It’s really not news any more when Chesapeake Energy Corp. (NYSE: CHK) sells another asset. The company has been steadily selling assets and exchanging production for cash for about two years now. The roster of buyers includes BP plc (NYSE: BP), which paid $1.9 billion for a 25% stake in Chesapeake’s Fayetteville shale assets and 100% of assets in the Arkoma Basin in 2008, and Plains Exploration & Production Co. (NYSE: PXP) paid $1.65 billion for 20% of Chesapeake’s stake in the Haynesville shale play and 100% of its stake in the Arkoma Basin.

For all its sales in the past couple of years, Chesapeake hasn’t been able to do a lot to lower its debt levels. At the end of the third quarter of 2008, the company reported total debt of around $12.4 billion. At the end of the second quarter of 2010, Chesapeake reported total debt of $10.5 billion. The company shed about $12 billion in assets during that same time period.

Chesapeake claims it will reduce its debt levels enough by the end of 2012 to raise its debt ratings out of the junk territory where it now resides.

This morning Chesapeake announced that it had struck a five-year volumetric production payment, VPP, deal with

Barclays Bank PLC (NYSE: BCS) under which Chesapeake gets $1.15 billion now. This is the eighth VPP deal the company has made since December 2007. Chesapeake has raised $4.7 billion in cash from the deals, which cover about 1 trillion cubic feet of production at price of about $4.70 per thousand cubic feet. With natural gas prices now below $4/thousand cubic feet again, it looks like Chesapeake has done okay.

But the deals are based on volumes. In the deal with Barclays, Chesapeake will pump about 280 million cubic feet per day to a total of 390 billion cubic feet in 2011. Chesapeake will probably also market the gas, and if the price rises Barclays could make more.

Chesapeake is turning its attention to more lucrative natural gas liquids, which makes the eight VPP deals appear a lot more sensible. In 2008, Chesapeake spent 87% of its capex dollars for natural gas drilling and just 13% for liquids. The company projects that by 2012 it will spend 45% of its capex on natural gas and 55% on liquids. By 2015, Chesapeake expects 25% of its production and 40% of total production revenue from liquids.

To make that happen, the company takes the money it makes from asset sales and uses a substantial portion to purchase new assets in plays that are liquids-rich. Through the rest of 2010 and all of 2011, Chesapeake expects to get its money back through joint ventures that will develop these liquids-rich plays.

Chesapeake is sound, if unconventional. It depends on the company’s ability to attract partners or buyers willing to risk big bucks for even more bucks. So far it’s been working, but the strategy’s weak spot is the state of the overall economy. If that sinks, so might Chesapeake’s hopes of getting an investment grade debt rating again.

As of this writing, Paul Ausick did not own a position in any of the stocks named here.

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