Chesapeake Energy: Oil Prices, Debt, and Tax Reforms
Chesapeake Energy stock
Chesapeake Energy (CHK) rose last week and closed 4.3% higher in the week ending December 1, 2017—compared to the previous week ending November 24, 2017.
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Initially, crude oil prices fell during the week as the markets speculated about the outcome of OPEC’s meeting on November 30. Prices were also weighed down by the planned restart of the Keystone crude oil pipeline. The markets likely perceived this as higher supply coming into the markets.
On November 30, OPEC producers agreed to extend the production cuts announced last year. Crude oil prices rose ~1.7% following the news.
As you can see above, crude oil prices have risen 11.5% since the beginning of the year, while Chesapeake Energy stock has fallen ~41% during the same period. The lag in Chesapeake Energy stock is likely because it’s a natural gas–weighted company. Natural gas prices (UNG) (UGAZ) have fallen 8% YTD (year-to-date).
Chesapeake Energy stock has also performed poorly compared to the broader energy industry (XLE), which has fallen ~8.5% YTD.
Chesapeake Energy and XLE have both underperformed the S&P 500 Index (SPY) (SPX-INDEX) by a significant margin. SPY has risen ~17.4% since the beginning of the year.
What’s pressuring Chesapeake Energy stock?
This year, the fall in Chesapeake Energy stock is related to the company’s huge ~$10 billion debt load against a market capitalization of ~$3.5 billion.
One of the key steps Chesapeake Energy’s management announced to lower its debt is a $2 billion–$3 billion asset sales goal over the next several years. Investors will be watching to see additional steps the company takes and key strategies for 2018 to tackle its debt load. Volatility in energy markets, even as US tax reforms make progress, will also weigh heavily on Chesapeake Energy stock in the coming days.