How Chesapeake’s Stock Has Performed since April 2015

Could Chesapeake Energy Reveal a 1Q16 Surprise on May 5?

(Continued from Prior Part)

Chesapeake’s stock performance

Chesapeake’s (CHK) stock has been rallying, more or less, since February 2016, mirroring the movements in natural gas prices. YoY (year-over-year), Chesapeake’s stock has fallen by ~54%. Natural gas prices have declined by ~13% in the same period.

By comparison, the broader industry ETF, the Energy Select Sector SPDR ETF (XLE), has fallen by 18% in the same period. CHK’s peers such as WPX Energy (WPX), Gulfport Energy (GPOR), and QEP Resources (QEP) saw their stock prices drop by 31%, ~38%, and ~28%, respectively, in the same period. These companies together make up ~2.6% of the iShares US Oil & Gas Exploration & Production ETF (IEO).

Much of the rally has to do with CHK’s asset sale announcement in its 4Q15 earnings. Chesapeake announced asset sales amounting to $700 million, which it plans to close by the end of 2Q16. Its turnaround is also due to investors’ changes of opinion on the likelihood of Chesapeake filing for bankruptcy.

Chesapeake Energy is planning asset sales worth $500 million–$1 billion in 2016, excluding the $700 million asset sales. Therefore, the total divestments will amount to $1.2 billion–$1.7 billion in 2016.

Chesapeake’s amended credit facility and suspended dividends

On April 11, CHK announced that it had amended its $4 billion secured revolving credit facility. The borrowing base was reaffirmed at $4 billion. Following the announcement, CHK closed 20% higher.

In January 2016, CHK announced the suspension of its preferred stock dividend. This will allow it to save ~$170 million of additional cash per year. In its annual 10-K filing, CHK noted, “We are also evaluating additional capital exchanges, asset sales, joint ventures and farm-outs to increase our liquidity and cash flow.”

Apart from these key strategies, CHK has announced a 57% YoY reduction in its capital expenditure to reduce its debt load and improve liquidity.

In the next and final part of this series, we’ll check in with what analysts are recommending for CHK.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Chesapeake Energy to Release 1Q16 Earnings on May 5

• Part 2 - Understanding Chesapeake’s Production Guidance and Key Management Strategies

• Part 4 - The Word on the Street: What Analysts Are Saying about Chesapeake Energy