Fresh out of college in 1981, Aubrey K. McClendon joined the roaring oil and natural-gas business in his hometown of Oklahoma City. A year later, one of the city's main banks was declared insolvent, brought down by bad oil-field loans.

Mr. McClendon, 47 years old, is now chairman and chief executive of Chesapeake Energy Corp., one of the nation's largest producers of natural gas. His industry is still largely defined by risk takers prepared to ride out inevitable cycles. But Mr. McClendon, after suffering through more booms and busts in the 1990s, is taking a different tack. He wants to damp uncertainty in one of the most volatile of all commodities through a combination of analysis, timing and financial hedges.

"I'm kind of a contrarian guy at the end of the day," he says.

The story of Chesapeake raises critical questions for all companies working in roller-coaster industries. Rather than submit to the market's whims, is it better to chart a steady path that avoids the valleys but also foregos the peaks?

Natural gas is the wildest bronco in the energy markets today. So far this year, the commodity has sunk hedge funds MotherRock LP and Amaranth Advisors, whose star trader Brian Hunter ended up with losses from natural gas trades totaling $6 billion.

For its part, Chesapeake invests huge sums to find methane molecules and extract them from the ground without being able to set the price it charges. If it overspends, the company could lose its shirt. Underinvest and it leaves money on the table.

Mr. McClendon says his response is to "mitigate risk every place you can," sometimes in ways his colleagues find unorthodox. Chesapeake's primary tool is the financial hedge, a contract to sell gas in the future at a certain price or within a certain price range. This helps Chesapeake guarantee most of its near-term revenue. It's also a bet that the prices of its contracts will be higher than what the open market will offer.

Recently, Chesapeake locked in agreements amid relatively high prices. Through the first nine months of 2006, Chesapeake sold $2.53 billion of gas and also made $833 million from gas hedging operations, according to company financial reports. Until recently, it had contracts covering 80 percent of next year's planned gas production, far more than any comparably sized energy company.

When prices dipped last month, Chesapeake took advantage. It unwound commitments to sell its own gas in the future by snapping up other expected gas production at relatively low prices. Chesapeake will pocket the difference. The move lowered Chesapeake's coverage to 59 percent but in the process generated a $540 million profit. Now that prices have risen again, Chesapeake could buy a new set of hedges to cover its own production, but says it hasn't yet made a decision.

Since bottoming out in early 1999, Chesapeake has used its hedge strategy to become one of the largest U.S. natural-gas producers. Back then, the company produced about 369 million cubic feet of gas a day -- enough to supply homes in metropolitan Philadelphia -- and generated a $33.3 million profit the entire year. Today, Chesapeake produces 1.6 billion cubic feet of gas daily, about enough to keep heated New York, Chicago and Seattle, as well as their suburbs. Through the first three quarters of the year, it made a profit of $1.53 billion. The company's stock has also risen fast, along with those of other energy companies, and in the past five years has more than quadrupled.

Exxon Mobil Corp., the world's largest public energy company, doesn't use financial hedges. Many of Chesapeake's peers take a similar position, reasoning that their skills are in finding oil and gas.

"We're not price clairvoyant," says Roger Plank, chief financial officer at Apache Corp., which hedges only about 10 percent of its production. If you hedge at the wrong time, he says, you could land in trouble. "There are so many exogenous events that affect prices -- OPEC makes an announcement, a bomb goes off somewhere, a cold front blows in -- all these things can make a material difference in the price," Mr. Plank says.

Sometimes, as in 2005, Chesapeake has foregone profits when it guessed wrong and the market price was higher than its hedges. That year, through the complex process by which these financial instruments work, Chesapeake made a trading loss of $368 million.

Joe Colonnetta, a partner with Dallas-based private-equity investor HM Capital Partners LLC, says it's possible to "mitigate risk to some extent," but that it's too hard to time the market in a way that removes volatility entirely. "This is a risk-based business that requires capital investors that have the appetite for risk," he says.

Mr. McClendon says Chesapeake's hedging means it has relatively predictable profits, which in turn allow it to pursue acquisitions and maintain drilling programs regardless of market movements.

Chesapeake has more rigs drilling new wells than any other company in North America. It has made more than 50 deals in the past four years, spending more than $10 billion to gobble up smaller gas producers. Last month, Chesapeake agreed to acquire closely held Dale Resources for about $200 million, its ninth deal of the year.

Chesapeake started life as a typical energy company, subject to market whims. Soon after a dismal 1993 initial public offering of stock, Chesapeake shares started soaring. Mr. McClendon wowed investors by talking about the potential for using new drilling techniques to unlock previously untouchable gassy rocks.

In late 1994, Occidental Petroleum announced it had made a gas discovery in central Louisiana. Chesapeake raced in, offering cash and royalty payments to landowners in exchange for drilling leases. Chesapeake ultimately spent $179 million to lease more than one million acres in central and southeastern Louisiana.

"We weren't born on third base. The only way to grow the company was to take risks," says Chesapeake co-founder Tom Ward, who quit in February having grown tired of running a large company. Mr. Ward, who now runs a small energy startup, remains one of Chesapeake's largest shareholders.

