Last year started off with so much promise as Chesapeake Energy Corporation (NYSE:CHK) was about to turn the corner on its long anticipated turnaround. The company's first quarter was exceptional as its earnings beat the street and were up 97% from the first quarter of 2013. As the second quarter drew to a close its stock was up nearly 15% and was vastly outperforming the market. Unfortunately the company's positive momentum hit a brick wall when oil prices unexpectedly rolled over and crushed what had been turning out to be a great year for the company. In the end the nearly 44% crash in oil prices pushed Chesapeake Energy's stock down by more than 22% as we see on the following chart.

CHK Chart

CHK data by YCharts

Obviously, we can point a finger at oil as being the culprit that ruined the company's year. However, on the bright side, things could have been much as the company was in a much better position to weather the storm this time energy prices went south.

Building a solid foundation
2014 could have been a very bad year if it wasn't for the fact that Chesapeake Energy's balance sheet has vastly improved. As the following slide notes the company made great progress over the past few years to reduce its leverage and clean up the complexity of its balance sheet.

Source: Chesapeake Energy Corporation Investor Presentation.

Chesapeake Energy was able to turn around its balance sheet because it cut its capital expenses to live within its cash flow. Because of this it could then apply any proceeds from non-core assets to bolster its balance sheet. The company did just this earlier in the year when it sold a number of non-core assets and used the funds to reduce the complexity of its balance sheet by taking out some of its preferred equity arrangements.

On top of that the company spun off its oil-field service arm into Seventy-Seven Energy (OTC:SSEIQ) in July. Not only did Chesapeake Energy pass on $1.1 billion of its consolidated debt to the new company, but it also received a $400 million dividend that it applied to pay off intercompany debt from the oil-field service business.

As a result of these maneuvers, CFO Nick Dell'Osso boasted on the company's third-quarter conference call that, "Chesapeake has never been stronger financially."

Cashing in at the top
That position of strength has only further improved as the company subsequently unloaded acreage in the Marcellus and Utica shale plays in a nearly $5 billion deal with Southwestern Energy Company (NYSE:SWN). That deal, which closed near the end of the year, provided the company with an enormous amount of cash, which it used to further fortify its balance sheet as well as earmark $1 billion to buy back stock.

In commenting on the close of that deal CEO Doug Lawler said,

This transaction marks another significant event in Chesapeake's transformation and solidifies our strong financial position. With the closing of this transaction and the available borrowing capacity under our unsecured revolving credit facility, Chesapeake now has a liquidity position of approximately $9 billion, putting Chesapeake in an advantageous position to enhance shareholder value in this volatile commodity price market. Consistent with our financial strength and our focus on enhancing shareholder value, Chesapeake's Board of Directors has authorized a $1 billion common stock repurchase program. Further, building on our outstanding operational momentum of 2014, we will be focused on additional strategic growth opportunities to enhance our asset portfolio and continue to improve our ability to deliver top quartile growth metrics and shareholder returns.

As Lawler noted, Chesapeake Energy ended 2014 on a very strong note, even if its stock price didn't agree. Its liquidity is robust, its operational momentum is outstanding, and the company is in a position to take advantage of the current market turmoil to create value. This is quite the opposite of the last time commodity prices plunged as Chesapeake Energy was the company being picked apart as it sold assets at fire sale prices just to stay alive.

Investor takeaway
While Chesapeake Energy's stock holders were not rewarded in 2014, that doesn't mean that the company didn't have a good year. Oil prices aside, Chesapeake Energy had one of its strongest years ever. It delivered excellent operational results and smart deal making, which has put the company in a position to thrive once energy prices rebound.