Fitch Ratings has affirmed the Issuer Default Rating (IDR) and associated debt ratings for Anadarko Petroleum at 'BBB-'. The affirmation affects approximately $13 billion in rated securities. The Rating Outlook remains Negative. See the full list of actions at the end of this release.
The ratings reflect the company's large size and asset position worldwide, moderately levered capital structure, strong liquidity and its cash flow generating capability. Anadarko is one of the largest independent E&P companies globally focusing on exploration, development and production. Its proven reserve base is approximately 2.5 billion barrels of oil equivalent (boe) with substantial unbooked resources that have significant value as well.
Operationally, the company is performing very well with continued rising production and solid exploration success most notably in West Africa, Mozambique and the U.S. Gulf of Mexico. Production is averaging well over 700,000 boe/d in 2012 and the exploration success over the past couple years has added significant value to the company's portfolio of worldwide assets. Reserve replacement and finding, development and acquisition costs have been strong over the last three years, averaging 134% and approximately $15/boe, respectively.
From a credit prospective, annualized run-rate EBITDAX for the first half of 2012 is approximately $7.7 billion, resulting in debt/EBITDAX of nearly 2x. E&P Debt/proved developed reserves(PD) is slightly over $8/PD and E&P Debt/Flowing BOE of Production is approximately $20,000/boe/d both of which are in-line with the current ratings (E&P debt includes asset retirement obligations but also gives credit for other operations). Fitch expects that Anadarko will be marginally free cash flow positive this year given a growth-oriented capital expenditure budget of approximately $6.5 billion. Gross balance sheet totaled $14.8 billion as of June 30, 2012 and liquidity consists of cash on hand of nearly $2.8 billion as of June 30, 2012, availability of an estimated $3.3 billion on the company's $5 billion secured revolver due 2015 and a fully available $800 million revolver at Western Gas Resources. Scheduled maturities are estimated to be $38 million yet in 2012, nothing in 2013 and approximately $775 million in senior notes due 2014. Additional liquidity could be derived from the company's significant global asset base including large unencumbered acreage positions as well as both booked and unbooked reserves worldwide that can be readily sold to raise several billion dollars. Furthermore, the company is expected to receive approximately $1.7 billion in cash over the next several quarters from its Algerian tax settlement which is targeted to pay off the balance under its credit facility.
The Negative Outlook stems from the uncertainties relating to the ongoing Tronox litigation in U.S. Bankruptcy Court. Currently, Anadarko has reserved approximately $525 million for Tronox. Settlement talks occurred last month but no agreement was reached. As a result, the proceedings will continue with an expected trial outcome to be reached before year-end unless a settlement occurs beforehand. A settlement or judgment of less than $5 billion could remove the Negative Outlook on the company's IDR provided funding was achieved in a debt neutral manner. In regard to potential remaining Macondo related oil spill liabilities in the Gulf of Mexico, Fitch believes it is likely that any future amounts incurred will be relatively small in nature and should be easily manageable for Anadarko within the current rating.
WHAT COULD TRIGGER A RATING ACTION
Negative
--A very large adverse judgment against the company in the Tronox proceedings could pressure the company's ratings;
--Large debt financed acquisitions or share buybacks;
- Significant negative free cash flow leading to much higher debt levels;
--A significant and sustained deterioration in credit metrics.
Positive
--Resolution of the Tronox litigation proceedings that are less than $5 billion could be a catalyst for an Outlook revision;
--Continued strong operating performance coupled with conservative management of the capital structure and debt management.
Fitch has affirmed the following ratings for Anadarko, with a Negative Outlook:
Anadarko Petroleum Corp.
--Long-term IDR at 'BBB-';
--Sr. Unsecured Notes & Debentures at 'BBB-';
--Secured Credit Facility at 'BBB'.
Kerr-McGee Corp.
--Long-term IDR at 'BBB-';
--Sr. Unsecured at 'BBB-'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Relevant Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Rating Oil and Gas Exploration and Production Companies: Sector Credit Factors' (Aug. 5, 2011);
--'Statistical Review of US E&P Companies' (May 10, 2012);
--'Updating Fitch's Oil and Gas Price Deck' (Feb. 6, 2012);
--'Dividend Policy in the Energy Sector: Low Oil Prices Could Create Cash Flow Stress' (Feb. 29, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Rating Oil and Gas Exploration and Production Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=645090
Statistical Review of U.S. E&P Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=677881
Updating Fitch's Oil and Gas Price Deck
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=670073
Dividend Policy in the Energy Sector -- Low Oil Prices Could Create Cash Flow Stress
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=672197
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Contacts:
Fitch Ratings
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+1-312-368-3130
Managing Director
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or
Secondary Analyst:
Daniel
Harris, +1-312-368-3217
Associate Director
or
Committee
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Managing
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brian.bertsch@fitchratings.com