A couple of years ago, Chesapeake Energy (NYSE:CHK) was a mess. Under founder and then-CEO Aubrey McClendon, the company had accumulated $16 billion in debt, while natural gas had fallen below $2 per mcf -- the equivalent of $30 oil -- as Chesapeake and competitors flooded the market with vastly more gas than it could consume.

The stock was near its recession-level low, below $13 per share, and investors were clamoring for change. This period marked the beginning of the end for McClendon, and the first steps in a rebirth for the company he co-founded.

The stock is up 95% since the 2011 low -- and, while this is partly due to higher natural gas prices, there have been some fundamental changes at Chesapeake as well. However, declining natural gas and oil prices this year have correlated with a stock that's down, while the S&P 500 is up about 9%. Has the new management team run out of ways to drive value for Chesapeake investors, or will the stock bounce back? Let's take a closer look. 

What progress has been made?
Chesapeake Energy's board of directors started a process of deleveraging Chesapeake in 2012, and CEO Doug Lawler has continued to do so. Since the peak debt level in 2012, Chesapeake has reduced its debt load by almost 30%, and increased its cash position from only a few hundred million dollars to more than $1.4 billion.

CHK Total Long Term Debt (Quarterly) Chart

CHK Total Long Term Debt (Quarterly) data by YCharts.

The deleveraging -- down almost $6 billion from the peak, is going to continue, according to Lawler. From the most recent earnings call:

You also can expect continued non-core divestitures. As we look at our portfolio and our efforts to continue to improve our balance sheet, we'll be evaluating opportunities on assets that don't fit in to our E&P growth strategy whether they are complementary businesses, or if they are actual E&P assets that don't fit in that growth strategy of the company.

As Lawler also noted on the call, further debt reduction will improve the company's debt rating. This has already begun, with both Moody's and S&P raising Chesapeake's debt rating. This should result in lower cost of debt, and more favorable terms going forward. That will lead to better return on capital. 

The malaise of 2014 
The stock price has been flat for much of the year. While a decline in oil and natural gas prices is certainly partly to blame for this, Chesapeake is largely protected from falling commodities prices due to its hedging program. As I wrote back in July, Chesapeake sells a significant amount of its production in advance and under contracts to protect it from a collapse in gas prices. While it may miss some of the upside if low production pushes prices higher, Chesapeake is able to guarantee that a large percentage of its production is profitable. 

So, if it's not low prices, what's keeping Chesapeake's stock down this year? In short, the company isn't growing its profits at the rate that they grew last year:

CHK Net Income (TTM) Chart

CHK Net Income (TTM) data by YCharts.

There are a lot of ways to measure profitability for an oil and gas producer like Chesapeake, because non-cash asset write downs and write ups can move the profit needle while not actually putting money in the bank. It's also good to look at cash-generating measures, like cash from operations and free cash flow.

CHK Free Cash Flow (TTM) Chart

CHK Free Cash Flow (TTM) data by YCharts.

In short, Chesapeake Energy's deleveraging is helping, but it still hasn't turned the page to free cash flow generation. Another measure that's great for these companies is return on capital employed:

CHK Return on Capital Employed (TTM) Chart

CHK Return on Capital Employed (TTM) data by YCharts.

As you can see, this measure can vary significantly from one year to the next. However, the long-term trend shows that the actions Chesapeake management has taken so far have yet to lead to lower cost of capital and better returns on capital employed. Let me be clear: This isn't necessarily a bad thing, because what Lawler and his team are doing will continue to take time, and a single quarter, or even a single year's performance by any measure should never be the end-all or be-all for any one company. 

Final thoughts: A strong company getting stronger at the right time 
While there are risks like increased regulation and stricter emissions standards that could increase Chesapeake's cost of production, demand for American natural gas is almost a lock to grow during the next decade. Its use to generate electricity and heat homes remains strong, domestic consumption for manufacturing and transportation is growing and, in 2015, we'll see the first significant exports in the country's history. 

Lawler and his team are positioning Chesapeake very well for the long term. My crystal ball is out of order, so I can't tell you what the stock will do during the next year. Looking out over the next decade, however, Chesapeake Energy's stock looks like it has a high likelihood of being a strong performer. 

Jason Hall owns shares of Ultra Petroleum. The Motley Fool recommends Ultra Petroleum. The Motley Fool owns shares of Devon Energy and EOG Resources and has the following options: long January 2016 $25 calls on Ultra Petroleum. 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.