July 11, 2011 / 9:25 PM / 7 years ago

UPDATE 2-Chesapeake to invest in natural gas fuels market

* Plans to spend $1 billion in 10 years

* Investments so far total $350 million

* Clean Energy fuel stock rises 8 pct post-market

* Chesapeake shares edge up post-market (Adds analyst comment)

By Anna Driver

HOUSTON, July 11 (Reuters) - Chesapeake Energy Corp (CHK.N) plans to spend as much as $1 billion over the next decade investing in companies and technologies to replace gasoline and diesel with fuels derived from abundant natural gas.

Chesapeake and others are finding it necessary to create a market for natural gas as advances in technology such as hydraulic fracturing unlock vast supplies, while demand growth has not kept pace.

Chesapeake, the second largest U.S. natural gas producer behind Exxon Mobil Corp (XOM.N), has a long road ahead. There are only about 120,000 vehicles that run on compressed natural gas in the United States and the infrastructure to support them is in its infancy.

“The goal is to take 8 million trucks in the U.S. and get those trucks off diesel,” Aubrey McClendon, Chesapeake’s chief executive officer, told Reuters in an interview. “That’s a transformation that will happen throughout the rest of my life.”

Natural gas as a transportation fuel is cleaner-burning than gasoline and about half the cost at current prices.

“It’s a bit of an unusual foray for an exploration company, but you have to give them credit for being forward looking,” said Mark Hanson, analyst with Morningstar.

Hanson described the plan as “neutral” for the company and “positive” for the industry.

    The company’s newly created Chesapeake NG Ventures Corporation will first invest $150 million in the convertible debt of Clean Energy Fuels Corp (CLNE.O) to build liquefied natural gas (LNG) truck fueling stations.

    Texas oilman and billionaire T. Boone Pickens, another advocate of using natural gas as a transportation fuel, owns 25 percent of Clean Energy Fuels Corp, according to data from the U.S. Securities and Exchange Commission.

    News of the investment sent Clean Energy Fuels shares up 7 percent in post-market trading. Chesapeake rose 13 cents to $29.88 from the New York Stock Exchange close.

    Chesapeake is also investing $155 million in privately-held Sundrop Fuels Inc, a company that makes “green gasoline” from natural gas and waste cellulosic material.

    McClendon expects a wide range of investors, including private equity firms and venture capitalists, to invest in his company’s new fund.

    “I don’t think we’re going to have to go out and look for people to invest,” McClendon added.

    The Oklahoma City, Oklahoma company said it also plans to convert 100 of its drilling rigs and its hydraulic fracturing equipment to run on LNG, a process that McClendon said will likely pay for itself in a year or so. (Reporting by Anna Driver in Houston; editing by Andre Grenon)

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