Monday, 25 January 2016

CHK, SDRL - two on the brink

Whilst the broader market settled lower, there was very severe weakness once again in energy related stocks. Chesapeake Energy (CHK), and Seadrill (SDRL) settled lower by -15.4% and -9.8% respectively. Near term outlook is dire, with price action/levels suggestive that both companies are on the edge of filing for bankruptcy.

CHK, daily

SDRL, daily


First... I've no position.. with no intention to get involved. There is little point in shorting from such low levels, not least in terms of a bearish option position.

If either company do implode within the next few months, traders/analysts really can't claim to be 'ohh so surprised', although no doubt many will.

In addition to coping with continued lower energy prices, both CHK and SDRL have an unsustainable level of debt.

Recent debt estimates

CHK: $11-12bn
SDRL: $12bn

Someone is going to have to write off those little mountains of debt. Further, there might well be a great many derivatives based off such debt.

In any case... CHK, SDRL, are just two from a list of companies that are seemingly headed for the abyss this spring/early summer.