Chesapeake Energy (NYSE:CHK) continues to show why future growth in the energy space belongs to the independents, not the majors. The fourth-largest producer of natural gas in the country, Chesapeake Energy managed a 34% year-over-year production increase at a time when many majors like ExxonMobil (NYSE:XOM) and ChevronTexaco (NYSE:CVX) are struggling to maintain flat production levels.

Total revenue in the first quarter climbed 39% as oil and gas marketing sales grew nearly 71% and oil and gas sales grew about 28% over the prior year. Chesapeake's substantial increase in production helped that growth, as did a double-digit year-over-year rise in the averaged realized price that Chesapeake received for its gas.

Operating income, though, only grew about 4% as reported. Higher production costs and depletion expense did their damage, but the company also incurred more than $72 million in unrealized mark-to-market losses on various hedging instruments.

Looking at other metrics like EBITDA (earnings before interest, taxes, depreciation, and amortization) or operating cash flow, you see better year-over-year growth. EBITDA climbed about 24% on an annual basis; the company's operating cash flow grew more than 50%.

Chesapeake is remarkably well-positioned to continue to boost natural gas production. The company ended the quarter with well over 5 trillion cubic feet equivalent (or Tcfe) in reserve. Adding to that stockpile was only costing the company about $1.20 per thousand cubic feet in drilling and acquisition.

What's more, the company has a ridiculously strong inventory of 3-D seismic information and believes it has a seven-year backlog of drilling projects that could produce upwards of 4 Tcfe in additional natural gas reserves. With roughly 6% of the nation's drilling fleet under contract, Chesapeake has the mechanical and natural resource wherewithal to maintain major-player status in the natural gas business.

The biggest downside is that Chesapeake depends on others for the finances to carry out its plans. The company needs major sums of money to fund its drilling operations; it recently closed on both a $600 million debt offering and a $400 million offering of cumulative convertible preferred stock. Not surprisingly, dilution is an issue here; fully diluted shares outstanding increased by over 17% on a year-over-year basis.

While Chesapeake doesn't pay much of a dividend, its yield is more or less on par with peers like Anadarko Petroleum (NYSE:APC) or Devon Energy (NYSE:DVN). Investors do need to remember, though, that Chesapeake has a considerably higher debt load, which presents a risk factor if gas prices head back down.

Chesapeake doesn't look expensive at today's levels, but it's clearly a leveraged play on natural gas prices. If prices stay up (or increase further), Chesapeake should benefit more than most from its large reserves and aggressive drilling operations. Should prices decline, however, that debt load could come into play, and production increases may or may not be enough to keep the company growing.

It would seem, then, that Fools are left with a devilishly simple question -- are gas prices going up or down?

For more on natural gas producers:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).