texas, and Transocean Ltd. of Vernier, Switzerland, the other two companies involved in the April 20 oil spill, have sparked a 2.34 percent drop in Bank of America Merrill Lynch’s U.S. Corporate Energy index since April. A global broad corporate bond index is down 0.24 percent in the same period.
Woodside is participating in more than a dozen producing fields in the Gulf of Mexico, where it has been exploring since 1999, according to information on the company’s website.
“The sector is under pressure from the developments with BP in the Gulf of Mexico,” said Ben Byrne, an analyst at Nomura Australia Ltd. “There may be some questioning of the risk premium applied to deep water or floating platform oil and gas operations.” Given the lower risk from Woodside’s operations, Nomura views the credit swap price surge as a “significant over-reaction,” he said.