Shares of Chesapeake Energy (OTC:CHKA.Q) were up as much as 24% by 10:15 a.m. EDT on Thursday. While there wasn't any company-specific news fueling the oil stock's rally, there were two likely catalysts: oil prices and an interest-paying peer.
One likely driver of today's rally in Chesapeake Energy was an uptick in the price of oil. WTI, the primary U.S. oil price benchmark, bounced back after yesterday's plunge, rising by about 1% in midmorning trading. That's fueling a bit of a rebound in most oil stocks today, including Chesapeake, which sold off yesterday.
Another potential catalyst is a report that California Resources (OTC:CRC) paid the interest due on its 2024 bonds. The company didn't make the semiannual payment on the $2.25 billion in notes on the initial May 15 due date, sparking concerns that it might be nearing a bankruptcy filing. However, with California Resources now making that payment, it bought more time to address the $4.9 billion in debt that has been weighing it down.
Chesapeake Energy is in a similar predicament as California Resources in that it didn't make a recent interest payment. That's fueling increasing speculation that it was on the verge of filing for bankruptcy, which some reports suggested could come sometime this week. With that not happening yet, some speculators are holding out hope that the company might make it through this downturn without going bust.
While Chesapeake Energy hasn't yet filed for bankruptcy, that outcome seems inevitable given its $9 billion in outstanding debt. Because of that, there remains a significant risk that the stock ends up worthless. That's why investors should avoid it at all costs.