Sovereign wealth funds from China, Singapore and South Korea and two private-equity firms agreed to invest US$900 million ($1.2 billion) in Chesapeake Energy Corp., the third-largest natural-gas producer in the US.

The investors bought the Oklahoma City-based gas company’s 5.75% convertible preferred stock on June 18, Chesapeake said yesterday in a statement, without giving details of the individual stakes. South Korea’s $30 billion sovereign wealth fund said yesterday it will spend US$200 million.

Asian sovereign funds are seeking to diversify after losing money on bank stakes as stocks tumbled through the financial crisis. The funds are buying into a company that’s among owners of rights to US shale-gas reserves in deposits including the Marcellus shale in New York, Pennsylvania and West Virginia, an area the Department of Energy estimates may contain enough to supply America’s needs for more than a decade.

“Given that global financial markets have been volatile in recent years, it seems prudent to diversify their asset base,” said David Cohen, an economist at Action Economics in Singapore. “Emerging economies have accumulated substantial international reserves in recent years and are looking for a way to diversify their holdings.”

Sovereign wealth funds around the world lost money on stocks and financial assets in 2008 as the MSCI World Index plunged 42%. Temasek Holdings Pte, Singapore’s state investment company, reported profit fell a record 66% in the 12 months to March 31, 2009, as a collapse in credit markets drove down the value of its stakes in Bank of America Corp. and Barclays Plc.

Shale Gas
“Temasek invested alongside other investors,” according to an e-mailed statement from the company today. The statement didn’t reveal the amount. Temasek, which bought US$500 million of convertible preferred shares of Chesapeake in May, exercised its option to place the additional preferred stock with investors in Asia. The sale of the additional preferred stock was closed on June 18, according to Chesapeake’s statement.

Chesapeake said each share of preferred stock will be convertible at any time at US$27 a share. The stock dropped 0.5 percent to close at US$24.49 yesterday, bringing its decline this year to 5.4 percent. Hopu Investment Management Co. and the Li Ka Shing Foundation in Canada are the private firms taking stakes.

Chesapeake has profited by selling drilling rights and gas reserves for US$10.7 billion during the past 2 1/2 years, quadruple the US$2.7 billion it paid for the assets. The gas producer is accelerating output of crude oil and natural-gas liquids while scaling back gas drilling in some areas, Chief Executive Officer Aubrey McClendon said in February.

Rising Prices
The company is finding higher-quality fuel at its US shale-gas projects, making developing the prospects more attractive, it said in March. Shale-gas production is changing US demand for gas as power generators switch away from coal to the cleaner-burning fuel, Senior Vice President Mike Stice said in a March 3 interview. Shale gas comes from layers of sedimentary rock difficult to tap with conventional technology.

State-run Chinese companies spent a record US$32 billion last year acquiring resources overseas while South Korea, Asia’s fourth-largest oil importer, spent US$5.18 billion to develop and buy energy assets.

Natural-gas prices will rise as demand for the cleaner- burning fuel increases in the long term and as increased regulation and costs following the BP Plc oil spill in the Gulf of Mexico reduce deepwater drilling, according to Korea Investment Corp.

Chesapeake will redeem $600 million of higher-priced debt for cash, the company said yesterday in a separate statement. It will buy back 6.375% of senior notes due in 2015 for US$1,031.88 for each $1,000 of principal. The gas producer sold US$1.7 billion of convertible preferred stock on May 18, saying it would use the proceeds to repay senior debt.