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The Associated Press July 11, 2011, 6:55PM ET

Chesapeake invests in natural gas fueling firm

Natural gas driller Chesapeake Energy Corp. said Monday it is investing in a company that plans to build liquefied natural gas fueling stations at truck stops and another that expects to build a refinery to produce fuel from farm crops.

Oklahoma City-based Chesapeake said the two deals, worth a total of $305 million, are parts of a $1 billion venture capital fund it is creating to invest in alternatives to gasoline and diesel fuel. It said it will divert 1 to 2 percent of its expected annual drilling budget toward projects to stimulate demand for natural gas.

Chesapeake also said it will convert at least 100 drilling rigs and hydraulic-fracturing equipment to run on liquefied natural gas and speed the conversion of its own vehicle fleet to natural gas. The company said those moves would save $250 million per year.

Chesapeake said it will invest $150 million in Clean Energy Fuels Corp. to help pay for about 150 fueling stations, including many at Pilot-Flying J Travel Centers. The companies hope to take advantage of the development of new truck engines that burn natural gas.

The first of three rounds of convertible debt closed on Monday, Chesapeake said. The seven-year notes carry 7.5 percent interest and can be converted to Clean Energy common stock at Clean Energy's option. The Seal Beach, Calif., company can force conversion of the debt in some cases if the stock trades at a 40 percent premium to the conversion price.

In a separate deal that closed Monday, Chesapeake said it paid $155 million for a 50 percent stake in Sundrop Fuels Inc., which plans to begin building a pilot plant to make transportation fuel from plant fiber and agricultural waste. Sundrop says it has developed technology to speed production of fuel from fiber and that could lead to large-scale production of biofuels in five years.

Chesapeake shares lost 83 cents, or 2.7 percent, to close at $29.75 before the investment and venture fund were announced. In aftermarket trading, the stock gained 3 cents.

Clean Energy shares fell 17 cents, or 1.3 percent, to $13.12 in the regular session and added 98 cents, or 7.5 percent, to $14.10 in after hours.

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