Chesapeake Energy Corp wants to sell holdings in Arkansas' Fayetteville shale natural gas field and its stakes in two companies to raise $5 billion and trim its heavy debt load.

News of the planned sale sent the company's shares soaring as much as 7 percent, but the stock pared some gains and was up 5.4 percent in late morning New York Stock Exchange trading.

Chesapeake has been aggressive in snapping up properties in shale gas fields across the United States, but that buying spree has left it awash in debt and short of cash to drill new wells.

Weak natural gas prices have also hurt the company, which reported nearly $15 billion in long-term debt as of September 30, 2010, and has promised shareholders it would shift its exploration focus to oil and other liquids.

You are looking at guys who have outspent cash flow since 1991, said Ray Deacon, an analyst at Pritchard Capital Partners. If they can reduce the debt by doing this, I think the story becomes a lot more interesting.

Some have speculated that the company is responding to prodding by billionaire Carl Icahn, who more than doubled his stake in the Oklahoma City, Oklahoma, business in December. Icahn owns nearly 6 percent of Chesapeake.

Chesapeake, the second-largest natural gas producer in the United States behind Exxon Mobil Corp , said sales of its Fayetteville shale acreage and equity investments in Frac Tech Holdings LLC and Chaparral Energy are expected to be completed in the first half of the year.

The Fayetteville assets will likely draw the interest of big oil companies, which have been buying natural gas assets in recent months.

We think a $3.5 billion value for Fayetteville is a reasonable assumption, but a logical buyer is a different question, as this is likely too big for a private equity player, analysts at Houston-based energy investment bank Simmons & Co, said in a morning note to clients.

Ultimately, we think it will again be a major or international who is willing to take a longer-term view on natural gas prices.

Other potential buyers could include Southwestern Energy Co or Murphy Oil , Pritchard's Deacon, said.

Proceeds from the sale, as well as a recently announced partnership in the Niobrara fields, would be used to pay down about $2 billion to $3 billion in shorter-dated senior notes and reduce borrowing under its revolving bank credit facility, the company said.

The news also caused the cost to insure debt issued by Chesapeake against potential default to fall sharply. Credit default swaps tightened by 50 basis points to 258 basis points, according to a source.

That means it costs $258,000 a year to insure $10 million of Chesapeake Energy bonds for five years.

Chesapeake's shares rose 5.4 percent, or $1.63, to $31.69 on the NYSE.

(Additional reporting by Matt Daily in New York and IFR analyst Melissa Mott; Editing by Derek Caney and Maureen Bavdek)

Energy