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Inside Chesapeake Energy’s 2016 Performance

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CHK: year in retrospect

Under the shadow of bankruptcy fears, Chesapeake Energy (CHK) started 2016 on a bad note. In early February, CHK fell ~62% on reports that the company was looking to restructure its ~$10 billion debt load. However, the company subsequently issued a press release stating that “Chesapeake currently has no plans to pursue bankruptcy and is aggressively seeking to maximize value for all shareholders.”

Chesapeake has since made it out of those volatile times and has given better returns than it did last year, particularly compared to natural gas prices and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). This was possible due to calculated and strategic steps taken by CHK to reduce its debt last years, asset sales, and improvement in energy prices.

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Despite the tough times it went through last year, CHK stock still enjoyed investor support and general optimism. This can be seen in its equity-for-debt swap in May 2016 and in the fact that bondholders were willing to swap debt for equity (in the event of bankruptcy, debt holders get priority before equity holders).

Then, on August 15, 2016, Chesapeake Energy (CHK) announced that it had secured a $1.5 billion five-year term loan to buy back senior debt maturing between 2017 and 2038. The fact that the company secured the term loan shows the vote of confidence placed in it by banks and investors.

Creditor support

CHK also saw creditor support in 2016. The date for the next review of its credit facility’s borrowing base was pushed to June 2017 from October 2016. On April 11, 2016, the company’s borrowing base was reaffirmed at $4 billion.

CHK’s stock rose 66% YoY (year-over-year). Other natural gas stocks that performed well in 2016 include Rice Energy (RICE), which rose ~115% YoY, and WPX Energy (WPX), which rose 181% in the same period. In comparison, Gulfport Energy (GPOR) fell ~7% during the same period.

To know more about Rice Energy’s Performance in 2016, read Market Realist’s The Dramatic Rise of Rice Energy: Stock Up 140% Year-to-Date.

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