Chesapeake Energy Corporation (NYSE:CHK) CEO, Aubrey McClendon’s imminent departure will see a new board appointed to take charge at the financially distressed Oil and gas company. The company’s capital investments skyrocketed over the last couple of years, subjecting it to high levels of debt. However, beginning last year, Chesapeake initiated a mission geared towards, servicing its debt, which included the sale of long-lived assets.

Chesapeake Energy

McClendon, who is also the former chairman of the company is likely to pay back some money to the natural gas explorer following his retirement; quite contrary to what many would be expecting as revealed by Wall Street Journal.

Many are worried about the post McClendon-era as they anticipate the company will assume a new strategy different to the high spending exhibited during McClendon’s period. Analysts from Sterne Agee believe that Chesapeake is likely to take a conservative approach in spending, with a focus on reducing its capital expenditure.

Consequently, this is expected to cut down production, and hence revenues and earnings. Therefore, the analysts foresee a downside in 2013/14 earnings and have revised their estimates downwards to reflect the new approach.

In a report published Wednesday, Sterne Agee analysts reiterated Chesapeake Energy Corporation (NYSE:CHK) at Neutral. Chesapeake Energy shares rallied 10 percent following the announcement of McClendon’s inevitable exit.

In the report, the analysts wrote, “the power of the new Board becomes evident with CEO McClendon’s imminent departure. We believe a more conservative Board style is likely to result in reduced spending that is more closely aligned with cash flow. We are reducing our spending, production and earnings outlook for ’13 and ’14. We maintain our Neutral rating”.

According to the analysts, CEO McClendon’s exit was initiated following some gas bets for 2013/14 production. The analysts claim that the bets were unhedged, with management locked in unprofitable hedges during the December 2012 quarter.

The company registered a cost of $3.56 per metric cubic feet as compared to guidance of $3.03/mcf for the quarter. The analysts noted, “We believe that a failure to mitigate price risk was a key driver of tension between the CEO and the Board”.

Chesapeake Energy Corporation (NYSE:CHK) seems to be destined for one route. That is, reducing 2013 spending and production. The company’s gamble on improved prices in 2013 seems to be a pipe-dream, which gives it only one option in its attempt to boost margins. It has to cut down on production as the guidance provided seems to be leading the company to a “No Man’s Desert”.

The analysts from Sterne Agee echo this comments saying, “We repeatedly stated that current ’13/’14 guidance is irrelevant because it was never formally blessed by the Board. The imminent departure of CEO McClendon proves that major strategy changes are likely, and we envision a reduced spending environment that is less reliant on asset sales”.

The analysts trimmed the company’s earnings expectations for 2013/14 from $1.31/$2.17, to $1.02/$1.67, respectively. They also cut spending estimate by $0.4 billion in 2013 to $6.975B, and by $1.8B in 2014 to $7.2B. This resulted in a decrease of 2.5 percent in production for 2013 while 2014 production estimate is now down by 6.3 percent.

Chesapeake Energy closed at $20.11 on Wednesday, January 30.