Chesapeake Energy's (NYSE:CHK) turnaround has been quite dramatic. The company has become a leaner and meaner version of its former self. The stock has rallied over the past 12 months, but is there still room to grow? Compared to its expected future earnings Chesapeake does not look too expensive, but it's important to understand where its growth will come from.

The natural gas market
Chesapeake was originally a natural gas firm, and in 2013 it expects to produce 1,080 to 1,100 billion cubic feet of natural gas. This takes into account the expected 3% fall in production relative to 2012 levels. 

As the chart below shows, the Energy Information Agency expects the natural gas market to be slightly oversupplied at least until 2015. Based on these estimates, natural gas is unlikely to be a huge money maker for Chesapeake in the short term. Prices will most likely stay south of $4.5 per million Btu until the end of 2015. 


The oil and NGL side
Chesapeake is growing in a number of the biggest U.S. plays, such as the Eagle Ford. Thanks to its presence in the oil window of the formation it has been able to post a 44% compound annual growth rate (CARG) from the first quarter of 2011 to Q2 of 2013, bringing net production above 85 MBoe/d (thousand barrels of oil equivalent per day). Going forward, growth will likely slow down as the company continues to focus more efficient use of its existing rigs, but the gradual replacement of natural gas production for oil and NGLs will grow Chesapeake's bottom line. 

Peer evaluation
EOG Resources (NYSE:EOG) is a small unconventional E&P firm mainly focused on North Dakota's Bakken region and Texas' Eagle Ford. It has acquired a large amount of liquids-rich acreage and expects its production to be just 12% natural gas in 2013. High oil flows let it achieve cash margins of $40.25 per Boe in Q2 2013. In many ways EOG Resources is the picture of where Chesapeake would like to take itself.

Occidental Petroleum's (NYSE:OXY) main focus is on California and the Permian Basin. Similar to Chesapeake, Occidental hopes to increase profits through better operational efficiency. In California the company's goal is to cut its operating expenditures per Boe by 15% from 2012 to 2013. One of Occidental's strengths is its experience with CO2 enhanced recovery. As unconventional plays throughout North America age, enhanced recovery techniques will be critical in maintaining production and allowing Occidental to get the most out of its assets.

Continental Resources (NYSE:CLR) is a focused player in the Bakken region with more than 1.2 million net acres as of Q2 2013. Continental has been boosting its production by drilling in the Three Forks formation, right below the Bakken. By drilling more wells from the same pad and other operational improvements, the company hopes to boost returns by bringing 2013 operated completed well costs down $1.2 million to $8 million. The company has seen huge production growth, and it is worth keeping your eye on Continental.


  Chesapeake Occidental Petroleum Continental Resources EOG Resources
Current Stock Price ($) 26.00 96.00 113.00 180.00
Expected 2013 EPS ($) 1.67 7.06 5.48 7.79
Forward 2013 P/E 15.57 13.60 20.62 23.11
Expected 2014 EPS ($) 2.08 7.37 7.23 8.93
Forward 2014 P/E 12.50 13.03 15.63 20.16

Looking at expected earnings in 2013 and 2014, Chesapeake is one of the cheaper deals. Part of this can be explained by its large debt load, but it also appears that the market is putting downward pressure on its valuation after the bad memories of its previous CEO.

Chesapeake's total debt-to-equity ratio of 1.02 is quite high, but it is still below Continental's ratio of 1.12. The good side is that Chesapeake's bonds are all fixed rates, and its interest bill is expected to fall in 2015 once its $1.265 billion coupon at 9.5% matures. With a current Morning Star credit rating of B+, Chesapeake should be fine as long as it continues to wind down its balance sheet. 

Occidental Petroleum offers growth with less debt, but it comes with its own issues. The company has assets in Libya and Iraq, exposing it to political instability. EOG Resources' high valuation is easy to justify, thanks to its low total debt-to-equity ratio of 0.44 and oil-rich acreage. 

Bottom line
Chesapeake has come back from the dead by revamping its production profile, yet it still trades at a discount relative to its peers. The numbers presented here are not a full investigation into the company, but this snapshot shows that Chesapeake is worth a second look. If you are looking for a firm with high growth and less debt, then EOG Resources may be a better fit.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool owns shares of EOG Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.