Asian wealth funds considering Chesapeake investment

South Korean sovereign wealth fund Korea Investment Corp has reportedly said that it is considering an investment in Chesapeake Energy Corp.  According to a report in UK newspaper the Financial Times, Korea Investment Corp (KIC) and China Investment Corp (CIC) are at an advanced stage of negotiations to join a consortium planning to acquire convertible preferred stock in New York-listed Chesapeake Energy. The talks come after last week's disclosure that Singapore state investment fund Temasek and Beijing-based Hopu Investment Management had acquired $600 million of Chesapeake's convertible preferred stock. Chesapeake indicated last week that it would issue a further $500 million of preferred stock by mid-June, but this amount has now risen to about $900 million amid strong demand from Asian investors. CIC and KIC are each expected to acquire about $300 million worth of preferred stock, with another $300 million to be purchased by Hopu, Seatown (an affiliate of Temasek) and a Japanese industrial group. The investments form part of ChesapeakeÔÇÖs strategy to raise up to $5 billion over the next two years in order to reduce debt and attain an investment-grade rating. Chesapeake is either the number one or number two in the four biggest US shale fields: Haynesville, Marcellus, Barnett and Fayetteville. It is the second largest producer of natural gas in the US. It also holds a leading position in the Eagle Ford, Granite Wash and various other unconventional oil plays. Headquartered in Oklahoma City, Chesapeake owns an interest in approximately┬á44,100 oil and natural gas wells that are currently producing approximately┬á2.4 billion cubic feet per dayÔÇö93 per cent of which is natural gas. Gas is about 30 per cent less carbon-intensive than oil and about 50 per cent less so than coal. New drilling technology has also meant that some US gas reserves have received upgraded lifetime estimates from 30 years to 100 years at current usage rates. Natural gas is currently trading at less than a third of the price of oil on an equivalent basis; but the Asian funds believe that it is simply at a low point in a cycle and that demand will climb for environmental reasons. AsiaÔÇÖs sovereign wealth funds also seem to prefer investing in natural resources, as these are seen as more tangible than sectors such as financial services.