Chesapeake Energy Corporation (CHKA.Q) caught investors by surprise last week after agreeing to acquire WildHorse Resource Development (WDR) for nearly $4 billion in cash and stock. Investors reacted to the stunner by bailing on the company's stock.

However, because that deal stole the spotlight, most investors overlooked the company's third-quarter results, which it also unveiled last week. Here are some positives from that report that investors won't want to miss.

An oil pump with mountains in the background.

Image source: Getty Images.

A gusher of oil output

Chesapeake Energy reported that its third-quarter production averaged 537,000 barrels of oil equivalent per day (BOE/D), which was a 5% increase compared to the same period of 2017, after adjusting for asset sales. The main driver of that increase was the company's oil output, which surged 13% year over year to 89,000 barrels per day (BPD).

Fueling Chesapeake's fast-growing oil production was its position in the Powder River Basin. The company's total production from that region leaped 107% compared to the year-ago period and was up an impressive 32% compared to the second quarter thanks to its strong drilling results in the Turner Formation. Chesapeake expects to end the year producing 38,000 BOE/D from the region and anticipates that output to more than double in 2019 compared to this year. There's further upside to that plan since the company is considering adding a sixth drilling rig to the region next year that would target the Parkman and Niobrara formations.

In addition to that high-octane oil growth from the Powder River Basin, Chesapeake Energy also reported strong results from the Eagle Ford shale. Its oil output from that region rose nearly 12% due to solid drilling results and would have been even higher if not for flooding in September, which impacted production.

Chesapeake Energy expects its oil growth engine to accelerate in the coming years as it continues ramping up in the Powder River Basin and adds WildHorse Resource Development's Eagle Ford shale acreage to its land in that region. The company anticipates that the transaction will help double its oil output by 2020 when it expects to produce 160,000 to 170,000 BPD, with crude representing 30% of its total production, up from 19% in 2018.

An oil pump with a blue sky behind it.

Image source: Getty Images.

A big uptick in cash flow

The surge in Chesapeake Energy's oil output is coming at a time when oil prices are also on the rise. Because of that, the company was able to generate $504 million in cash flow from operating activities during the quarter, an increase of 52% compared to the year-ago period. That put the company closer to its aim of generating enough cash to fund its capital program, which totaled $619 million during the quarter.

Chesapeake Energy is working hard to close that gap by undertaking a number of initiatives that will cut costs and boost cash flow. The company completed several moves to improve its balance sheet and reduce interest expenses over the past few months. In September, for example, the company issued new bonds that it used to repay a loan with a higher interest rate, which should save it $30 million in interest expenses next year. Meanwhile, it recently closed that sale of its entire position in the Utica shale, which will enable it to pay down more debt.

In addition to that, the company's acquisition of WildHorse Resource Development should boost its cash flow going forward. Not only does that company produce lots of high-margin oil, but Chesapeake Energy believes that the combination will save it $200 million to $280 million annually as it undertakes several cost-saving initiatives.

Don't miss what's happening

Chesapeake Energy's acquisition of WildHorse Resource Development caught investors off guard. Because of that, they likely overlooked the company's strong quarter as rapidly increasing oil production from the Powder River Basin helped fuel a surge in cash flow.

While those results showed that the company was already on the right track, it aims to accelerate its progress by acquiring WildHorse. That appears possible given what the combined company could do if everything goes according to plan. However, Chesapeake has proven time and again that even the best laid plans often go awry. That's why investors might want to watch this energy stock from the sidelines until it proves that its acceleration strategy is working as well as hoped.