At the end of the last presidential debate on Oct. 22, Democratic presidential nominee Joe Biden said that he would move to “phase out” oil. That had to make the hairs on executives at Chesapeake Energy (OTCMKTS:CHKAQ) stand on end. We’re fully immersed in the silly season that engulfs our nation every four years. And truth is always a consequence of that folly. Nevertheless, the results of the election have consequences for any fleeting hopes for Chesapeake Energy stock.
Oil prices have come under pressure during the pandemic. But realistically, they were under pressure before that. In fact, the oil industry might look at the Trump administration and wondering “with friends like these…”
Energy independence is one of the rallying cries of the Trump campaign. But as the United States has aggressively moved to increase domestic production of oil, the price of oil has come down. That was great for the economy. And oil prices were holding steady as Americans were working, traveling and flying.
Covid-19: A Singular Event With Long-Term Consequences
If armchair scientists and smorgasbord scientists would leave the chat, it would leave room for actual science. And that science shows that the pandemic is not as good as Donald Trump exclaims, nor is it as dour as Biden predicts. It’s a puzzle without an easy solution. And, as we knew in March, it’s going to take time and common sense.
The latter is in short supply. But for an oil company, the time is the bigger issue. Airline traffic is still a fraction of where it was. Cruise ships remain in port. Workers are discovering that the office doesn’t need them as much as they maybe need the office.
All of this sets up a tricky situation for the oil industry. Even if Trump is awarded four more years, it will take some time to make the oil industry great again. And that’s the best case scenario.
The pandemic will continue to suppress demand. My non-scientific theory is that part of the problem with the current spread is that people are clamoring to whatever opportunities they have to socialize. Our nation, and the world, is all dressed up with no place to go.
Would Biden End Oil?
I don’t know. As I said, we’re in the silly season. And in 2020 words are allowed to mean whatever we want them to mean. What is less debatable is that a progressive administration would be more hostile to the oil and gas industry. Imposing Obama-era regulations is a certainty. And that may be just the beginning.
But the reality is that the pandemic may be doing more to end oil than feckless politicians ever could. The pandemic is a tedious reality at best, but it may have unintended, and positive, consequences for the environment and for renewable energy.
Still, if Chesapeake Energy wants to have any shot at a comeback, it needs to have an administration that, at least on paper, would be less hostile to its existence.
Chesapeake Energy Stock Is Not a Buy
Faizan Farooque wrote about the perilous situation facing Chesapeake shareholders. As Farooque points out, the oil and gas industry will recover at some point. But any comeback will be reserved for companies that had strong balance sheets prior to the pandemic. That does not describe the state of affairs of Chesapeake Energy stock post-bankruptcy.
According to the restructuring support agreement, $7 billion of the company’s debt will be wiped off, and the company will get $925 million in debtor-in-possession financing. Chesapeake will also initiate a $600 million rights offering to drum up more finance for its post-bankruptcy operations.
None of this is any good for shareholders. There will be some oil companies that will see better days ahead. However Chesapeake Energy is not going to be one of them. Analysts are abandoning the stock. And if Joe Biden wins the election, it may be time for shareholders to throw in the towel for good.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.