Sabine Bonds Plunge as Forest Oil Purchase Weighs on ResultsJodi Xu Klein
Bonds of Sabine Oil & Gas Corp. plummeted after the company hired Lazard Ltd. and Kirkland & Ellis LLP to review its capital structure, less than a year after making an acquisition amid rising oil prices that have since slumped to a six-year low.
Sabine’s $578 million of 7.25 notes maturing in June 2019 dropped 8.7 cents to 16 cents on the dollar at 12:30 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The Houston-based driller owned by private-equity firm First Reserve Corp. also said it won’t file its full-year financial results on time, according to a statement.
The moves come after Sabine agreed in May to acquire Forest Oil Corp. Shane Bayless, Sabine’s chief financial officer, said at the time that the combined company would have “enhanced financial strength and flexibility” and planned to assess opportunities to sell assets and reduce indebtedness. Since then, the price of West Texas Intermediate crude, the U.S. benchmark, has dropped 57 percent to about $43 a barrel from $99.50 on the day the transaction was made public.
“Oil prices dropped so much since the deal was announced and that outweighed any potential financial benefits from the merger,” said Spencer Cutter, a credit analyst at Bloomberg Intelligence. “Although it might still be true the value of the combined entity is greater than when they were separate, it’s not greater enough to offset the negative impact from the low oil prices.”
U.S. oil futures fell Monday to the lowest level since March 2009 on speculation that record supply may start to strain the country’s storage capacity.
Sabine said it will delay filing its full-year results with the U.S. Securities and Exchange Commission until March 31, according to the statement. The company also said it won’t host a conference call when it releases fourth-quarter and 2014 earnings.
It hired Lazard and Kirkland & Ellis to provide financial and legal advice, respectively, on “on strategic alternatives related to its capital structure,” according to the statement. Sabine has $2.82 billion of debt, including $700 million of term loans and $1.15 billion of bonds, according to data compiled by Bloomberg.
The purchase of Forest Oil, which was completed in December, created one of the biggest energy producers in East Texas, with drilling rights on 207,000 net acres in the region and another 65,000 acres in the Eagle Ford area of West Texas.
Ash Spiegelberg, a spokesman for Sabine at Brunswick Group, and Judi Mackey, a spokeswoman at Lazard, declined to comment. Kate Slaasted, a spokeswoman at Kirkland, didn’t immediately respond to e-mailed messages and a phone call seeking comment.