Chesapeake Energy Corp. (CHK) Thursday said it plans to curtail spending and sell assets to cut long-term debt by 25% over the next two years, while trimming its forecast for oil and natural-gas production growth.

The Oklahoma City-based company has for years shelled out large amounts of money to snap up oil- and gas-rich properties, spending about $5 billion on land last year alone. This heavy outlay has sometimes rankled investors but it helped make Chesapeake a leader in the recent ramp-up in gas and oil production from deeply buried shale-rock formations. Ballooning shale-gas output substantially boosted U.S. reserves of the fuel and pressured prices lower.

The company's shift in strategy comes after billionaire activist investor Carl Icahn last month disclosed a 5.8% stake in Chesapeake. In a regulatory filing, Icahn said he believes the stock is undervalued and that he has begun talks with management about the business and how to maximize shareholder value. Icahn will have an opportunity to nominate four of the company's nine directors this May when shareholders hold their annual meeting.

The plan announced Thursday "represents a fundamental shift from our aggressive asset accumulation of the past few years to a multiyear period of asset harvest, characterized by a clear focus on capital discipline and maximizing returns," Chief Executive Aubrey McClendon said in a prepared statement.

Chesapeake, which has a market capitalization of about $17.5 billion, reported long-term debt of $11.4 billion at the end of the third quarter. The company's debt ratio is 38%, which is much higher than the 25% average of its peers, according to Oppenheimer & Co. analyst Fadel Gheit. Rival Devon Energy Corp. (DVN), for example, has a debt ratio of 12%, Gheit said.

In addition to reining in spending, Chesapeake plans the sale of a stake of more than 1 million acres in a shale play, and expects to soon announce the creation of a joint venture to develop acreage in Nebraska's Niobrara shale formation, the company's investor relations and research manager John Kilgallon said late Wednesday. During a webcast presentation, Kilgallon added that the company will also likely sell assets to its subsidiary Chesapeake Midstream Partners LP (CHKM), in deals similar to last month's $500 million sale of Louisiana pipelines to the unit.

Analysts with UBS Investment Research wrote in a note to clients that shareholders for years have urged Chesapeake to "tap the brakes on its aggressive" spending, adding it appears Icahn's investment has been the catalyst for the company's new strategy.

While the company cuts spending, it said it also expects to boost output by 25% over the next two years as Chesapeake's joint-venture partners, including BP PLC (BP, BP.LN), Statoil ASA (STO, STL.OS) and Cnooc Ltd. (CEO, 0883.HK), pick up the tab for new drilling. The production estimate is down from earlier forecasts for 35% to 40% production growth.

While the company cuts spending, it said it also expects to boost output by 25% over the next two years. This is down from earlier forecasts for 35% to 40% production growth. The output rise comes as Chesapeake puts more emphasis on oil production, aiming to become a top U.S. producer of the commodity while maintaining its position as the No. 2 U.S. gas producer after Exxon Mobil Corp. (XOM). With gas prices down substantially thanks to surging shale development, Chesapeake and other gas producers are aiming to boost production of more lucrative oil.

On Thursday, Chesapeake didn't specify how the additional output would break down between oil and gas, but McClendon said the shift to liquids would still occur.

The company also said Thursday that its average daily production in the fourth quarter jumped 11% from a year earlier and that it has hedged about 96% of its expected gas output in 2011, anticipating low prices.

Chesapeake's shares closed Thursday up 17 cents at $26.67.

Simmons & Co. analyst Jeff Dietert said Chesapeake's "plan to go into a harvest mode and reduce debt is what investors want to hear, but most will likely wait to see Chesapeake begin to execute this plan until giving them credit in their stock price."

-By Ryan Dezember, Dow Jones Newswires; 713-547-9208; ryan.dezember@dowjones.com

--Matt Jarzemsky in New York contributed to this article.
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