DBRS Confirms Issuer Rating of Anadarko Petroleum at BBB, Stable Trend

DBRS has today confirmed the Issuer Rating of Anadarko Petroleum Corporation (Anadarko or the Company) at BBB with a Stable trend. In addition, the Senior Unsecured Notes and Debentures of Anadarko and Kerr-McGee Corporation (Kerr-McGee) have both been confirmed at BBB (low) with Stable trends.

The Senior Unsecured Debt ratings of both companies are one notch below the Issuer Rating, as the existing secured credit facility ranks ahead of the Unsecured Notes and Debentures. Upon maturity of the current secured facility in 2015, should the Company renew with an unsecured facility, DBRS would expect the currently issued unsecured notes to be upgraded to the Issuer Rating (BBB). The ratings are supported by the Company’s (1) large, well-focused asset base; (2) strong reserve replacement record; and (3) good growth prospects.

Anadarko’s financial profile improved in 2012. Cash flow remained steady and was sufficient to fund the majority of increased capex and dividends. This enabled the Company to use proceeds from the Algeria exceptional profits tax (PTE) dispute (approximately $1 billion) for debt reduction. DBRS expects the Company to continue to strengthen its financial profile in 2013 using the remaining $800 million in payments related to the PTE dispute.

The rating is, however, constrained by the Company’s high leverage. While the Company reduced its debt levels in 2012, DBRS-adjusted leverage remains high, at approximately 45%. Negative rating action could be warranted if leverage were to increase significantly from current levels.

Anadarko also remains highly subject to low North American natural gas pricing (57% of 2012 production). The Company is attempting to mitigate this risk through spending on liquids-rich plays, particularly the Eagle Ford Shale. In addition, the Company has significantly increased its capex program since 2010, which could pressure the balance sheet. However, given the Company’s cash balance ($2.5 billion), DBRS would expect cash flow shortfalls, if any, to be internally funded, resulting in minimal impact on credit metrics.

Anadarko may be subject to potential contingent liabilities related to the bankruptcy of a former subsidiary of Kerr-McGee and/or additional fines/penalties related to the Deepwater Horizon event. Although the Company views the probability of further liabilities as low, negative action rating could occur if significant penalties/fines are levied.

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

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 our website under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.