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OPEC and Easing Credit Concerns Fuel a Big Energy
Stock Rally This Week
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Image Source: Southwestern Energy.
News that the upcoming producers meeting between OPEC and Russia might lead to an agreement to freeze production
fueled a big oil price rally earlier this week with crude breaking through $40 a barrel. That said, the rally did start to fade at the end of the week after more reports surfaced that a deal was no sure thing. That still didn't seem to dampen energy
stocks this week because they also got a big boost from their banks, which are being a bit more lenient than expected. This
proved to be a powerful combination sending dozens of energy stocks up double digits in hopes that the oil market
might be turning a corner.
What:SM Energy (NYSE: SM) rallied more than 15% this week.
So What: Key driver: Oil prices, credit
clarity, and a positive analyst comment
Like most oil stocks, SM Energy benefited from the crude oil rally this week
However, the company’s banks also re-set its borrowing base at $1.25 billion, which was in-line with expectations
Now What: Further, its lenders removed the
financial covenant that set its maximum debt-to-trailing 12 months EBITDAX at 4.0 times, giving it more breathing room during the low point of the energy cycle
Analysts liked the agreement, with Topeka Capital raising its price target on SM Energy from $15 to $32
Key takeaway: With oil heading higher and more breathing room on its credit, SM Energy investors can breathe a bit easier now
What:Southwestern Energy (NYSE: SWN) jumped 16.3% this week.
So What: Key driver: The rally in
crude oil and lenient banks Southwestern Energy’s
rally this week wasn’t due to any news of its own, instead it was swept up by oil prices and easing industry credit concerns
Now What: Banks are proving to be a bit more
lenient than expected during the spring redetermination period, with SM Energy and Chesapeake Energy both benefitting from important amendments to their credit agreements this week
That bodes well for Southwestern Energy, which has seen its own credit deteriorate due to weaker oil prices
Key takeaway: Investors are breathing easier knowing that banks are being lenient this time around
What:Foresight Energy (NYSE: FELP) jumped 19.6% this week.
So What: Key driver: Easing credit
concerns Foresight Energy jumped this
week after disclosing that it has extended the terms of its existing forbearance agreement with bondholders
It was also reported that the company’s founder would inject cash to repay creditors
Now What: This agreement would
enable the coal miner to avoid joining the bulk of its peers in bankruptcy
Key takeaway: With bankruptcy seemingly off the table, investors are rejoicing
What:
Parker Drilling (NYSE: PKD) rallied 21.3% this week.
So What: Key driver: The crude oil rally Parker Drilling rallied sharply
after crude topped $40 a barrel in hopes it will fuel increased drilling activity among its customers
Given that most shale plays need at least that price to break-even, crude’s rally could start putting some drilling rigs back to work
Now What: That’s one reason why analysts
at Nomura recently rated Parker’s stock a buy, seeing a potential bottom being put in crude fueling improved industry conditions for Parker in the future
Key takeaway: With oil moving higher, investors see a light at the end of the tunnel for Parker Drilling
What:Chesapeake Energy (NYSE: CHK) surged over 54.8% this week.
So What: Key driver: Oil prices and an
amended credit agreement Chesapeake Energy got a big
boost this week after oil topped $40 a barrel and its banks amended its credit agreement
Not only did its banks reaffirm its borrowing base at $4 billion, but they postponed the next review until June of 2017 and eased its covenants
Now What: That pretty much took
bankruptcy off the table this year, giving the company ample liquidity and time to sort out its issues
Key takeaway: With bankruptcy off the table, investors poured into Chesapeake’s stock
This could be the next billion-dollar iSecret