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Oil Down, Drillers Tighter?

08 November 2018 by jbchevrel

Anadarko Petroleum Corp (APC) is tighter -21bp since Tuesday’s close and its stock is up 7%. The 5y CDS is now back to 100bp, 16th widest CDXIG name, vs 7th earlier this week. That price action is common to Colorado oil drillers and came after 57% of Colorado’s voters rejected the so-called ‘Prop 112’ plan to limit drilling there. If it had gone through, it would have forced O&Gs to relocate away from residential and environmentally sensitive zones (which ½ CO is). Last summer, CO overtook CA as the 5th largest US state producer, behind TX, ND, NM, and OK. Ironically enough, this outperformance comes at a time when crude prices are pressured down. Indeed, focus seems to have shifted quickly to growing stockpiles in the US, away from supply concerns (Iran and, to a lesser extent, LatAm). WTI is down more than 20% in just slightly more than a month, making this downward move the sharpest since 2014, the year OPEC (led by Saudis) decided to not cap production to defend its market share. At the peak of oil crisis, in early 2016, APC 5y CDS was trading in the 500bp area.