Two years of selling billions of dollars worth of assets can put a spring in a company's step.

Today, Chesapeake Energy Corp. finds itself with liquidity of nearly $5 billion, fair third-quarter earnings per share and management that likes to improve margins by cutting costs.

Chesapeake's stash could be used to fund growth, but that's unlikely, says Jason A. Wangler, an analyst with Wunderlich Securities Inc.

Management's focus since former chief executive Aubrey Mc-Clendon retired has been on reducing net debt and improving production, especially liquids.

“We expect Chesapeake to keep boosting oil and NGL production through a focus on its Eagle Ford and Midcontinent assets, while also showing strength from its Utica and Marcellus assets that improve alongside the addition of infrastructure to get the production to market,” Wangler says. “We expect growth to continue while the focus on spending pushes capex lower due to its strong assets.”

More sales are possible, and Chesapeake could continue to add cash/liquidity or reduce debt without significantly biting into its production profile, he said.

In fact, the company intends to increase its production while decreasing its capital expenditures. Chesapeake has been solidly increasing productivity while lowering spending. The company also has reduced its land spending dramatically, given its inventory of economic drilling locations.

Chesapeake has already made one of its New Year's resolutions: the creation of a 2014 capital budget that is not dependent on asset sales. One way it may do that is by moving to pad drilling and focusing on costs to improve returns.

“Chesapeake has done a good job of lowering costs and rightsizing operations to improve margins, and these moves should allow significant operational cost improvements as well as lower overhead,” Wangler says. “The move toward pad drilling on its core plays should lower capex costs on a per-well basis to further improve economics.”

However, despite raising fiscal-year oil production guidance after a strong third quarter in the Eagle Ford, midpoint fourth-quarter guidance suggests a sequential downtick in oil volume, says David Tameron, senior analyst, Wells Fargo Securities. Chesapeake wants total capex lower in 2014; total capex in 2013 was some $6.9 billion.

“For what it's worth, we are currently modeling $5.5 billion in 2014,” Tameron says.

Chesapeake said it expects to have organic growth in 2014 versus 2013, meaning production growth after adjusting for asset sales. That may be of concern, since third-quarter 2013 production was down 2% from third-quarter 2012, or 4 billion cubic feet equivalent per day (Bcfe/d).

However, the percent of its production that is now liquids is up 21% from third-quarter 2012.

Wangler said a disciplined capital plan will help shift focus away from the company's balance sheet to operations and assets. And, even after all it has sold, Chesapeake has leading positions in the Barnett, Marcellus, Eagle Ford, Utica and Mississippi Lime play, among others.

As of Sept. 30, 2013, Chesapeake had completed asset sales of approximately $3.6 billion in 2013. During the fourth quarter, the company anticipated completing additional asset sales for net proceeds of approximately $600 million.

The company plans to pursue other asset sales in first-half 2014. It expects to direct proceeds toward reducing financial leverage and enhancing liquidity.

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