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Chesapeake Energy vs. Icahn: Round Two

NEW YORK ( TheStreet) -- On a Thursday during which the energy sector was left bleeding, shares of Chesapeake Energy (CHK - Get Report) managed to finished the day in positive territory and on elevated trading -- more than 16 million Chesapeake shares changed hands versus an average day of less than 12 million Chesapeake shares traded.

It's the trading of polite punches between Chesapeake and activist investor Carl Icahn, though, that had investors focused on the strategic plan announced by Chesapeake Energy on Thursday. Icahn doubled his stake in Chesapeake Energy in late December, and that led to speculation that Icahn will be seeking quick ways to make some bucks on undervalued Chesapeake.

If Chesapeake is undervalued, it's undervalued for a myriad of reasons related to its balance sheet and aggressive capital spending strategy, and Chesapeake took aim at all the major points of criticism from the Street and investors in the strategic plan unveiled on Thursday.

Controversial Chesapeake Energy CEO Aubrey McClendon remained bold, if singing a different tune, when he called the new strategic plan "a fundamental shift from our aggressive asset accumulation of the past few years to a multi-year period of asset harvest, characterized by a clear focus on capital discipline and maximizing returns."

However, the problem is that the Chesapeake CEO is seen as the boy who cried "fundamental shift" many times in previous years, and then has gone back on his word, continuing to spend and lever up the balance sheet, while engaging in all sorts of complex joint ventures and production royalty payment arrangements to keep rolling the levered balance sheet up the proverbial hill.

Most notably, Chesapeake's new strategic plan includes the goal of reducing debt by 25% over the next two years, including a reduction of lease-hold spending and monetizing assets. This will have the effect of reducing the company's growth production target from 30%-40% to 25%, the other half of the 25/25 plan that Chesapeake unveiled on Thursday.

The expected criticism of Chesapeake's new strategic plan was immediate, even if shares finished the day up a modest 0.6%.

"We've heard this kind of strategic talk from Chesapeake in the past, but this time it could be different because of Carl Icahn," said Scott Hanold, analyst at RBC Capital Markets.

The presence of Icahn looming as a behind-closed-doors and annual shareholder meeting prod to change in the ways of what Argus Research analyst Phil Weiss called the "profligate spender" Chesapeake Energy, is really the only reason why investors were giving more credence to Chesapeake than after past comments about a mischievous boy mending his wayward ways.

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