DBRS Confirms Anadarko Petroleum Corporation and Kerr-McGee Corporation

DBRS has today confirmed the Senior Unsecured Notes and Debentures (the Unsecured Notes) of Anadarko Petroleum Corporation (Anadarko or the Company) and of Kerr-McGee Corporation (Kerr-McGee) at BBB (low), with Stable trends. The senor unsecured debt ratings are one notch below that of the Issuer Rating, which is confirmed at BBB with a Stable trend given that the existing five-year, $5 billion secured credit facility ranks ahead of the Unsecured Notes.

Anadarko has recently paid $4 billion to BP p.l.c. (BP) to settle BP’s current and future claims against Anadarko associated with the Deepwater Horizon oil spill in the Gulf of Mexico in April 2010. The settlement amount was in line with DBRS’s prior expectations and removed the uncertainty of future liabilities due to BP, associated with the Deepwater Horizon event.

With the deal, the Company transfers to BP its 25% non-operating leasehold interest in the Macondo well associated with the spill. The $4 billion settlement was funded partly by cash on its balance sheet ($3.5 billion as of September 30, 2011) and through the use of its five-year, $5 billion secured credit facility (undrawn as of September 30, 2011). The Company plans to repay borrowings under this facility, partly through proceeds received from the potential divestiture of its non-core Brazilian subsidiary in 2012. Furthermore, the Company expects to receive in excess of $163 million from pending insurance claims and has the opportunity for a 12.5% participation in future recoveries from third parties or insurance proceeds, cumulatively exceeding $1.5 billion, with up to a total of $1 billion net to Anadarko. The settlement agreement does not provide for indemnification by BP against fines and penalties, punitive damages or certain other claims, none of which Anadarko considers a material financial risk to the company.

Notes:
The Senior Unsecured Notes and Debentures of Kerr-McGee are guaranteed by Anadarko Petroleum Corporation.

DBRS notes that the supplemental indentures for Kerr-McGee’s Senior Unsecured Notes and Debentures contain provisions for removal of the guarantee in the event that Kerr-McGee is required to be a reporting entity some time in the future. The guarantee could fall away as a result of (1) a court order requiring Kerr-McGee to be a reporting entity or (2) Kerr-McGee being required to resume filing under the Securities Exchange Act. Anadarko has no ability to unilaterally trigger the removal of the guarantee by making Kerr-McGee a reporting entity, and as long as Kerr-McGee is non-reporting, the guarantee will remain in place. Under either of the above scenarios, DBRS would review Kerr-McGee to determine an appropriate rating level. It is also possible that the ratings for Kerr-McGee and Anadarko could separate and be different at some point in the future as a result of this issue.

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

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