Balance Sheet Worries Spell Doom for These 4 Energy Names

 | Jan 07, 2016 | 10:15 AM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:








Correction: This story has been updated to correct the amount of Southwestern Energy's debt obligations coming due in 2018, which was previously listed as $4.4 billion. We apologize for the error.

With oil testing new lows in 2016 and natural gas prices still low, energy companies are unlikely to get a reprieve any time soon.

Energy was the worst-performing sector in the S&P 500 in 2015, with Oklahoma-based Chesapeake Energy (CHK) being the worst-performing stock in the index. Looking beyond the S&P 500, the energy sector saw a number of companies declare bankruptcy in 2015 while others scrambled to strengthen their balance sheets through asset sales, dividend cuts and debt restructurings.

So far, 2016 looks to promise more of the same, as the price of oil has already reached its lowest levels in more than 12 years. Given broader economic concerns about a slowdown in China and tensions between Saudi Arabia and Iran, the price of oil is unlikely to trade in a normal fashion any time soon.

For energy names, low oil prices mean that 2016 could look a lot like 2015 as more companies struggle to hold on as balance-sheet worries persist.

Chesapeake Energy: In the first few trading days of the new year, shares are up 5% as of Wednesday's close -- perhaps making the company a beneficiary of the so-called "January Effect."  Despite recent market gains, the company is still sitting on a mountain of debt, which will continue to be problematic as the price of oil comfortably sits at $36. After the Chesapeake Energy's debt exchange offering in December, it has $1.18 billion in debt coming due through 2017, $400 million of which is coming due in March. As of the third quarter, Chesapeake Energy has $3.6 billion in current assets but it has $4.6 billion in current liabilities.

Southwestern Energy (SWN): This Texas-based company proved that one company's trash is another company's, well, trash. Late in 2014, Southwestern Energy acquired Chesapeake Energy's wells in the Marcellus and Utica shales. In a more favorable climate, the acquisition could have been applauded. The stock currently trades around $6.70 and fell 74% in 2015. As of third-quarter earnings, the company has $570 million in current assets to cover $782 million in near-term liabilities. While the company does not have any debt coming due in 2016, it does have a hefty debt load coming due in 2018, which includes two notes that total $950 million and a term loan the company announced in November for $750 million.

Ultra Petroleum (UPL): This Texas-based oil-and-gas company currently trades just above $2 and shares plummeted 82% in 2015. The company has $62 million worth of debt coming due in March and has $25 million in cash, as of the third quarter. The company's current ratio is 0.45, which is well below the more prudent 1.5 to 2.0 range. While problems with Ultra Petroleum's balance sheet were widely assumed, Raymond James downgraded the company to Underperform from Market Perform due to balance sheet concerns and a weak outlook on natural gas.

Consol Energy (CNX): The Pennsylvania-based coal and natural gas company started the new year by lowering expectations. On Wednesday it lowered its production and capital spending guidance, citing weaker commodity prices. Fortunately, the company does not have any significant debt obligations coming due until 2022. However, Consol Energy has $970 million in current assets to cover $1.9 billion in short-term liabilities, as of the third quarter. Shares of the company were down 77% in 2015.

Unless there is a significant pickup in commodity prices, 2016 so far looks to be a difficult year for many energy names.

Columnist Conversations

We will take off some more risk, bank some winners SOLD PG OCT 90 CALL AT 3.3 (in at 2.90) ...
After a very calm and sedate period of volatility which saw the VIX fall not only to all time lows but had a r...
today is a good day to lighten the load and take some positions off the table. SOLD WB OCT 85 CALL AT 11 (i...
I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.