Chesapeake Energy has stepped up plans to produce more oil and natural gas liquids while cutting dry-gas output against the background of decade-low natural gas prices.

The second-largest U.S. natural gas producer said in a presentation on its fourth-quarter and full-year 2011 earnings that some 60% of its revenue would come from oil and NGLs in 2012, up from roughly 50% anticipated by the company just a month earlier.

Chesapeake Energy, which produces approximately 9% of America’s natural gas, said that after being a 90% natural gas company in 2009, it would become a “much more balanced” operation in coming years.

It forecast an increase of more than 70%, or 63,000 barrels a day, in liquids production this year and said it is poised to become among the top five US liquids producers by 2015, with an average output of some 250,000 barrels a day.

The company said it will spend $7 billion to $7.5 billion in drilling and completion this year, of which around 85% will be spent on liquids-rich plays. It said it has accomplished roughly 90% of its transition to production of oil and NGLs.

Analysts at ratings agencies say it takes only a small amount of liquids production to boost the financial standing of an energy company with large natural gas assets. Read about the details of a recent 2012 forecast from Moody’s on Breaking Energy here.

In projections based on $100-a-barrel oil and $4/mmBtu natural gas, the company forecast unhedged oil and gas revenue of $6.76 billion in 2012, rising to $9.06 billion in 2013. Operating cash flow is expected to increase almost 60% over the same period assuming an increase of only $1 in natural gas prices.

On January 23, the company said it would cut the number of operating dry-gas rigs by 50% by the second quarter of 2012, and cut its gas production by 8% immediately. In its latest report, the company said it has cut gross operated gas output by 15%.

Shouldn’t Drill, Must Drill

The switch away from dry-gas production reflects the low market price for gas which has dropped to its lowest in 10 years in response to booming national supply during an exceptionally mild US winter.

But it may not be easy to implement the change quickly because of the contractual obligations attached to drilling in the abundant US shale plays, argued Arthur Berman, a consulting geologist to the oil and gas industry.

“A supertanker is a difficult thing to turn around,” Berman said, citing commitments such as pipeline contracts, agreements with joint-venture partners, and forward contracts for gas sales.

Energy companies such as Chesapeake will want to generate some revenue from gas wells even with prices below break-even levels, and that is likely to keep downward pressure on market prices.

“They have spent the money and they have got to get some cash flow out of the deal even if they are losing money,” said Berman, who argues that widely held estimates for US shale-gas reserves are overstated because many are uneconomic to extract.

Find out more about how natural gas reserve estimates are created here.

Bob McNally, president of The Rapidan Group, a Washington DC-based energy-market research firm, said the natural-gas pullback by Chesapeake and other producers reflects inadequate demand because infrastructure such as cars fueled by compressed natural gas have not yet been developed.

“We need to go to the next step of burning the gas,” he said.

In its latest bid to stimulate demand, Chesapeake said on Tuesday it has formed a partnership with 3M to make stronger and less-costly CNG tanks for cars, buses and trucks.

Discuss the future of natural gas companies and the partnerships they are forming on Breaking Energy here.