DBRS Downgrades Anadarko Petroleum Corp’s Unsecured LT Rating to BBB (low) and Rates New Issue at BBB (low), both UR Negative

DBRS has today downgraded the Senior Unsecured Notes and Debentures (the Unsecured Notes) of Anadarko Petroleum Corporation (the Company) and of Kerr-McGee Corporation (Kerr-McGee) to BBB (low) from BBB and maintained the ratings Under Review with Negative Implications (URN). The rating action reflects the Company’s recent move to obtain commitments for a five-year $5 billion secured credit facility (Secured Facility), which will replace its existing $1.3 billion unsecured facility (undrawn). The Secured Facility will rank ahead of the Unsecured Notes. DBRS has also assigned a rating of BBB (low) to the Company’s $2 billion 6.375% unsecured senior notes (New Unsecured Notes) due September 15, 2017, and placed the rating URN. The New Unsecured Notes are expected to settle on August 12, 2010

The New Unsecured Notes will rank equally with the Company’s existing and future unsecured senior debt and will effectively be subordinated to all future secured indebtedness, including the Secured Facility. The net proceeds will primarily be used to repay approximately $1.3 billion of outstanding indebtedness in the form of the unsecured Midstream Subsidiary Note, due December 2012, and for general corporate purposes, including the refinancing of other near-term debt maturities. Following the refinancing, there will be no material debt maturities until 2014.

The Secured Facility will be secured by certain of the Company’s exploration and production assets located in the United States and 65% of the capital stock of certain of its foreign subsidiaries. The closing of the Secured Facility is conditional upon the Company issuing at least $1.5 billion of combined notes and/or senior secured term loan facility and the repayment of the $1.3 billion unsecured Midstream Subsidiary Note. The New Unsecured Notes offering will satisfy these pre-conditions for the Secured Facility.

DBRS has maintained the URN status, which reflects uncertainties regarding the Company’s potential share of significant liabilities and clean-up costs associated with the Macondo well oil spill in the Gulf of Mexico, which started on April 20, 2010, and is currently temporarily capped, pending completion of a relief well expected by mid-August 2010 for a permanent stoppage. The Company has a 25% non-operated working interest in the well, of which BP plc is a 65% owner and operator. The Company maintains a strong liquidity position, with about $3.4 billion of cash balances at June 30, 2010, and has recently obtained commitments for the Secured Facility. The Company reported satisfactory operating results, with total debt-to-capital of 37% (30% net of cash) for the six months ending June 30, 2010, debt-to-cash flow of 2.50 times (1.82 times net) for the 12 months ending June 30, 2010, and increased sales volumes to about 668,000 barrels of oil equivalent per day. Substantial hedges in place, covering the Company’s projected 2010 production, should provide a measure of stability to its cash flow, near term.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Oil and Gas Companies, which can be found on the DBRS website under Methodologies.

This is a Corporate (Energy) rating.