Source: Chesapeake Energy Corporation. 

Chesapeake Energy Corporation (NYSE:CHK) recently reported second-quarter results that were a bit below expectations. However, that had to do with the prices the company realized for oil and gas as opposed to any operational missteps. In fact, listening to the management team on the conference call discussing those results would have investors believe that the company is doing better than ever before as it is making progress toward its goals, which are the four pillars detailed below.

The four pillars 

I'd just like to iterate that Chesapeake is standing strong on four pillars today. We are growing production at a double-digit annual rate. We are demonstrating excellent capital efficiency and cost leadership. We are reducing our financial complexity. And we are laser focused on creating shareholder value through a variety of strategic initiatives. – CEO Doug Lawler.

More than anything else Chesapeake Energy's management team wants its investors to know that its new strategy is built upon four pillars. The company plans to grow production in a very capital efficient manner while at the same time reducing its financial complexity in order to create shareholder value. Now, let's take a deeper dive into what management had to say about each of these four pillars.

More on growth

Chesapeake is a growth company. We have the strategy, high-quality assets, and talented employees to deliver growth quarter after quarter. – Doug Lawler.

Chesapeake Energy has always been a growth company. However, this time the company is focused on managing its growth in a more sustainable manner. That means it won't pile on debt in order to build an empire. Instead, the company is focused on growth that matters, which is growth that delivers positive returns and creates value.

More on capital efficiency

...We will be seven to nine rigs next year. But, in effect, what we'll be doing is adding more wells because of continued cycle time reductions... And year to date we've seen a 20% reduction in cycle times. What that means is I can peel a rig back and effectively have not lost any delivery of this asset. And, so, we'll think more in terms of well delivery than we will rigs. And it's one of the great value drivers for this Company as we continue to see those cycle times come down. -- Chris Doyle-SVP Northern Division Operations

For years, growth in the oil and gas industry meant adding more rigs to drill more wells. That's no longer the case as multi-well pads are allowing companies like Chesapeake Energy to drill more wells with less rigs. As the following slide from a recent investor presentation notes, the ability to drill more wells with less rigs is improving the company's cost to drill each lateral foot and therefore returns.

Source: Chesapeake Energy Investor Presentation (link opens a PDF)

More on reducing financial complexity

Investment grade is a byproduct of running our business right. And so, we expect to reach investment grade because we're going to clean up the excessive debt that can be a burden on our capital program in high price environments or low price environments. But the financial stability of the Company, as [CFO] Nick [Dell'Osso] had noted, we are in a position today of really very good strength. And it creates optionality for when we can either pay off debt, pay off other obligations, and continue to mold and improve the portfolio to capture the greatest value we can from these high-quality assets. --Doug Lawler

One of the ways Chesapeake Energy is reducing its financial complexity is by cleaning up its balance sheet of all the various non-traditional financing agreements it has, like subsidiary level preferred shares and volumetric production payments. This past quarter the company bought back all of the outstanding preferred shares of its Utica subsidiary for $1.26 billion. In doing so the company was able to retire what it called a "high cost leverage instrument" as it will save $75 million in annual cash dividend payments to preferred shareholders.

More on creating value

I'm very excited about the Powder River Basin acquisition ...This acquisition efficiently leverages our overhead and geologic expertise in the Powder River Basin. And we expect it to substantially increase our oil growth rate, our margins, and our oil mix as a percentage of total Company production. This transaction is an excellent example of the calculated strategic steps we are taking to reduce our leverage to near-term natural gas prices by deploying our capital into areas with higher-margin oil. -- Doug Lawler

Chesapeake Energy is taking calculated strategic steps to create the most value it can for investors. Its recently announced deal in the Powder River Basin is an example of this. It took acreage spread across two counties and consolidated it as the following map shows.

Source: Chesapeake Energy Corporation Investor Presentation. 

In doing so Chesapeake Energy increased its average working interests from 38% to 79%, giving it operational control over more future drilling locations. Having operational control has been a key for the company in driving returns as it controls how its capital will be spent to create value for investors. As the earlier slide from the Utica Shale pointed out, Chesapeake Energy's operated wells produce rates of return substantially above the rates of non-operated wells.

Investor takeaway
To sum everything up, Chesapeake Energy wants its investors to know that it has a plan. That plan is focused on growing value and not growing an empire. Because of that plan and the progress being made, investors should see the company create longer lasting value for investors that are willing to stick with the company for the long-term.