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Chesapeake Energy Corporation’s (CHK - Analyst Report) outlook was raised to stable from negative by Moody's Investors Service. The favorable revision reflects the rating agency’s bullishness about the company’s potential to improve its leverage metrics via production growth and debt reduction. Moreover, Moody's assigned a Ba2 Corporate Family Rating.

Moody’s is resting its case on the premise that Chesapeake would strengthen its leverage metrics through a combination of reserve, production growth and debt reduction. The rating agency feels the company has made significant progress in reducing its capital spending, hedging its natural gas exposure and increasing available liquidity.

However the rating agency is still apprehensive of Chesapeake’s high debt level and structural complexity arising out of a spate of acreage acquisitions and capital spending in excess of cash flows.

Chesapeake’s decent profits in the recently reported first quarter encourage us to see a growth potential in the company. However the issue of high debt level still plagues its books.

Chesapeake Energy is an independent oil and gas company engaged in the development, exploration, acquisition and production of onshore natural gas and oil reserves. The company owns interests in producing oil and gas wells concentrated in three primary operating areas: the Mid-Continent region of Oklahoma, western Arkansas, southwestern Kansas and the Texas Panhandle; the Gulf Coast region; and the Helmet area of northeastern British Columbia. Chesapeake is the second largest U.S. natural gas producer after ExxonMobil Corporation (XOM - Analyst Report).

The company currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months. However, there are other stocks in the oil and gas sector – Enerplus Corporation (ERF - Snapshot Report) and EPL Oil & Gas, Inc. – which hold a Zacks Rank #1 (Strong Buy) and are expected to outperform the equity market.

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