Is Chesapeake Energy Headed To Bankruptcy Court?
Things are quickly going from bad to worse in the US energy space…
Case in point, shares of one of the largest natural gas producers in the US sank 50% in yesterday’s trading session. Chesapeake Energy $CHK plunged as low as $1.55 a share as panicked investors ran for the hills.
A damning report from Debtwire revealed the company has hired restructuring specialist Kirkland & Ellis.
In other words, $CHK is very likely on the verge of bankruptcy!
It makes sense since the company has an eye popping $11.5 billion in long-term debt and a working capital deficiency of roughly $1 billion. With once highly respected $CHK trading at $20 a share as recently as early 2015, yesterday’s news is rather stunning.
Unfortunately, $CHK is just the tip of the iceberg…
Another former darling of the US oil fields, Linn Energy $LINE, careened drastically lower late last week as investors learned the company drew down the last $919 million of its credit facility. What’s more, $LINE management announced a plan to “explore strategic alternatives related to its capital structure.”
I don’t know about you, but it sure sounds to me like bankruptcy is coming to $LINE and its sister company Linn Co. $LNCO as well.
Folks, the US oil and gas boom of the past six years is quickly turning into a spectacular bust!
With persistently low energy prices killing cash flow, it’s just a matter of time before a large swath of the high cost US shale industry folds in on itself.
In fact, the CEO of BlackRock, Larry Fink, recently suggested that up to 400 energy companies wouldn’t likely survive the current downturn. That’s a sobering prediction from the leader of the world’s largest investment funds!
Of course, this isn’t the first time Commodity Trading Research readers have been warned of trouble in the oil industry. Nearly a year ago I warned against speculating on survival of small- and mid-cap oil and natural gas producers.
More specifically, I alerted readers to the immense problems facing oil names like SandRidge Energy $SD. In case you’re unaware, $SD was recently delisted from the NYSE and is running out of options quickly.
How do you invest in the US oil industry right now?
There’s only one way to do it- stick to top-tier producers like Exxon Mobil $XOM and Chevron $CVX. Not only are their balance sheets solid as bedrock, you’ll get paid a juicy dividend for your trouble.
Whatever you do, steer clear entirely clear of the small- and mid-cap energy space.
The risks simply aren’t worth the potential rewards…
Until Next Time,
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.
Category: Natural Resource Stocks