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Shares of popular mid-cap oil and natural gas company Chesapeake Energy CHK gained soared nearly 10.3% in morning trading Wednesday after OPEC announced that all 14 member countries have agreed on a deal that will see oil production cut for the first time since 2008.
In the culmination of the cartel’s highly anticipated meeting in Vienna, OPEC ministers confirmed that it will reduce output from 33.8 million barrels per day (b/d) to 32.5 million b/d. The announcement marks the end of a “pump-at-will” policy implemented in 2014, which created a supply glut meant to drown out U.S. producers (Also read: OPEC Has Finally Agreed to Cut Output, Sending Oil Up 7%).
For American energy companies like Chesapeake, the deal means that oil prices should begin to return to a level that is sustainable. While state-run oil behemoths like those seen in Saudi Arabia have the ability to survive stretches of rock-bottom oil prices, businesses like Chesapeake need prices at more reasonable levels in order to ensure profits.
Chesapeake is also feeling the full force of today’s good news because of its existing strength. In fact, we’ve seen pretty solid earnings estimate revision activity surrounding the company. In the past 30 days, 4 estimates have gone higher for Chesapeake Energy, while 2 have gone lower. The trend has been pretty favorable too, with estimates rising from 6 cents a share 30 days ago, to 8 cents per share today, a move of 33.3%.
If rising oil prices can usher in even higher estimates, Chesapeake could be set to take off. For now, however, the company remains a Zacks Rank #3 (Hold). Nevertheless, this is definitely a stock to keep an eye on now that OPEC has finally made its decision.
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