* Buy back cuts about $75 mln in annual dividend payments
* Says prices fell for natural gas, natural gas liquids in Q2
* To consolidate in south of Powder River Basin via asset swap
* Shares up 1 pct in late morning trading (Adds detail on preferred shares, analyst comment, updates shares)
July 29 (Reuters) - Chesapeake Energy Corp said it would spend $1.26 billion to buy back all the outstanding preferred shares issued by its CHK Utica unit, in a move to simplify its balance sheet and eliminate about $75 million in annual dividend payments.
The No.2 U.S. natural gas producer also said prices for natural gas and natural gas liquids fell in the second quarter.
The company added that it would consolidate its holdings in the southern part of Wyoming's Powder River Basin by swapping some acreage with a private oil and gas producer.
Chesapeake's shares rose 1 percent to $27.13 in late morning trading on Tuesday.
Analysts said the buyback would removed complexity from Chesapeake's capital structure.
"The outlay may raise eyebrows, but we support the move to minimize opacity on the balance sheet, even if it delays a credit upgrade to investment grade," analysts at Sterne Agee Group Inc wrote in a note to clients.
Chesapeake said it would buy back 1.06 million preferred shares of CHK Utica, its subsidiary which holds acreage in Ohio's Utica shale field.
The company had sold preferred shares in the unit to private equity firms EIG Global Energy, Magnetar Capital and other investors in 2011.
The shares had an annual distribution of 7 percent and a 3 percent overriding royalty interest in the first 1,500 wells Chesapeake drilled in the field.
The company also said it would consolidate its holdings in the southern part of the Powder River Basin by swapping assets with RKI Exploration & Production LLC and paying the firm $450 million in cash.
Chesapeake said it would give RKI about 137,000 net acres and its interest in 67 gross wells in the northern portion of the basin in exchange for about 203,000 net acres as well as interests in 186 gross wells in the southern part of the basin.
The company said the deal is expected to close in August.
Chesapeake, which is due to report results next week, estimated its realized natural gas price after hedges averaged $2.45 per million cubic feet (mcf) in the second quarter, lower than $3.27 per mcf in the first quarter.
The company estimated that its realized price for natural gas liquids, after processing and transportation costs, fell to $21.03 per barrel in the second quarter from $29.23 in the first quarter. (Reporting by Swetha Gopinath; Editing by Ted Kerr and Savio D'Souza)