Today, it appears U.S. shale producer Chesapeake Energy (NASDAQ:CHK) has received a new lease on life. Investors can now buy CHK stock on the Nasdaq Exchange, as the energy company has emerged from its Chapter 11 restructuring. Indeed, this stock appears to be on fire on its return to the big leagues. Shares are up 6.5% at the time of writing intraday.
There are two huge catalysts investors are eyeing with CHK stock. These two tailwinds appear to be providing significant momentum to this stock right now. Accordingly, speculators and deep value investors alike may be enticed to pick up shares in this beaten-up shale producer. That is, if the company can continue its turnaround story.
Balance Sheet Looks a Lot Better for CHK Stock
Poorly timed acquisitions in the oil sector and a strategic shift away from natural gas toward oil have resulted in balance sheet problems for Chesapeake. The company had $9.1 billion in debt when it applied for Chapter 11 Restructuring. As part of the restructuring, $7.8 billion of debt has been converted to equity. Today, the streamlined energy player’s current principal amount on its debt owning sits at a much more reasonable $1.3 billion.
The company’s cut its workforce by about 15% and raised $1 billion in debt to exit bankruptcy. Additionally, the company’s interest payments have been cut by more than 80%. These moves improve Chesapeake’s financial standing and appeal to long-term investors.
Shift to Natural Gas an Excellent Long-term Strategy
Chesapeake plans to spend approximately 85% of its Capex budget on developing gas fields in Louisiana and the U.S. northeast. These investments of around $700 million are expected to produce as much as $400 million in free cash flow on an ongoing, annual basis.
Indeed, this shift toward natural gas production has investors enticed with CHK stock. These investments aren’t only seen as positive from a net present value standpoint. There’s a political element here as well. President Joe Biden has made it clear a transition toward renewable energy will be pursued aggressively. Accordingly, natural gas is looked to as a short-term transitory energy source that will be encouraged over coal and oil production in years to come. Thus, the regulatory environment should be much more friendly to Chesapeake moving forward.
Chesapeake has ceded its spot as the second-largest natural gas producer, focusing more on oil investments in recent years. The strategic shift back toward natural gas appears to be one investors are cheering.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
