A natural gas drilling rig on a Chesapeake Energy site in Pennsylvania.
Photograph by Daniel Acker/BloombergThe energy stocks that had been beaten down the most during the height of the coronavirus crisis are now rebounding the most.
On Monday morning, those stocks were flying: Chesapeake Energy (ticker: CHK) was up 82% gain, Callon Petroleum (CPE), up 54%, and Extraction Oil & Gas (XOG), up 152%. All three were halted in early trading given their enormous gains.
Chesapeake had been in such dire straits in April that it did a 200-1 reverse stock split to keep from being delisted. It said last month that it was considering bankruptcy as one option to get out from an enormous debt load.
But oil prices have rebounded in a big way, and investors are now betting that Chesapeake can persevere without its equity being wiped out. Oil prices have more than doubled since late April, though they were down slightly on Monday morning.
OPEC and its allies agreed over the weekend to maintain their production cuts, raising the possibility that oil demand will exceed supply in the second half of the year—a bullish sign for oil prices.
The latest stock moves indicate that a short squeeze is under way. As of mid-May, 9% of the shares outstanding of exploration and production companies had been borrowed by short sellers. That was up from 7% a year before, according to MKM Partners analyst John Gerdes. But a handful of companies had much higher short interests—and those are the ones that have been moving sharply higher.
Among those where at least 20% of the shares were held by shorts as of mid-May are Chesapeake, Continental Resources (CLR), Oasis Petroleum (OAS), Matador Resources (MTDR), Range Resources (RRC), SM Energy (SM), Callon, and Gulfport Energy (GPOR). Most of those stocks were rising by double-digit percentage gains on Monday.
Conversely, exploration and production companies with less than 5% of their float borrowed by shorts were seeing much more restrained price action. EOG Resources (EOG), which has one of the best balance sheets in the industry, was up a mere 0.2%.
Write to Avi Salzman at avi.salzman@barrons.com
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June 08, 2020 at 10:14PM
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Chesapeake and Other Beaten-Down Oil Stocks Are Soaring - Barron's
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