In an effort to help break OPEC’s 38-year stranglehold on the
U.S. economy and to lower energy costs to American consumers,
enhance national security, stimulate economic growth, create
hundreds of thousands of high-paying jobs and improve the
environment, Chesapeake Energy Corporation (NYSE:CHK) today
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. 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.
To fund this effort, Chesapeake will redirect approximately 1-2%
of its forecasted annual drilling budget away from efforts to
increase natural gas supply toward projects that will instead
stimulate increased natural gas demand. Over the next 10 years, the
company anticipates committing at least $1.0 billion to CNGV
initiatives.
Aubrey K. McClendon, Chesapeake’s Chief Executive Officer,
commented, “We have analyzed the U.S. transportation sector during
the past four years to determine how to create the best pathway to
move our country away from dependence on OPEC oil and the resulting
yearly transfer of more than $400 billion of American wealth to
foreign countries, many of them often unfriendly to U.S. interests.
As a result of our analysis, Chesapeake has developed a
three-pronged plan to move America toward greater energy
independence and enhanced national security during the next 10
years:
- Increase existing domestic onshore oil
and natural gas liquids (NGLs) production of approximately 8
million barrels a day by 3-4 million barrels a day through the
acceleration of horizontal drilling and hydraulic fracturing to
develop the enormous unconventional oil and NGL resources that
underlie many parts of our country;
- Invest in enough publicly accessible
compressed natural gas (CNG) and liquefied natural gas (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 and
provide American businesses and consumers access to vehicles that
run on a cleaner fuel made by and for Americans that should be
approximately $1.50 - $2.00 per gallon cheaper than gasoline and
diesel; and
- Deploy innovative and scalable GTL
processes to convert natural gas into a room temperature,
tank-ready, liquid transportation fuel that can be blended with
existing supplies of gasoline and diesel or used as a stand-alone
replacement product that is cleaner and more affordable and creates
high-paying American jobs rather than foreign jobs.”
McClendon continued, “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 and 400 of
our heavy duty fleet vehicles to run on CNG, 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.”
Company Initiates Plan with its First Two
Demand-Enhancement Investments in CNGV
Investment #1: Clean Energy Fuels Corp.
– LNG Fueling Infrastructure:
Chesapeake has agreed to invest $150 million in newly issued
convertible debt of Clean Energy Fuels Corp. (Nasdaq:CLNE), 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, will be made in three equal
$50 million tranches, the first of which has been made and the
other two are planned for June 2012 and June 2013. The convertible
debt carries a 7.5% interest rate and a 22.5% conversion premium.
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.”
Investment #2: Sundrop Fuels, Inc. –
Biobased “Green Gasoline” Made from Natural Gas and Cellulosic
Material:
Chesapeake has agreed to invest $155 million in a 50% ownership
stake in Sundrop Fuels, Inc., a privately held cellulosic biofuels
company based in Louisville, Colorado. The investment over the next
two years will fund construction of the largest nonfood
biomass-based “green gasoline” plant in the world, capable of
annually producing more than 40 million gallons of ultra-clean
gasoline from natural gas and waste cellulosic material. The
investment promises to accelerate the development of an affordable,
stable, room-temperature, natural gas-based fuel for immediate use
in today’s automobiles, diesel engine vehicles and aircraft.
The first $35 million tranche of Chesapeake’s investment has
been funded and the remaining tranches of preferred equity will be
scheduled around certain funding and operational milestones to be
reached over the next two years. The investment gives Chesapeake
50% of Sundrop Fuels’ equity on a fully diluted basis. The CNGV
investment will be augmented by an additional $20 million pro rata
investment by a current investor, Palo Alto, California-based
venture capital firm Oak Investment Partners, which along with
Sundrop Fuels’ management and Menlo Park, California-based venture
capital firm Kleiner Perkins Caufield & Byers, have provided
substantially all of Sundrop Fuels’ capital to date.
