In 2013, Chesapeake Energy (NYSE:CHK) began a significant transformation to turn around its struggling business. The oil and gas company's board of directors tapped Doug Lawler, a former executive at Anadarko Petroleum, to lead this process. While the company has had its share of struggles during Lawler's tenure, Chesapeake Energy has come a long way since he took over.

With his sixth anniversary leading the company approaching, during Chesapeake's recent first-quarter conference call, Lawler reflected on all of his accomplishments since he took the reins. While he and his team still have lots of work to do, they're heading in the right direction.

The sun setting behind an oil pump

Image source: Getty Images.

The highlight reel

Lawler started his prepared comments on the call by saying:

Over the past six years, our strategy, commitment, and tenacity to drive differential top quartile performance for our shareholders has been consistent, strong, and vibrant regardless of external or internal challenges. I'm very proud of our progress and accomplishments, and I'm excited about the future trajectory of the company. During these transformation years, we've shared our significant progress on debt and obligation reductions, operating and capital efficiencies, profitability improvements, and the simplification of our business. Importantly, for the last 16 quarters in a row, we have met or exceeded the Street's consensus earnings estimates, demonstrating the strength of our employees, asset portfolio, and strategy.

Chesapeake Energy is a much different company today than it was six years ago. At the time, it had roughly $15.5 billion of liabilities on its balance sheet and another nearly $23 billion in off-balance sheet liabilities, which were the result of a complex web of financial arrangements the company entered into so that it could fund its rapid growth in the early days of the shale boom.

However, those numbers have improved significantly over the last six years. The company's balance sheet liabilities fell to about $11.2 billion last year, while its off-balance sheet liabilities were down to $5.9 billion thanks to a steady string of asset sales. Chesapeake has also become a much more efficient driller, which has improved its margins while narrowing the gap between cash flow and capital spending.

Why we're even more excited about what lies ahead

Those improvements positioned the company to make a transformational transaction last year that it believes will accelerate its turnaround plan. That deal is not only turning Chesapeake into an oil growth machine, but it should enable it to become more profitable, which will further improve its debt profile.

In the company's view, oil will grow from 19% of its total output last year to about 30% by 2020. That should improve its per-barrel profit margin by 35% this year and 50% by 2020. Meanwhile, the company expects to save between $200 million and $280 million per year as it leverages the strengths of the two companies. These factors should help drive its leverage ratio from about 4.0 times debt to EBITDA last year to 3.6 times in 2019 and 2.8 times next year, which puts it much closer to its 2.0 times target.

Thanks to that deal, and the company's other initiatives, Lawler proclaimed on the call that:

We remain on track to deliver the transformational 32% absolute oil growth we guided to in February, ultimately reaching the year-end oil production mix of approximately 26% of total net production. But more importantly, our increasing oil production, along with our focus on reducing our cost, continue to improve our competitiveness and cash flow generating capability. We believe the rate of change in our cash flow is already noticeable in 2019.

Chesapeake wants to become a cash-flow-generating machine in the coming years. That will give it the money to not only grow its high-margin oil production at a healthy rate, but also to continue paying off debt. Those two factors should enable the company to create value for its investors in the coming years, which is why it's so excited about what lies ahead.

Chesapeake should be fun to watch over the next few years

Lawler and his team have worked hard to dig Chesapeake Energy out of a massive financial hole. While they still have lots of work to do since the company's leverage ratio remains well above its target level, they have a clear plan to get to their goal over the next few years. That makes it an intriguing oil stock to keep an eye on to see if it can finish its transformation into a financially sound oil and cash-flow-growth machine.