Activist investor Carl Icahn is facing huge losses on his investments in the energy sector particularly Chesapeake Energy Corporation, the second-largest producer of natural gas and 12th largest producers of oil and natural gas liquids in the United States.
Chesapeake Energy stock performance
Chesapeake Energy is the worst performer in the S&P 500 Index as the stock price of the company declined to its lowest level since 2003. The stock is trading $2.85 per share, down by more than 7% at the time of this writing, around 9:59 in the morning in New York.
Corsair Capital was down by about 3.5% net for the third quarter, bringing its year-to-date return to 13.3% net. Corsair Select lost 9.1% net, bringing its year-to-date performance to 15.3% net. The HFRI – EHI was down 0.5% for the third quarter but is up 11.5% year to date, while the S&P 500 returned 0.6% Read More
Over the past year, the stock price of the company fell from its highest trading price of $21.49 per share to its current trading price, thus losing 85 of its value.
Mr. Icahn owns 73,050,000 shares or 10.9% of Chesapeake Energy based on its 13F filing with the Securities and Exchange Commission (SEC) during the third quarter. At the time of the filing, his stake in the company has a market value of $535. 45million.
The current value of Mr. Icahn’s stake in Chesapeake Energy is now around $208.19 million based on its current trading price. His “paper loss” will be around $327.26 million from his investment in the company.
Mr. Icahn first invested in the company during the second quarter of 2010. He bought $350 million of its convertible preferred stock. The activist investor believed the Chesapeake Energy had great assets, great management and undervalued.” At the time, the stock was trading in the $20s per share. Since then, Mr. Icahn boosted his stake in the company.
Energy sector hit by plummeting oil prices
Chesapeake Energy and other companies in the industry have been hit hard by the declining oil prices due to continued concerns regarding the oversupply in the global market and the economic slowdown in China, the world’s second-largest oil consumer.
The WTI crude dropped 2% to $27.87 per barrel, the lowest level since 2003. The Bret crude slid 2.29% to $28.10 a barrel.
In a recent interview with Bloomberg, Fadel Gheit, managing director at Oppenheimer & Co., commented, “The market is not very kind to the whole group and especially to companies with high debt and very limited financial flexibility.”
Chesapeake Energy implemented several measures including cutting budgets drilling operations and suspending its dividend to withstand the worst market selloff since the 1980s.
During an interview with CNBC’s Fast Money Half Time Report in December, Mr. Icahn anticipated that the oil prices could fall further to its worst level, but it will recover.
He said, “I don’t think anybody thought it would be this bad because you obviously have the Middle East, Saudi Arabia just keep pumping and pumping and pumping oil. And that’s a secular change that you can’t do anything about. It’s a political thing also.”
“I think it will; it could very easily get worse. And eventually, I think it will get better, but it could get worse,” added Mr. Icahn.