Chesapeake Energy’s stock performance
Chesapeake Energy (CHK) stock rose ~6% last week (ended May 25). Towards the end of the week, the consistent rally CHK had seen over the past couple of weeks was cut short by a decline in crude oil prices (DBO). Crude oil prices fell 4% on May 25 after Saudi Arabia and Russia signaled intentions to ease production cuts. The same day, CHK stock fell 5.5%. Year-over-year, CHK stock fell ~24.2%, while the Energy Select Sector SPDR ETF (XLE) rose ~9.5% and the broader-market S&P 500 SPDR ETF (SPY) rose ~13.4%.
What’s been supporting CHK stock?
Key factors have been supporting CHK stock recently, including rising oil prices, strong earnings, higher production, and the company paying down its debt. In the first quarter, CHK’s cash flow from operations and investments (including net proceeds from asset sales) was $609 million—the highest in over three years. This cash flow enabled the company to reduce its long-term debt by $581 million. Read Chesapeake Energy’s 1Q18 Production Highlights and Stock Reaction to know more about CHK’s performance.
Key factors holding back CHK stock
Despite the above factors, CHK’s high debt has remained a key concern for investors. Chesapeake’s principal debt balance at the end of the first quarter was ~$9.4 billion, compared with $10.0 billion as of December 31, 2017. CHK’s current market capitalization is ~$3.9 billion.
Weak natural gas prices (UGAZ) have also been holding back CHK stock. Year-over-year, natural gas prices have fallen 8.7%. Since CHK is a natural gas-weighted producer (around 74% of its first-quarter production was natural gas), the future of natural gas prices will likely weigh heavily on CHK stock.