Sundrop Fuels’ plant is a critical strategic development to
initiate the commercialization of the company’s promising biofuels
gasification process, which is unique among all other conversion
processes in existence today. This gasification process is the
foundational technology for a number of chemical processes
converting natural gas to higher value chemicals and fuels. This
technology will utilize a proven methanol-to-gasoline process for
producing tank-ready fuel, rather than the more capital intensive
Fischer-Tropsch (F-T) process. The company expects to break
ground in early 2012 and be in full production by late 2013.
Full-scale commercial plants are expected to be 5-10 times the size
of the initial plant, with the first such plant scheduled to break
ground approximately one year after start-up of the commercial
demonstration plant.
McClendon commented, “The U.S. Department of Energy has placed a
priority on seeking advanced, cleaner-burning, sustainable
biomass-based fuels capable of becoming immediate drop-in
replacements for gasoline and diesel fuels and still use our
nation’s existing liquid fuel-based distribution infrastructure.
After extensive evaluation and due diligence of various GTL
processes during the past three years, we believe there is no doubt
Sundrop Fuels’ proprietary approach will be a breakthrough to
achieving affordable and scalable GTL fuels using America’s natural
gas and America’s nonfood biomass to produce a tank-ready green
biogasoline replacement or supplemental fuel for gasoline and
diesel.
“The clean, abundant and affordable qualities of American shale
natural gas are well documented. With Sundrop Fuels’ efficient
synthesis gasification process, natural gas becomes the enabling
technology for a safer, stronger and greener economy. Natural gas
supplies the missing link – hydrogen – needed to turn our nation’s
biomass waste stream into a bountiful flow of truly green
biogasoline that can fuel our cars, trucks, aircraft and industry.
This breakthrough technology creates extraordinary economic and
environmental upside for our country by decreasing our dependence
on OPEC oil and lowering greenhouse gas emissions while at the same
time creating thousands of high-paying American jobs. It also
creates significant upside for Chesapeake and its shareholders by
providing a large new demand driver for American natural gas.
“The commercial readiness of Sundrop Fuels’ technology is
indicative of Chesapeake’s approach to investing in core
technologies that address fundamental process and economic issues
historically associated with GTL without taking on massive R&D
expenditures. This transaction will enable our country to begin
producing tank-ready fuels from American natural gas and start
reducing OPEC oil imports.”
Management Summary
McClendon concluded, “We expect to make investment opportunities
with CNGV available to other natural gas producers, venture
capitalists, private equity players and other large-scale energy
and technology investors, especially those looking for
breakthroughs in scalable, green energy technologies. 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. Our plan lays out
a clear, affordable and achievable pathway for the rejuvenation of
the American economy, the further greening of our environment and
the reorientation of our foreign policy away from being captive to
OPEC oil dependence. Working together, we can create a more
prosperous, cleaner and safer America and, once and for all, begin
to develop a sustainable energy policy based on reliance on and
development of America’s own energy resource bounty and break the
stranglehold that OPEC oil has had on our country for nearly four
decades. Chesapeake is 100% committed to helping make this happen
for the benefit of our shareholders and for our country.”
Media Conference Call Details
Chesapeake has scheduled a conference call for news media at
5:00 p.m. EDT on Monday, July 11, 2011. The telephone number to
access the conference call is 913-312-0639 or toll-free
888-637-7738. The passcode for the call is 5210422.
We encourage those who would like to participate in the call to
place calls between 4:50 and 5:00 p.m. EDT.
For those unable to participate in the conference call, a replay
will be available for audio playback at 9:00 p.m. EDT on Monday,
July 11, 2011, and will run through midnight Friday, July 15, 2011.
The number to access the conference call replay is
719-457-0820 or toll-free 888-203-1112. The passcode
for the replay is 5210422.
The audio portion of the conference call will also be webcast
live on Chesapeake’s website at www.chk.com in the “Events”
subsection of the “Investors” section of the company’s website.
Chesapeake Energy
Corporation is the second-largest producer of natural
gas, a Top 15 producer of oil and natural gas liquids and the most
active driller of new wells in the U.S. Headquartered in
Oklahoma City, the company's operations are focused on discovering
and developing unconventional natural gas and oil fields onshore in
the U.S. Chesapeake owns leading positions in the Barnett,
Haynesville, Bossier, Marcellus and Pearsall natural gas shale
plays and in the Granite Wash, Cleveland, Tonkawa, Mississippian,
Bone Spring, Avalon, Wolfcamp, Wolfberry, Eagle Ford, Niobrara,
Three Forks/Bakken and Utica unconventional liquids plays.