By early 1997, a few Wall Street analysts were raising questions about the Louisiana investment. At the time, Art Smith, chief executive of energy consultant John S. Herold Inc., noted that Chesapeake's estimates for how much gas would be found in Louisiana "seem quite aggressive."

Getting gas out of the Louisiana wells turned out to be difficult. A few performed, but most were abysmal. In four months of 1997, the company drilled 10 wells at a total cost of $43 million. The wells found 500 million cubic feet of gas, worth about $1.1 million at prevailing prices.

Chesapeake's stock plunged. By July 1998, its board of directors put the company up for sale, yet no one made a serious offer. Global energy prices were slumping. Chesapeake's stock dropped to 75 cents in 1999 from a high of $34.13 three years earlier -- an extraordinary slide for a company with proven assets.

"I always thought of us as a couple guys sitting out in the ocean trying to catch a two-, three-foot wave and spend a nice afternoon surfing, and a tsunami came," says Mr. McClendon. "And it was surf or die. And so we surfed for a while and the wave deposited us on the beach. And we looked at each other and said: 'Are you dead?' And we picked ourselves up and went from there."

In 2000, Mr. McClendon flew to San Jose to meet with executives from electricity generator Calpine Corp. Calpine was planning to build dozens of gas-burning power plants, single-handedly increasing U.S. gas consumption by 10 percent. Mr. McClendon recalls asking where the gas would come from. Calpine told him that gas was cheap and companies such as Chesapeake would find more. Getting on Chesapeake's seven-seat jet to return to Oklahoma City, Mr. McClendon turned to his chief financial officer and said: "We got a chance."

Mr. McClendon wagered that gas explorers wouldn't keep up with this rapid increase in demand. Conventional gas fields were running dry and other sources were expensive to drill and yielded smaller reservoirs. Since gas is a regional market moved by pipeline, international supplies wouldn't come to the rescue for years.

The result would be an extraordinarily tight balance between supply and demand. That would lead to higher prices and more volatility as even small events had an outsized impact. "It is going to be weather," Mr. McClendon says. "It is going to be a short squeeze. It is going to be a geopolitical event that affects oil prices. Who knows? It is going to give us a chance to sell some volatility and that is what we like to do."

He was quickly proved correct. Natural-gas prices historically traded for about $2 to $3 per million British thermal units. By the end of 2000, prices topped $10 before falling back to under $2 by September 2001.

Mr. McClendon hired away Citigroup's two-man weather department in 2003. Its job isn't to pinpoint thunderstorms, but to predict months in advance whether the winter will be mild or cold. Mr. McClendon continues to talk with Mr. Ward several times a week about natural-gas prices. Chesapeake hedges opportunistically, two or three times a year, seeking to take advantage of price gyrations.

"We try to read it all, soak it up, analyze it and come up with a point of view that makes sense to us," he says. Much of that reading occurs before dawn when Mr. McClendon works out in a four-story corporate gym on Chesapeake's campus. Near the racquetball courts is Mr. McClendon's workout machine. Attached to the wall is a plastic file holder marked "Aubrey's Reading File -- Please Do Not Disturb."

Chesapeake's current financial stability has allowed it to be more aggressive than its peers. It has led an industry shift toward acquiring acreage in unconventional gas fields and drilling rock formations that weren't considered viable in the 1990s. Today, it has about 10 million acres under lease, an area twice the size of New Jersey.

Last year, Chesapeake wanted to expand in Appalachia by acquiring Columbia Natural Resources LLC, then owned by a unit of private-equity firm Metalmark Capital LLC. Bids from Chesapeake and a rival, Houston Exploration Co., were very close. Mr. McClendon called Metalmark's investment banker and announced he was in Connecticut at a conference and would be arriving shortly in Manhattan. "I said, 'I will sit in your lobby for as long as it takes because I'm coming to make a deal,'" he recalls saying. He sweetened his cash offer and offered a speedy resolution to a complex issue involving hedges. A few hours later, Chesapeake's offer of $2.2 billion in cash plus the assumption of $750 million in debt was accepted.

Companies that consistently win competitive bids "think there is more oil and gas in the ground than the next guy does," says David B. Miller, a partner in private-equity energy investor EnCap Investments LP, speaking about the energy acquisition market broadly. This aggressive optimism is what got Chesapeake into trouble in Louisiana in the late 1990s. If gas prices fall and stay low -- something few think likely -- Chesapeake could be saddled with a lot of debt and expensive gas fields.

Mr. McClendon is laying the groundwork for even more growth in years ahead. In the past two years, Chesapeake has snapped up dilapidated ranch homes, apartment complexes and a retail strip with a Starbucks near its north Oklahoma City headquarters. Chesapeake officials say that building a large, attractive campus is essential to luring top-notch talent away from Houston's cluster of energy companies.

If the company continues to avoid the pitfalls of the commodity cycle, Mr. McClendon is positioned to do well. After selling a large slug of stock between 2000 and 2002, which reduced his overall ownership from 9.5 percent to 5.7 percent, he has been buying shares on a consistent basis. Most other energy executives have been selling. Today, Mr. McClendon and his family own about 6.7 percent of the company's shares, worth more than $1 billion dollars.