Update September 6. Today shares of Chesapeake Energy (CHK) climbed 3.03% to close at $6.80 in the first post-Labor-Day trading session. The shares finished 24.8% ahead in August.
Part of this was thanks to the market. A weaker than expected report on the non-manufacturing sector in the ISM survey removed almost all remaining worry that the Federal Reserve won’t raise interest rates at its September 21 meeting. That led the U.S. dollar lower–it dropped 1% against the 10 currencies in the Bloomberg Dollar Spot Index. That led to a modest rally in energy commodities with West Texas Intermediate climbing 0.07% to $44.86 a barrel and natural gas (the commodity most linked to Chesapeake’s share price) rising 0.22%.
But today’s move in Chesapeake shares–and the move in August–is also grounded in changes in the company’s fundamentals. In its second quarter earnings report, for example the company lost more money than analysts were expecting, but also increased guidance for full-year production by 3% while keeping capital spending unchanged.
More important than the production news, though, was the company’s continued progress on fixing its balance sheet. In its quarterly guidance the company said that it was aiming for $2 billion in asset sales in 2016, up from a former projection of $1.2 billion to $1.7 billion. wise. Part of that increase in asset sales is a plan to sell a portion of its leased acreage in the Haynesville shale formation. A few days after that guidance Chesapeake announced that it had sold its stake in the Barnett shale with estimated savings of $715 million on gas shipping and processing and the elimination of $1.9 billion in long-term pipeline contracts. (Chesapeake will pay its pipeline carrier Williams Partners (WPZ) $400 million to end its contract in the Barnett shale.)
But getting enough cash in the company treasury to pay off the 2017 debt is a huge step forward for Chesapeake. On the news, Moody’s Investors Service raised its credit outlook on Chesapeake to positive.
Chesapeake is a member of my long-term 50 Stocks portfolio and as of September 2 I ranged the stock among the 5 most timely shares in that portfolio. (The other most timely stocks for the next six months are Cheniere Energy (LNG), Itau Unibanco (ITUB), Johnson Controls (JC), and Deere (DE). My ranking means that I suspect that sometime in the next six months will be a good time to buy these shares (for Chesapeake watch the price of natural gas, which is currently buoyed by expectations of a cold winter) and that I expect the shares to outperform the market over the next year to 18 months.