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Why Chesapeake Energy’s Stock Is So Volatile Today

By Matthew DiLallo - Aug 6, 2019 at 3:17PM

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Investors aren’t sure what to make of the oil and gas driller’s second-quarter reports.

What happened

Shares of Chesapeake Energy (CHKA.Q) bounced around quite a bit today. The oil and gas driller's stock initially rallied more than 6% after it unveiled its second-quarter results. However, shares gave back those gains and then some as the market further digested that report. By 2:00 p.m. EDT, the stock was down more than 10%.

So what

On the one hand, Chesapeake Energy posted some impressive numbers. The company's oil production hit a record level during the quarter, rising 10% year over year after adjusting for asset sales. Meanwhile, the company noted that it's on track to deliver $250 million to $280 million in cost savings this year as a result of its acquisition of WildHorse Resources Development. That's at the high end of its $200 million-to-$280 million target range. Finally, the company continued to improve its financial profile by refinancing more debt during the quarter.

A land rig drilling at sunset.

Image source: Getty Images.

However, investors overlooked those positives and focused on the negatives. For starters, the company reported a net loss of $0.10 per share, which missed the consensus estimate by $0.03 per share. Further, the company's total production declined by 6.4% year over year due to asset sales. Meanwhile, the company's debt level remains above $10 billion, which is a $1.375 billion increase from the start of the year due to the acquisition of WildHorse.

That debt level continues to weigh on the company. SunTrust, for example, commented on Chesapeake's results by saying that it's still worried about the company's debt as well as the fact it continues to outspend its cash flow. Those issues overshadowed the company's solid guidance for 2019 and waning liquidity concerns after it refinanced more debt and now has less than $600 million maturing between now and 2022.

Now what

As Chesapeake Energy's second-quarter results show, the company is heading in the right direction. That's due in part to the acquisition of WildHorse, which is outperforming its expectations. However, Chesapeake still has a mountain of debt and continues outspending cash flow. Those two issues will likely continue to weigh on the company until it fixes both concerns.

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