In what is likely the first of many hoped-for 2016 divestitures, Chesapeake Energy Corp. (NYSE: CHK) affiliates sold mineral and royalty interests to a private company for $128 million.

Houston’s Haymaker Resources said Feb. 23 it closed on an acquisition that includes producing and non-producing interests associated with more than 8,500 wells across 24 states and 324 counties. Most of the production originates from the Midcontinent, Haynesville and Appalachia regions.

Chesapeake has been trying to sell itself out of a financial hole for several years by divesting assets. The company is aiming for noncore sales of up to $300 million by the end of the first quarter of 2016. The company faces a number of pivotal dates in 2016, including a sizeable debt maturity. Chesapeake will have to see a strong rebound in commodity prices or additional capital to meet many of them.

Haymaker CEO Karl Brensike said its deal with Chesapeake was complex, involving business units formed during Chesapeake’s 30 years as an acquirer of oil and gas assets.

“In the current market environment, operators are focusing on their core assets more than ever before,” he said. “I think everyone can agree that there is nothing more noncore to an operator than owning nonoperated royalty interests.”

The company also made recent moves to free up more money through amended debt agreements and staff reductions. Pavel Molchanov, analyst with Raymond James & Associates Inc., said that while details are sparse, the Haymaker sales price equates to “only” about $15,000 per well.

“These likely represent interests in noncore stripper wells. While proceeds will almost assuredly be used to help pay down debt, with almost $2 billion coming due in 2017 alone, Chesapeake will likely need to see significant asset sales over the coming year to help clean up the balance sheet,” Molchanov said.

One potential area for sales is the Utica, where Chesapeake has 300,000 net dry gas acres, with roughly half committed to a joint venture. In August, Chesapeake officials also said the company may find itself “a bit asset long when you consider the emerging dry gas portion of the Utica.”

Rough Ride

Chesapeake has had a rough ride of late. On Feb. 22, Moody's Investors Service downgraded Chesapeake's Corporate Family Rating (CFR) to Caa2 from B2 with a negative outlook. The new rating incorporates Chesapeake’s “very weak cash flow generation capacity at our commodity price assumptions relative to its high debt levels and weak liquidity resulting in an unsustainable capital structure,” Moody’s said.

Moody’s said the challenging commodity environment will hinder Chesapeake’s ability to move large assets to further reduce debt in the magnitude it needs without further restructuring transactions. That “heightens the risk of default.”

“Low commodity prices will pressure its available borrowing capacity under its revolving credit facility and Chesapeake still has sizable debt maturities in 2017 and 2018,” the ratings service said.

On Feb. 8, a media report surfaced that Chesapeake had hired a restructuring attorney, causing the stock to fall more than 57%.

While the stock rebounded after the company released a statement saying it had no plans to pursue bankruptcy, the stock continued to trade more than a third below its opening price of $2.56.

Bob Brackett, senior analyst with Bernstein, said that Chesapeake’s liquidity is estimated to consist of about $1.1 billion in cash and $4 billion in revolving facility.

The company’s debt stands at about $10 billion.

Chesapeake faces a number of challenges, Brackett said.

Brackett identified several key dates for Chesapeake’s upcoming year, in which it will variously update asset sales and budgets, face maturity dates and bank redetermination of its borrowing base.

“We estimate that if gas price averages below $2.41 in 2016, the interest coverage covenant could be breached. A waiver remains possible, but uncertain, in this scenario,” Brackett said.

The final closing price on the Haymaker deal is subject to post-closing adjustments. DLA Piper advised Haymaker on the transaction.

Darren Barbee can be reached at dbarbee@hartenergy.com.