Chesapeake Energy Focuses on Capital Efficiency to Repay Its Debt

(Continued from Prior Part)

The energy sector has seen dismal performance over the last year, witnessing the same underperformance as oil and gas prices. Independent explorers and producers’ share prices lost ~50% in the last year.

Refiners were the best stocks in the energy sector as oil’s price drop benefited them due to lowered feedstock costs. Integrated oil majors such as ExxonMobil (XOM) and Chevron (CVX) managed to stay strong due to their robust balance sheets and healthy cash flows from downstream operations.

Above is a chart of the share price movements of independent explorers in 2015. Chesapeake Energy (CHK) and CONSOL Energy (CNX) have corrected ~70% in the one-year period. Laredo Petroleum Holding (LPI) fell ~28% in the same period.

Recovery in exploration companies’ share prices seems uncertain, as the energy sector is surrounded by further lower price targets of fossil fuels. Upstream energy players (XOP) have adopted a simple tactic in this lower-for-longer energy price phase. Companies aim to increase sales revenue by increasing production while spending less on operations.

Many energy companies (XLE) have seen spending capital wisely and achieving capital efficiency. Lenders will likely stay worried until energy prices recover, but companies’ disciplined strategies to hike production while lowering spending and offloading non-core assets can take them to the other side of the tunnel.

Browse this series on Market Realist:

• Part 1 - Chesapeake Energy’s Bond Prices Plunged on November 13
• Part 2 - Chesapeake Expects Gas and Oil Reserve Values to Dwindle
• Part 3 - Chesapeake Saw Its Leverage Ratio Rise in 2015