DBRS Confirms Anadarko Petroleum Corporation at BBB, BBB (low), Stable Trend

DBRS has today confirmed the Issuer Rating of Anadarko Petroleum Corporation (Anadarko or the Company) and the Senior Unsecured Notes and Debentures ratings of Anadarko and Kerr-McGee Corporation (Kerr-McGee) at BBB (low). All trends are Stable. The rating action is underpinned by Anadarko’s significant size and scale with good growth prospects across a diversified range of key basins and an adequate financial risk profile. The stable trend is reflective of DBRS’s expectation that Anadarko is likely to maintain its key credit metrics within the BBB range, despite the high level of capex through its growth and transition to a more liquids-focused portfolio.

In June 2014, Anadarko entered into a $5.0 billion unsecured credit facility which would replace the existing $5.0 billion secured credit facility upon completion of certain conditions, including: (1) repayment of all amounts owing under the existing $5.0 billion secured facility and termination of all associated commitments and release of all associated liens, (2) U.S. District Court entering an order approving the Tronox Limited (Tronox) litigation settlement agreement and issuing an injunction barring certain third-party claims, and (3) Anadarko making the $5.15 billion payment related to the Tronox settlement agreement, including all associated interest as agreed upon. Earlier in the year, the Company removed the uncertainty associated with the Tronox litigation case when it reached an agreement as noted in the DBRS press release dated April 4, 2014. Anadarko currently has sufficient cash on hand to pay out proceeds of $5.15 billion related to the Tronox settlement agreement. DBRS expects the Company to satisfy all three conditions before December 1, 2014. Upon elimination of structural subordination, DBRS would likely upgrade the Company’s unsecured notes ratings to the Issuer rating (BBB).

Anadarko is expected to continue to allocate the majority of its capital spending program on developing its near- and intermediate-term higher-margin, liquids-rich properties, which should see Company’s profitability and cash flows increase over the course of the year. An estimated net free cash flow deficit of $1.5 billion to $2.0 billion in 2014 is expected to be predominantly financed by future proceeds from asset sales ($1.075 billion from the Chinese subsidiary sale expected in Q3 2014). As such, DBRS does not expect to see any material weakness in the Company’s key credit metrics in the 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 our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.