Short squeeze very unlikely for CHK
While it is in theory possible for a short squeeze, it is not likely. The stock has been going the wrong way for weeks now. In November 2015 the stock was over $6. In January 2016 the stock was just over $5/share. As late as Feb 5, 2016 the stock was still just over $3/share. Now last Friday the stock closed at $1.59. Anyone short the stock probably has all kinds of profit that would protect them from a short run up in price.
A short, who was really concerned about a 'miracle recovery' could just buy some preferred shares or bonds as a hedge against a recovery of CHK common shares, since those higher classes should go higher than the common shares if the company recovered. The preferred shares have an additional benefit now that there are unpaid dividends that would accumulate.
I do not expect the preferred dividends will be ever be paid and that all classes of bonds, preferred shares and common shares will decline over time. I also expect the preferred shares will get wiped out along with the common shares and some of the more junior classes of bonds in the coming bankruptcy.
The problem is that NG prices are simply too low for anyone to make any money at it. Under more 'normal' conditions, I would have expected prices to rebound as marginal/unprofitable production was taken off line. The problem is two fold. One is that the shale producers have all of this debt to service, so they all keep pumping as much as possible, even if they are losing money on every MCF delivered because they need the cash. The second problem is that Saudi Arabia, Russian and Iran are out to 'get' each other, meaning they are now putting as much gas and oil onto the market to hurt the other side. I think they all want storage to fill up because it will hurt the other side, even if it hurts them also.
I never expected in the past that it would have possible to have supply flood the market, with demand of around 92 million barrels per day. Mid 2000s, when demand was around 86 million barrels per day (one thousand barrels per second), I thought and expected the challenge would be to keep explorations and production rising enough to keep up with demand. I never expected the possibility that it could happen that storage would fill up, and crash the price of oil and gas.
Louis J. Desy Jr.
