Where is the Bottom for Chesapeake Energy (CHK)?

By March 1, 2017 No Comments

In an effort to outlast the Natural Gas Liquid (NGL) price free-fall along with the current oil and natural gas pricing glut, Chesapeake Energy Corp. (CHK) announced they will eliminate common stock dividends in the third quarter of 2015. Chesapeake Energy also announced that the sale of the CHK Cleveland Tonkawa LLC assets to redeem preferred shares in the subsidiary should also close in the third quarter 2015.

According to this July 21, 2015 CHK press release, which dropped share prices another 6% in early morning trading, eliminating the common stock dividend will save Chesapeake Energy about $240 million annually. By redeeming the preferred interest in CHK Cleveland Tonkawa LLC, Chesapeake Energy should eliminate about $75 million in annual dividend payments. Chesapeake Energy CEO Doug Lawler explained the financial moves to shareholders saying:

This … (the financial moves) … is part of a broader disciplined approach that began two years ago to decrease the company’s financial complexity and increase our liquidity. The company’s liquidity position remains extremely strong with more than $2 billion of unrestricted cash on our balance sheet and an undrawn $4 billion revolving credit facility as of June 30, 2015. We continue to move forward with multiple opportunities that will strengthen our cash flow generation capabilities, and I look forward to future announcements regarding the ways we are creating additional value in the months ahead.

Years ago, before NGL prices dropped nearly 65%, CHK made moves to increase its positioning in the NGL market. The decline in NGL prices, in combination with the slump in oil and natural gas prices, has battered CHK stock. Chesapeake Energy Corp (CHK) stock is currently selling near a 52-week low of $9.40 per share on July 7, 2015 well below the high of $27.97 per share almost a year ago.

So, has CHK stock hit bottom? Analysts are mixed with target prices ranging as low as $5.00 per share and as high as $24.00 per share with a mean target just under $14.00. The next earnings date is due out August 5th 2015.

At this point, the CHK stock price is so intrinsically connected to NGL, natural gas and oil prices it would make sense to watch these commodities closely for an entry point. There is little doubt that oil and gas prices will eventually rise, and with it could be some nice gains for CHK shareholders with a long-term view at the current 52-week lows.