What happened

Shares of Chesapeake Energy (NYSE:CHK) were in rally mode on Wednesday, surging more than 12% by 1 p.m. EST. Propelling the oil and gas producer's stock were its strong fourth-quarter report and outlook for 2019.

So what

Heading into the quarter, analysts expected that Chesapeake Energy's earnings would decline from $0.19 per share in the third quarter to $0.18 per share in the fourth due to slumping oil prices. Instead, the company reported unexpectedly strong results, as adjusted earnings came in at $0.21 per share even though production declined 7% year over year while expenses rose 15%. The company offset those issues by growing its higher-margin oil output.

Oil pumps at sunrise.

Image source: Getty Images.

Chesapeake also provided an optimistic view of 2019. The company said that it plans to spend $2.3 billion to $2.5 billion in capital, which is roughly flat from the $2.366 billion spent last year. That's enough money to grow the company's oil production to an average of 116,000 to 122,000 barrels per day, an impressive 32% increase from 2018, driven by its acquisition of WildHorse Resource Development and its position in the Powder River Basin.

Check out the latest Chesapeake Energy earnings call transcript.

Now what

Chesapeake Energy believes it has reached an important inflection point. The combination of the sale of its Utica shale assets and the acquisition of Wildhorse have reduced its debt while transforming it into an oil-focused growth company. That rising oil output should enable the company to generate more cash, which would further improve its balance sheet, assuming, of course, crude prices don't crash again as they did at the end of last year. While Chesapeake Energy's transformation makes it an interesting oil stock to watch, its finances aren't yet back on solid ground -- which is why investors should remain cautious before jumping aboard the Chesapeake bandwagon, since the company has burned its shareholders many times in the past.