Chesapeake Energy Corp. on Monday announced a revamp of its natural gas operations in a plan 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.

A preferred stock placement also was announced Monday.

The strategy, said the Oklahoma City-based independent, would increase shareholder value, reduce debt and “ultimately” achieve an investment grade rating for its debt securities.

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 joint venture with Global Infrastructure Partners LP, which acquired gathering assets in the Barnett Shale and some of its gas gathering assets in the Midcontinent in 2009 (see Daily GPI, Sept. 28, 2009).

In addition the producer plans to repay $600 million of outstanding senior notes with proceeds from the preferred stock placements to investors in Asia. 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.

Chesapeake CEO Aubrey 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 was 93% weighted to natural gas (see Daily GPI, Feb. 19). He pushed the plan again last week during a 1Q2010 conference call (see Daily GPI, May 6).

Chesapeake already has cut its planned capital spending on gas-focused plays by 12%, or $300 million, this year, and by 17%, or $400 million, in 2011 to accelerate drilling activity in liquids leaseholds.

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