Why Chesapeake Energy Has Been an Outperformer in June

Chesapeake Energy has seen a small decline in June

Month-to-date, as of June 11, Chesapeake Energy (CHK) stock is down just 1%. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which tracks US-based upstream oil and gas companies, is up just 0.5%.

Why Chesapeake Energy Has Been an Outperformer in June

The S&P 500 Index (SPY) has risen 4.9% in June so far. However, US crude oil and natural gas prices have fallen 0.4% and 2.2%, respectively, this month, which could explain the small decline in CHK’s price. Among natural gas–weighted stocks, CHK fell the least and was the outperformer. Range Resources (RRC) has had the highest decline of 12.4% in June so far.

Is oil affecting CHK more than natural gas prices?

This month, CHK had a correlation of just 12.5% with natural gas futures. However, its correlation with WTI crude oil futures stood at 59.8%. Based on its management’s guidance, CHK’s production mix in oil price–linked commodities will rise from ~28% in the fourth quarter of 2018 to ~35% in the fourth quarter of 2019. In fact, in the first quarter of 2019, CHK’s production mix in oil and natural gas liquids stood at 30.6%. The shift in its production mix could further strengthen CHK’s price relationship with oil prices.

As of May 3, 2019, at management’s guidance midpoint, CHK had hedged ~53.8% of its expected oil production for the year. Oil sales contributed ~46% of CHK’s total energy commodity sales last quarter. If the current slump in oil continues, we could see weakness in CHK’s price.