In late October, yours truly here touted Chesapeake Energy (NYSE:CHK) as an underestimated turnaround prospect. Chesapeake stock promptly fell from that day’s close of $4.54 to a Dec. 24 close of $1.73, confirming that I am neither clairvoyant nor infallible.

Since then, Chesapeake stock has made its way back to its current price near $2.60. Most investors also fully recognize the steep selloff was due to a combination of major market-wide selloff and a meltdown in crude and natural gas prices. The company didn’t unexpectedly hit a wall.

Still, nothing undercuts a stock’s future like broken confidence.

Chesapeake Energy is a name I’m standing by though. While it’s fighting an uphill battle of weak commodity prices, it remains the best-of-breed pick within the exploration and production arena.

A Closer Look at Chesapeake Stock

For the record, none of its rivals have fared much better since late October. ConocoPhillips (NYSE:COP) hasn’t been hit quite as hard, though it’s still down to the tune of 5%, while Devon Energy (NYSE:DVN) has fallen 24% for the three-month stretch. There’s been nowhere for any energy name to hide from the 23% setback in oil prices for the timeframe in question.

And yet, though Chesapeake Energy desperately needs oil prices to rebound to prompt a corresponding rebound from Chesapeake stock, there’s arguably no better company poised to support such a bounce.

Thank CEO Doug Lawler, mostly.

Lawler was named CEO in 2013, recruited from rival Anadarko Petroleum (NYSE:APC). Though he handled international and deepwater operations for his previous employer, he was actually a holdover from Oklahoma’s Kerr-McGee, which was acquired by Anadarko in 2006.

His experience and familiarity with the area have proven invaluable.

Lawler is reshaping the company to focus first and foremost on the Powder River Basin and Eagle Ford. The former covers a swath of southeast Montana and northeast Wyoming, while the latter sweeps through the heart of Texas.

The recently-completed acquisition of WildHorse Resources adds 420,000 acres of exposure to Eagle Ford, and simultaneously triples the company’s proved-but-undeveloped oil reserves to 320 million barrels.

Meanwhile, Chesapeake is shedding properties outside of the area of focus, like its Utica shale assets in Ohio.

There’s more to the remix of properties than streamlining and debt-reduction though. The company explained in the middle of last year (and not for the first time) “The Eagle Ford Shale in South Texas remains Chesapeake’s EBITDA-generating backbone, consistently delivering high-margin oil volumes and stable production.”

It’s similarly mastered the nuances of the Powder River Basin.

The development of properties in those two regions goes beyond an expertise of that turf, however. Both areas are close to the Gulf Coast, where premium prices for crude can be found more often than not.

It’s the Little Things

The new configuration is bearing fruit, when tepid oil and gas prices aren’t prematurely picking it.

It’s not an easy premise to prove. A quick review of its historical balance sheet data reveals its total liabilities of $12.8 billion is more or less in line with 2017’s final tally of $12.4 billion. Take a look further back in time though. As of 2014, when gas and crude prices were on the verge of collapse, that figure was a stunning $40.7 billion.

That’s enough progress for Moody’s to upgrade the company’s remaining debt to B2, making it cheaper for Chesapeake to secure new debt or refinance existing debt.

More important, the cost and headache of restructuring hasn’t crimped production. Chesapeake Energy reported in early January it believes it produced about 463,000 BOE per day, versus analyst estimates of 448,000. It’s a hint that the outfit is getting more out of its assets than anticipated, or at least doing so at a faster-than-expected pace. WildHorse may drive more growth than currently expected as well.

Lawler isn’t thinking or acting recklessly though. Also early in the year the company announced it was culling its rig count from 19 to what should be an average of 14 by year’s end, to reflect contracted oil and gas prices.

Shuttering those rigs will reduce unnecessary expenses until higher crude prices justify their reactivation, adding onto cost cuts that have already been realized. During the third quarter of last year, production costs fell from $3.03 per BOE a year earlier to $2.68 per BOE thanks to sales of lackluster properties and smarter use of remaining ones.

Chesapeake’s post-implosion rebuild has arguably been one of the best in the business.

Bottom Line for Chesapeake Stock

None of these initiatives are readily evident to current and prospective shareholders, however, keeping a cap on CHK stock in an environment that’s already been less than friendly to energy stocks. It will take an oil rebound for the upside of the Lawler-led effort to become clear and buyable.

That recovery is more likely to be a matter of “when” than “if” though.

In spite of the economic caterwauling, the EIA forecasts that consumption of oil will continue to grow in 2019 as it did in 2018, with no great net increases in production capacity on the horizon. And, to the extent new oil spigots could be opened, OPEC is curtailing its output this year to counterbalance the United States’ ramped-up production.

Although oil stockpiles in the U.S. are moving slightly higher now, the total days’ worth of crude in inventory has been quietly falling since February of last year.

If nothing else, its forward-looking P/E of 4.6 makes CHK stock a ticker to add to a watchlist, for the point where crude and natural gas prices finally make their pivot.

The fourth quarter earnings report slated for Feb. 27 could make or break the bullish argument.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.