Just last month, I was using Chesapeake Energy (NYSE: CHK) as an example of everything an energy investor ought to avoid: an overleveraged and ailing leviathan long run for the primary benefit of its imperial CEO and his coterie of insiders.

Yet here I am about to recommend it as an investment, albeit one of the most aggressive ones in our Aggressive Portfolio. What’s changed in that short span of time to change my mind?

For one, the empire builder in question, longtime CEO Aubrey McClendon, departed right on time, along with his $35 million severance package, his 2.5% interest in every well Chesapeake has drilled or will drill through mid-2014 and a corporate jet he can keep using for free through 2016, among other spoils of failure. Galling though this giveaway must be to longtime shareholders, weaning Chesapeake from its founder’s growth-at-all-costs philosophy could yet make this particular golden parachute look like a bargain.

Within the bloat of America’s second-largest producer of natural gas (behind only ExxonMobil (NYSE: XOM)) lurks a fast-growing oil driller with vast lease holdings in some of the country’s most promising shale plays. The cores of these plays — where humbled Chesapeake is concentrating its much reduced capital spending — offer very attractive rates of return, especially now that infrastructure is finally catching up with McClendon’s unrealized ambitions.

Gas Pains, Liquids Refreshment

Source: Chesapeake Energy presentation

Which brings me to my main reason for optimism. On Monday, Chesapeake announced that it has hired as its new CEO Robert Douglas Lawler, a 46-year-old senior vice president at Anadarko Petroleum (NYSE: APC), Chesapeake’s much more successful competitor. Lawler is a petroleum engineer by trade with management experience in the Haynesville and Marcellus shale plays as well as, most recently, with a deep-water liquefied natural gas development project off the coast of Mozambique.

Lawler’s expertise with shale and LNG will serve Chesapeake well in the coming era of US natural gas exports, while his international experience may help in haggling with overseas investors over divestitures and joint ventures. But his main advantage, in addition to youth and strong technical credentials, is that he is not a Friend of Aubrey.

Lawler is clearly answerable to the big value investors who have come to control Chesapeake’s board, including O. Mason Hawkins, whose Southeastern Asset Management holds a 13.4 percent  stake that’s cost it plenty, as well as Carl Icahn, who’s made a lot of money since he began accumulating his 9 percent stake a year ago.

Last week, Bruce Berkowitz’s Fairholme Capital Management revealed a new 2% stake in Chesapeake, a development I find especially encouraging. Berkowitz, tabbed by Morningstar a couple of years ago as fund manager of the decade, is a renowned long-term value investor who unlike Icahn doesn’t dabble in shareholder activism and doesn’t seek short-term trading profits. His entry into the name strongly suggests that McClendon’s recent borrowing spree hasn’t drained all of the value he built up in earlier, more rational days.

In the near term Chesapeake’s cash flow problems remain grim. Though it aims to generate some $5 billion in operating cash flow this year, capital spending will cost roughly $7 billion despite having been cut in half this year. Taxes, interest (not reflected in earnings because much of it is capitalized) and dividends will cost another $2 billion, give or take.

Hence the company’s acknowledgement that it faces a $3.5 billion funding gap this year and its determination to fill it with at least $4 billion in divestitures (after an even bigger yard sale in 2012.) Chesapeake has already raised about $2 billion in done and nearly done deals, and claims it will hit its target for the year, despite the disappointing prices some of the assets have fetched. Chesapeake still hopes to raise as much as $7 billion from sales, with any excess over the $4 billion in unmet funding needs earmarked for debt reduction.

And it certainly needs to do a lot of that, with $14 billion in debt and promises to slim that below $10 billion slipping once again into “next year.”

On the other hand, to focus on Chesapeake’s debt or the disappointing asset disposal prices is to miss the investment case based on strongly improving operating leverage.

In brief, the balance sheet already reflects the heavy lifting involved in transforming a producer of predominantly natural gas into one that will realize 60 percent of its revenue from liquids this year. Chesapeake’s liquids production jumped 54 percent last year and is slated to increase another 27 percent in 2013.

A projected decrease in natural gas output will leave overall production volumes up just 2 percent this year. But because liquids are so much more valuable than gas relative to their energy content, cash flow is expected to increase 30 percent, and that’s with Chesapeake only scratching the surface of production savings from a narrower geographic focus and newfound thrift.

A Mountain of Costly Growth

Source: Chesapeake Energy presentation

The company is concentrating the bulk of its capital spending in just four areas. Eagle Ford, the booming South Texas tight oil play that’s getting 35 percent of that shrinking pie, reciprocated by more than tripling Chesapeake’s production from a year ago in the first quarter. While Chesapeake’s assets in this play aren’t as attractive as the ones that recently delivered blowout results for EOG Resources (NYSE: EOG), they’re attractive enough to offer a rate of return approaching 30 percent by the company’s estimates, and rising to as much as 40 percent in the near future as drilling costs drop.

Another 28 percent of the drilling and completion capex has been earmarked for the Anadarko Basin, a string of unconventional mostly-oil plays straddling northern Texas, Oklahoma and southern Kansas. Production here was up 30 percent year-over-year in the first quarter, though natural gas made up nearly half the total.

And while natural gas isn’t nearly lucrative as crude containing equivalent energy, it can be much more lucrative in the Marcellus shale, where operating costs are low and the wells prolific. Here wells pay off in less than a year and Chesapeake’s production was up 58 percent year-over-year in the first quarter. Despite its drive to pump more liquids, Chesapeake has allocated a quarter of its capex to the Marcellus and to the nearby Utica shale, where the company’s production rate is set to rise more than five-fold this year after a modest start.

The Eagle Ford and the Marcellus are proving to be especially lucrative, and Chesapeake’s determination to focus on the most promising prospects within these basins should lift its profitability in the coming years, likely by more than the market is currently willing to credit.

In the longer run, LNG exports and US economic growth should boost natural gas prices closer to their long-term average, and perhaps help Chesapeake pay down heavy debt that currently stands at $14 billion, rivaling the company’s market capitalization.

There’s no sugar-coating the fact that the road from a fresh start under a new CEO to stronger shareholder returns is likely to prove bumpy. Heavy leverage is an existential threat in a volatile industry exposed to commodity booms and busts.

But the company is headed in the right direction and some fabulously smart investors see plenty of value here. In a market increasingly bereft of bargains, this still looks like one, even if the numbers don’t say so at the moment. Chesapeake is a risky bet with the potential to prove very rewarding. Buy the stock below $23.