The company has also vertically integrated its operations and
owns substantial midstream, compression, drilling and oilfield
service assets. Chesapeake’s stock is listed on the New York
Stock Exchange under the symbol CHK. Further information is
available at www.chk.com where Chesapeake routinely
posts announcements, updates, events, investor information,
presentations and press releases.
Clean Energy Fuels Corp.
is the largest provider of natural gas fuel for transportation
in North America and a global leader in the expanding natural gas
vehicle market. It has operations in CNG and LNG vehicle fueling,
construction and operation of CNG and LNG fueling stations,
biomethane production, vehicle conversion and compressor
technology. Clean Energy fuels over 22,700 vehicles at 238
strategic locations across the United States and Canada with a
broad customer base in the refuse, transit, trucking, shuttle,
taxi, airport and municipal fleet markets. Clean Energy del Peru, a
joint venture, fuels vehicles at two stations and provides CNG to
commercial customers in Peru. Clean Energy owns (70%) and operates
a landfill gas facility in Dallas, Texas, that produces renewable
natural gas, or biomethane, for delivery in the nation’s gas
pipeline network, and has agreed to build a second facility in
Michigan. Clean Energy owns and operates LNG production plants in
Willis, Texas, and Boron, California, with combined capacity of
260,000 LNG gallons per day and that are designed to expand to
340,000 LNG gallons per day as demand increases. NorthStar, a
wholly owned subsidiary, is the recognized leader in LNG/LCNG
(liquefied to compressed natural gas) fueling system technologies
and station construction and operations. BAF Technologies, Inc., a
wholly owned subsidiary, is a leading provider of natural gas
vehicle systems and conversions for taxis, vans, pick-up trucks and
shuttle buses. IMW Industries, Ltd., a wholly owned subsidiary
based in Canada, is a leading supplier of compressed natural gas
equipment for vehicle fueling and industrial applications with more
than 1,200 installations in 24 countries.
www.cleanenergyfuels.com
Sundrop Fuels, Inc. is a
gasification-based renewable energy company based in Louisville,
Colorado. The company uses an ultrahigh-temperature heat
transfer process to gasify virtually any cellulosic feedstock into
synthesis gas, which is then converted into clean, affordable
drop-in biogasoline and other liquid transportation biofuels for
use in today’s automobiles, diesel engines and aircraft via the
nation’s existing pipeline infrastructure. At the core of
the company’s intellectual property is its Sundrop Fuels RP
Reactor™, a high-efficiency radiant particle technology that is
more than 20-times faster than conventional convection heat
transfer methods. By creating ultrahigh temperatures to drive the
endothermic gasification reaction, Sundrop Fuels technology lowers
significantly the high capital cost and intensive energy use that
have been barriers to large-scale application of gas-to-liquid
technologies in nonstranded gas markets like the U.S. In
addition, Sundrop Fuels is able to maximize its synthesis gas
production by integrating clean, abundant, American natural gas
with biomass feedstock, facilitating the most efficient utilization
of hydrogen from both the biomass and natural gas to produce higher
yields than any other biomass processes. The combination of
Sundrop Fuels technology with American natural gas will provide the
foundation for large-scale biorefineries that will dramatically
reduce both the nation’s dependence on OPEC oil and the amount of
greenhouse gases and other pollutants released into the
atmosphere. Sundrop Fuels plans to break ground in 2012
demonstrating its RP Reactor™ technology with ExxonMobil’s
Methanol-to-Gasoline (MTG) process. The company expects to go into
full production 24-30 months after groundbreaking.
Backing for Sundrop Fuels comes from its strategic partner,
Chesapeake Energy Corporation, and by two of the world’s premier
venture firms, Oak Investment Partners and Kleiner Perkins
Caulfield & Byers. Sundrop Fuels plans to build and
operate large-scale biorefineries each generating more than 200
million gallons of drop-in transportation biofuels annually.
For more information visit
www.sundropfuels.com.
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