Chesapeake Unveils Plan to Transform US Transportation Fuels Market

| USA, Oklahoma City

$1 billion on the table

US natural gas producer Chesapeake Energy Corporation has unveiled its plan for an achievable, scalable and affordable pathway toward a transportation future that runs on America’s own abundant supplies of natural gas and oil from deep shale and other unconventional formations. The plan is the company’s contribution toward breaking what it describes as OPEC’s 38-year stranglehold on the U.S. economy; it will lower energy costs to American consumers, enhance national security, stimulate economic growth, create hundreds of thousands of high-paying jobs and improve the environment. A three-pronged approach has been developed that will increase domestic supply, deploy gas-to-liquid (GTL) technology and invest in widespread compressed and liquefied natural gas (CNG/LNG) public refuelling infrastructure.

Specifically with regards infrastructure, the plan will invest in enough publicly accessible CNG and LNG fueling stations to reach a tipping point where original equipment manufacturers (OEMs) of all vehicular classes will have sufficient confidence to increase their production of CNG and LNG vehicles. American businesses and consumers will be able to buy natural gas vehicles that use a domestic fuel approximately $1.50 – $2.00 per gallon cheaper than gasoline and diesel.

Central to this private-sector initiative to stimulate world-class technological innovation and stronger economic growth is the creation of a $1.0 billion venture capital fund, Chesapeake NG Ventures Corporation (CNGV), dedicated to identifying and investing in companies and technologies that will replace the use of gasoline and diesel derived primarily from OPEC oil with domestic oil, natural gas and natural gas-to-liquids (GTL) fuels.

Aubrey K. McClendon, Chesapeake’s Chief Executive Officer, commented, “Chesapeake is so convinced of the economic attractiveness of this plan that we are redirecting approximately 1-2% of our annual drilling cap-ex over the next 10 years, or at least $1.0 billion in total, to stimulate market adoption of CNG, LNG and GTL fuels. We also intend to take full advantage of the associated cost savings and emissions reductions by accelerating the conversion of all 4,500 of Chesapeake’s light duty fleet vehicles to run on CNG and 400 of our heavy duty fleet vehicles to run on LNG, which will reduce our fuel costs by an estimated $15-20 million per year. In addition, we are converting at least 100 of our drilling rigs and all of our planned hydraulic fracturing equipment to run on LNG. Just converting our rigs and hydraulic fracturing equipment will cut the company’s diesel fuel consumption by approximately 350,000 gallons a day and save the company approximately $230 million annually, bringing our overall CNG and LNG fuel savings to approximately $250 million.”

LNG Refuelling Infrastructure

Chesapeake has agreed to invest $150 million in newly issued convertible debt of Clean Energy Fuels Corp., based in Seal Beach, California. The investment, designed to provide a low-cost, low-carbon American alternative to diesel fuel derived from foreign oil for heavy-duty trucks, commenced in June with the first of three equal $50 million tranches; the other two are planned for June 2012 and June 2013. Clean Energy will use Chesapeake’s $150 million investment to accelerate its build-out of LNG fueling infrastructure for heavy-duty trucks at truck stops across interstate highways in the U.S., thereby creating the foundation for “America’s Natural Gas Highway System.”

McClendon noted, “This investment alone is projected to help underwrite approximately 150 LNG truck fueling stations, increasing by more than tenfold the number of publicly accessible LNG fueling stations and providing a foundational grid for heavy-duty trucks to have ready access to cleaner and more affordable American natural gas fuel along major interstate highway corridors. As confidence grows in the build-out of a national grid of CNG and LNG fueling infrastructure, we are confident that OEMs of all vehicular classes will vastly increase their production of CNG and LNG vehicles. Both businesses and consumers will then be able on a large scale to acquire these vehicles and embrace a cleaner, American fuel that costs about $1.50-$2.00 per gallon less than gasoline and diesel. We believe that a coast-to-coast and border-to-border build-out of CNG and LNG fueling stations will require approximately $1.5-$2.0 billion to complete, and we believe that a combination of private sector interests will step up to provide this capital in the next few years. The prospect of delivering a clean, American-made diesel fuel alternative at a substantial cost savings will be a sufficient incentive for this capital to be invested.

“The conversion of the heavy-duty truck market to natural gas would also provide very significant environmental benefits. According to EPA data, use of natural gas in heavy-duty transportation will significantly cut emissions of carbon dioxide (CO2), sulfur dioxide (SO2), nitrogen oxide (NOx) and particulates, substantially reducing air pollution and improving public health.”

Management Summary

McClendon concluded, “Chesapeake believes CNG, LNG and GTL processes provide the most rapid, economic and scalable green energy investment alternatives. Our CNGV fund, which will be at least $1.0 billion in size, will represent a large and reliable source of capital to entrepreneurial companies with strong business models, validated technologies and experienced management teams focused on creating value by enhancing demand for American natural gas.

“We believe the long-term solution to America’s economic and energy challenges will come from American natural resources combined with American ingenuity and innovation,” he added. “Chesapeake is 100% committed to helping make this happen for the benefit of our shareholders and for our country.”

This article compiled using information from a Chesapeake Energy Corporation press release.

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