The saga at Chesapeake Energy Corporation (NYSE:CHK) is well-known at this point. High debts incurred during the fracking boom have come back to kick the company in teeth.

As lower oil prices took hold, CHK had a hard time repaying those debts. Shares of CHK stock have cratered and have spent much of the time floating below $5 per share.

The reason has been cash flows.

As long as the cash is flowing, CHK is able to keep reducing its debts, paying for CAPEX/drilling and ultimately, kicking the can further down the road until its production efforts take hold. Its cash keeps the Chesapeake wheels turning, and so far in 2017, that cash has been less than ideal.

But all of that could be changing. Higher oil prices, cost cutting and asset sales should help improve Chesapeake’s cash flow profile during the first half of 2018.

CHK Stumbles

After flirting with bankruptcy and a penny stock share price, CHK seemed to get its act together. Thanks to rising oil prices, the company was able to start repairing the damage and dig itself out of its fracking-induced hole. Its high debts were being repaid, and Chesapeake moved into lower-cost shale and was able to significantly lower CAPEX expenses.

But Chesapeake was looking through rose-colored glasses.

When oil prices tanked, CHK’s cash flow problems were exposed once again. CHK’s cash flows turned negative, and they’ve been negative for the first half of the year. With this low cash generation, many of Chesapeake’s recent positive moves have been put on hold or deteriorated. So naturally, investors have dumped shares of CHK stock in spades, and the firm has returned a whopping negative 38% since the beginning of the year. Shares of CHK stock are now below $5 per share.

Questions have already begun circling about CHK’s future. But Chesapeake isn’t going to file for bankruptcy any time soon, and in fact, the company’s prospects might be improving.

Better Cash Flow Generation for CHK

The better situation at CHK comes courtesy of higher oil and natural gas prices. Prices for oil have been steadily rising during the second half of 2017 as supply cuts have finally started to really matter. West Texas Intermediate crude recently hit four-month highs, while Brent crude is currently sitting at around $57 per barrel.

These are critical numbers as Chesapeake estimates that it needs about $50 per barrel oil to be so-called “cash flow neutral” or “money in=money out.” Anything above that helps drive that cash flow neutrality further.

Even better on this front is that OPEC has recommended that its supply cuts should be extended through March 2018. With rising economic activity, higher and sustained oil prices directly benefit CHK’s cash flows. Meanwhile, rising production from CHK will have it churning out more barrels at now-higher prices.

As for its current debt, the firm has continued to kick the can on its maturity profile with the next biggest test not coming until 2019.

Chesapeake may have also found a quick cash infusion for its needs by doing some debt reduction and keeping an over-allotment. CHK announced it was able to tap the debt markets to raise $850 million in senior notes with maturities out until 2025/2027. That long debt profile gives it plenty of time before it needs to worry about the payments and gives oil a chance to recover further.

Chesapeake will use $550 million of that to retire some debt and the remaining $300 million can be used to shore up its current cash flow problems. And while I’d rather not have CHK take on any more debt, the idea is that this will get it over the hump and allow it to approach cash flow neutrality. With oil now quickly eclipsing $50 per barrel, this should be possible.

Again, a better operating environment in the near term should allow CHK to get back to reducing debt and removing it as well as the newly added $300 million from its balance sheet.

CHK Stock Is Getting Better

For investors, CHK stock is still a risky proposition and one that is driven 100% by its cash flows. So it’s understandable why the stock has dropped since the beginning of the year. But the near term is looking better for the firm as oil prices continue to rise along with production.

And with the firm doing a few tricks to extend its maturity profile and raise cash, Chesapeake should be able to keep going until cash flow neutrality improves. All in all, that should keep CHK stock moving higher in the upcoming months.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.