In a major alliance supporting the growing transition by major shippers and trucking operators from diesel to natural gas fuel, Chesapeake Energy Corp., the nation's second largest natural gas producer, is investing $150 million in Clean Energy Fuels Corp., North America's largest provider of natural gas fuel for transportation. The investment is dedicated to help fund the development of approximately 150 LNG truck fueling stations at strategic truck-stop locations along major trucking corridors to form the backbone of "America's Natural Gas Highway." Chesapeake is the sole investor in the transaction, and will make the investment in Clean Energy through its newly formed, wholly owned subsidiary, Chesapeake NG Ventures Corp.
"With the advent of new natural gas truck engines well-suited for heavy-duty, over-the-road trucking, it is time to build America's Natural Gas Highway," said Andrew J. Littlefair, president and CEO of Clean Energy. "The investment by Chesapeake will help us accelerate the development of this important fueling network."
"This new initiative is in addition to our growing development program of stations serving local fleets in the refuse, transit, airport, municipal and regional trucking markets around the country," added Littlefair.
The investment is in the form of convertible debt issued in three tranches of $50 million each that will provide the funding for a newly formed subsidiary of Clean Energy that will be dedicated to the LNG station build out. The first $50 million investment closed today, July 11, 2011, and the second and third tranches are expected to close in June 2012 and June 2013, respectively. The debt carries an interest rate of 7.5 percent and is convertible at CNGV's option into Clean Energy's common stock at a 22.5 percent premium to the volume-weighted average closing price of the 20-day period prior to the initial closing. In addition, Clean Energy can, under certain circumstances, force conversion of the debt if its common stock is trading at a 40 percent premium to the conversion price. The entire principal balance of each note is due and payable seven years following its issuance, and Clean Energy may repay each note in cash or shares of its common stock.
Aubrey K. McClendon, chief executive officer of Chesapeake commented, "There is clearly ample demand for the benefits of abundant, affordable and American natural gas among consumers who face the high costs of OPEC oil at the fuel pump every day, especially America's truckers and goods and product shippers. We are investing our capital in Clean Energy to accelerate the delivery of the natural gas fueling infrastructure needed to assure truck operators that they can transition away from high-priced diesel, the cost of which is set by foreign oil, and choose a better road powered by American natural gas."
Many of the LNG fueling stations will be co-located at Pilot-Flying J Travel Centers already serving goods movement trucking across the country. Clean Energy has an agreement with privately held Pilot Travel Centers LLC of Knoxville, Tenn. to build, own and operate public access, compressed and liquefied natural gas fueling facilities at agreed-upon Pilot-Flying J travel centers. Pilot-Flying J is the nation's largest operator of travel centers with over 440 retail properties in more than 40 states.
Littlefair concluded, "Deployment of new and innovative heavy-duty natural gas engines by world-class engine manufacturers and original equipment truck manufacturers such as Cummins-Westport, Kenworth, Peterbilt, Navistar, Freightliner and Caterpillar, combined with Clean Energy's LNG fueling station construction expertise through our NorthStar subsidiary, the strategic locations afforded by Pilot-Flying J and the investment by Chesapeake, should serve to quicken the transition to natural gas fuel as a game-changer for heavy-duty trucking."
Currently priced $1.50-$2.00 per gallon lower than diesel or gasoline (depending upon local markets), the use of natural gas fuels reduces greenhouse gas emissions up to 30 percent in light-duty vehicles and lowers emissions by approximately 23 percent in medium to heavy-duty vehicle applications. The U.S. Department of Energy reports that 98 percent of the natural gas consumed in the United States is sourced in the United States and Canada, making natural gas a secure North American energy choice.