Can Natural Gas Prices Give Chesapeake Stock a Boost?


Nov. 20 2020, Updated 4:34 p.m. ET

Chesapeake Energy stock

Chesapeake Energy (CHK) stock seems to be making its way upward, mirroring natural gas prices (UNG) (UGAZ), as you can see in the image below. However, since the beginning of the year, CHK’s stock has declined significantly.

CHK’s stock has fallen ~25% since the beginning of 2017. As we can see in the image above, CHK’s stock has been mirroring natural gas prices (UNG) (UGAZ) for the most part, and natural gas prices have fallen ~7.5% since the beginning of the year.

CHK has also underperformed the Energy Select Sector SPDR ETF (XLE), which has returned approximately -10% YTD (year-to-date). The S&P 500 ETF (SPY) has returned ~3.8% during the same period.

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Can CHK stock match the recovery in natural gas prices?

As you can see in the image above, natural gas prices had come under pressure in late January. However, while natural gas prices have been increasing lately, CHK stock hasn’t been rising as much.

Lower natural gas prices have likely made investors wary, especially with CHK’s plans to boost spending this year. To finance this spending, CHK will need sufficient cash flows. So improving commodity prices will be imperative for the company’s key strategy to lower its debt. If it takes on more debt to fund its spending, it might not please investors. As we know, CHK continues to struggle with a huge debt load, despite its various efforts during previous years.

One of Chesapeake Energy’s significant achievements in 2016 was its debt management efforts deployed throughout the year. These have included a combination of debt exchanges, open market repurchases, and equity-for-debt exchanges. Asset sales were another key strategy that Chesapeake used to reduce its debt.

For more information, read Inside Chesapeake Energy’s Debt Management Efforts in 2016. You can read more about Chesapeake Energy in CHK Survived the Odds in 2016, but Can Investors Relax Now?

Continue to the next part of this series for a look at implied volatility.


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