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Chesapeake At Bay

06 August 2019 by jbchevrel

Chesapeake Energy Corporation (CHK) produces oil and gas onshore, across the US, with a roughly 1/3-2/3 oil-gas split in its top line. It is a member of CDX HY since s12 (included). The oversupply-linked falls in natural gas prices over the past few years have hit CHK revenue hard. The energy company once valued close to $40B by the stock market (summer ‘08) is now worth c$2.2B, after its stock lost another c10% today, now near the lowest level in 20 years, despite SPX rebounding almost 3%. Since the roll last March, the 5y CDS has more than doubled, starting from c500bp. Today, after the release of Q2-19 results, a decent short squeeze occurred, taking the 8% 2027s 4 points richer and the 5y CDS 3.5 points upfront tighter at some point (yesterday it closed at 22% and the mid was around 18.5% at the tightest this AM). The release was allegedly less bad than expected. It came quite mixed, beating on revenue but missing on adjusted EPS. Indeed, on an adjusted basis, CHK posted a loss of 10c/share while analysts were expecting a loss of 6c/share. That reversed later with CDS closing little moved (from 18.5% at the tightest all the way back to 22%) and the 8% 2027s gave back 5 points into our (European) close. Early volume of $31M had made the stock the most actively traded on major US exchanges this AM. If market participants got reassured from a liquidity point of view, horizon the end of the year, the outlook is not necessarily rosy. Natural gas markets are melting down, most likely weighing on future CHK earnings and its current leverage may weigh on its future movement.