Chesapeake Energy Corp. last week began to drastically alter its natural gas-weighted operations in a bid to raise up to $5 billion to repay up to $3.5 billion of senior debt and to increase its investment in liquids-rich plays by up to $1.5 billion.

The strategy to sell stock and buy into more oily plays is designed to reduce debt and “ultimately” achieve an investment grade rating for its debt securities, Chesapeake CEO Aubrey McClendon said.

Chesapeake said it is in “various stages” of implementing the far-reaching plan, which includes selling to private and/or public investors — in the next three months to one year — up to 20% of its equity interest in Chesapeake Appalachia LLC. The subsidiary holds the Marcellus Shale operations, a region where Chesapeake is considered one of the largest producers, with 1.5 million net acres. It now has 24 operated rigs in the play.

In addition, Chesapeake plans to:

Some of the midstream transactions, said Chesapeake, could be completed with a subsidiary of its 50/50 midstream JV with Global Infrastructure Partners LP (GIP), which acquired gathering assets in the Barnett Shale and some of gas gathering assets in the Midcontinent in 2009 (see NGI, Sept. 28, 2009). GIP also is partnering with El Paso Corp. on the Ruby Pipeline project (see NGI, Aug. 3, 2009).

The Oklahoma City-based producer also plans to repay $600 million of outstanding senior notes with proceeds from the preferred stock placements to investors in Asia.

Singapore state investment fund Temasek Holdings Pte and private equity firm Hopu Investment Management Co. of Beijing, China, last week agreed to jointly sink up to $1.1 billion in Chesapeake.

Temasek, which backed Hopu’s startup in 2008, said the partners agreed to collectively buy $600 million of Chesapeake nonvoting convertible preferred stock, and they have a 30-day option to buy an additional $500 million in preferred stock.

Temasek, which manages around $124 billion in various commodity investments, stated that it remains “confident of the growth potential of the energy sector.” The Singapore fund said the price for natural gas, which is trading at less than a third of the price of oil on an equivalent basis, is at a “cyclical low point” but it is confident that demand will increase because of environmental reasons.

Over the next two years Chesapeake also wants to repay up to an additional $2.9 billion of senior notes with proceeds from the various stock, asset and joint venture transactions.

McClendon has been telecasting his new-found enthusiasm for more oily plays since early this year, when he said the company had a long-range plan to rebalance the portfolio, which is about 90% weighted to natural gas (see NGI, Feb. 22). He pushed the plan again earlier this month during a 1Q2010 conference call (see NGI, May 10).

Chesapeake for 2010 already has cut its planned capital spending on gas-focused plays by 12%, or $300 million, and in 2011 it plans to cut spending by 17%, or $400 million.

©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.