Is Oil Price Recovery Enough for CHK Stock?
Chesapeake Energy stock
Maintaining its upward streak from the previous two weeks, Chesapeake Energy (CHK) stock rose ~1.9% in the week ended September 29, 2017. CHK’s stock has risen for three weeks in a row now. However, as we can see in the image below, the stock continues to trade at significantly lower levels compared to the beginning of the year. Year-to-date, Chesapeake Energy stock has fallen ~38%.
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Recovery in crude oil prices (DBO) (UCO) has been driving CHK stock higher. In the week ended September 29, 2017, crude oil rose 2%, while natural gas prices (UNG) (UGAZ) rose 1.6% in the same period. As a result, the Energy Select Sector ETF (XLE), or the broader energy sector ETF, which is driven by energy prices, ended up 1.9% higher in the week ended September 29, 2017.
Crude oil prices rose above $50 for the first time in almost two months on September 20, 2017. Since then, oil prices have continued to close above $50 daily. On September 29, 2017, crude oil prices had closed at $51.67 per barrel. As we can see, CHK stock has underperformed the industry benchmark (XLE) by a wide margin.
What has been hurting CHK stock?
At the forefront is CHK’s massive debt load, which has likely made way for negative speculation. CHK’s principal debt balance at the end of 2Q17 was $9.7 billion, which is significantly higher compared to CHK’s market capitalization of $3.8 billion.
On September 27, CHK announced that it would be issuing 8.0% senior notes due in 2025 and 8.0% senior notes due in 2027 in a private placement to raise $850 million. From the proceeds, the company intends to purchase $550 million in aggregate price notes that are due between 2020 and 2022. Though the maneuver pushes the due date of the debt further out, it also adds $300 million of debt to its books.
On September 28, the day after the announcement was made, CHK’s stock fell 1.6%. On September 29, CHK stock fell further by 1.1%.
Continue to the next part to read about another factor that likely pushed stock prices lower last week.