Chesapeake Energy: What Can Investors Expect This Year?

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Chesapeake Energy: What Can Investors Expect This Year? PART 1 OF 4

Chesapeake Energy Stock Rose Last Week: Gauging Trends

Chesapeake Energy stock performance

Chesapeake Energy (CHK) stock rose 9.6% in the week ending April 11, 2018. Chesapeake Energy stock tracked crude oil prices (USO), which rose 5.4% during the same period.

Chesapeake Energy Stock Rose Last Week: Gauging Trends

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On a YoY (year-over-year) basis, crude oil prices have increased 33%, while Chesapeake Energy stock has fallen ~46% during the same period. Natural gas prices (UNG), which also impact Chesapeake Energy stock, haven’t done that well. Natural gas prices have fallen ~14.6% YoY. Given that Chesapeake Energy is a natural gas–weighted company, it explains why the stock hasn’t risen as much as crude oil.

The Energy Select Sector SPDR ETF (XLE) has risen 1.2% YoY, while the broader market S&P 500 SPDR ETF (SPY) has risen ~12%.

Weighing Chesapeake Energy stock

Another significant reason for Chesapeake Energy’s subdued stock movements is its debt. The company’s principal debt balance continued to stay high at $9.981 billion as of December 31, 2017—compared to $9.989 billion as of December 31, 2016. In comparison, Chesapeake Energy’s market capitalization stands at $2.85 billion.

With oil prices improving since September last year, a sustained increase in oil prices will likely benefit Chesapeake Energy stock. The company has been concentrating on oil-focused growth. Of course, natural gas prices will need to improve too. Proposed US LNG (liquefied natural gas) export projects could help natural gas prices. The EIA expects that the US will have the third-largest LNG export capacity of 9.6 Bcf/d in the world after Australia and Qatar by the end of 2019. Upcoming projects include Dominion Energy’s (D) Cove Point liquefaction terminal, which came online in early 2018, and Kinder Morgan’s (KMI) Elba Island LNG, which is expected to come online by early 2019.

Improved cash flows through asset sales could also be a catalyst for Chesapeake Energy stock. Management is pursuing multiple transactions towards its goal of removing $2 billion–$3 billion of debt from its balance sheet. Asset sales could also mean lower production in the future, which might concern some investors. Chesapeake Energy’s management expects production growth of 1%–5% adjusted for asset sales in 2018.


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