What’s Keeping Chesapeake Energy Stock Low?



Chesapeake Energy stock

Chesapeake Energy (CHK) stock stayed in a downtrend last week with a decline of ~7% on Thursday, May 4, 2017, following a ~5% drop in crude oil prices and a 1.3% drop in natural gas prices the same day. CHK stock has fallen 22% since the beginning of 2017, generally mirroring crude oil and natural gas prices (UNG) (UGAZ).

Natural gas prices have fallen ~3% since the beginning of the year while crude oil prices have fallen 12% in the same period. Chesapeake Energy also underperformed the Energy Select Sector SPDR ETF (XLE), which has returned approximately -12% year-to-date.

The S&P 500 ETF (SPY) (SPX-INDEX) has returned ~6.3% during the same period. The energy sector (XLE) makes up ~7% of SPY. CHK makes up ~0.50% of XLE.

As the chart above shows, the downtrend in crude oil (USO)(UCO)(DBO) and natural gas have been causing CHK’s stock to stay low. Given that CHK has been focusing on oil growth this year, oil prices could weigh heavily on the company’s future.

Chesapeake Energy’s 2017 capex is skewed towards its oil-generating assets such as the Eagle Ford play. Its total capex in oil (USO) (DBO) assets is expected to be 60% of its total capex. Chesapeake Energy also expects to see significant oil growth in the Powder River Basin.

Positive 1Q17 earnings have also failed to pull up the stock and give it a boost. You can read more at Chesapeake Energy Stock Fell despite Better 1Q17 Earnings.

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Investor concerns surrounding CHK

Chesapeake Energy (CHK) plans to boost spending this year. To finance the spending, Chesapeake Energy would need sufficient cash flows. If it takes on more debt to fund its spending, it might not please investors.

Debt management remains a key goal for Chesapeake Energy in 2017. The company wants to achieve a net-debt-to-EBITDA ratio of 2.0x by 2020 and retire debt of $2.0 billion–$3.0 billion.


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