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While earnings season in the energy patch is in the rearview mirror, that doesn't mean it was a quiet week. Several energy companies unveiled updates on their strategic initiatives, which proved to be significant catalysts and fueled big moves in their stock prices. Leading the way, according to data from S&P Global Market Intelligence, were Seadrill Partners (NYSE: SDLP), Calumet Specialty Products Partners (NASDAQ: CLMT), and Denbury Resources (NYSE: DNR).
Units of Calumet Specialty Products Partners skyrocketed 20% this week after the company announced the sale of its refinery in Superior, Wisconsin, to Husky Energy (TSX: HSE). Under the terms of the agreement, Husky Energy agreed to pay $435 million in cash for the facility and various related assets as well as an additional payment for working capital, inventory, and a reimbursement of certain capital spending. Calumet noted that the additional payment would have been $61.5 million if the deal closed at the end of June. The sale does several things for Calumet Specialty Products Partners, including providing it with cash to shore up its balance sheet, freeing up resources so it can focus on growing its core specialties portfolio, and reducing its exposure to commodity price volatility.
Meanwhile, units of offshore drilling master limited partnership Seadrill Partners soared more than 16% this week after amending certain of its credit facilities to insulate it from its parent company's restructuring. One of the terms of the agreement is that Seadrill Partners has removed its parent as the guarantor on several of its credit facilities, with its fleet serving as collateral on those loans instead. This change eliminates the risk that Seadrill Partners could get pulled under should its parent restructure through bankruptcy. Meanwhile, with that bankruptcy worry now in the past, Seadrill Partners was also able to reinstate its quarterly distribution to investors.
Finally, shares of oil producer Denbury Resources went in the opposite direction, dropping 16% this week. Driving the sell-off was the company's announcement that it laid off 15% of its workforce to better align it with the current oil price environment. The workforce reduction highlights Denbury Resources' continued struggle to overcome the impact of lower oil prices. One of the worries is that company has borrowed heavily on its credit facility this year to finance capex since it can't do so with internally generated cash flow. Overall, outstanding borrowings have risen from $301 million to $490 million, which represents about half its available capacity. The concern is that if oil prices plunge, its banks could slash the borrowing capacity, which could impair Denbury's ability to operate.
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Both Calumet and Seadrill Partners unveiled moves that have significantly improved their financial situations. However, while both are now in a stronger position than when they started the week, these remain high-risk investments that aren't for the faint of heart. As a result, investors should still steer clear of these companies since both still have much work left to do before they're back on solid ground.
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