DBRS Confirms ConocoPhillips at “A” and R-1 (low), Stable Trends

DBRS has today confirmed the Issuer Rating of ConocoPhillips (COP or the Company) and the Unsecured Long-Term Notes and Debentures rating of COP and Burlington Resources Inc. at “A” and COP’s Commercial Paper rating at R-1 (low). All trends are Stable. The ratings confirmation reflects COP’s significant size and geographically well-diversified scale of operations, well-balanced production mix and a reasonable financial risk profile. The Stable trend is reflective of DBRS’s expectation that, while targeting to achieve a 3% to 5% compounded growth in production by 2017 through its various growth projects, COP will manage its capital structure in line with its current rating category.

COP’s strong business risk profile is underpinned by its significant size of operations, with 1,544 thousand barrels of oil equivalent production per day (mboe/d) and approximately 8.9 billion boe in proved reserves, making COP one of the largest independent exploration and production (E&P) companies in the world by production and reserves. With a well-balanced production mix (57% liquids and 43% natural gas as at June 30, 2014) and operations in 27 countries around the world, COP’s operations are well-diversified, reducing its exposure to any one particular commodity or region.

Despite a significantly higher capital spending over the last few years ($16.7 billion committed for 2014, compared to $11.2 billion in 2011) and the resultant free cash flow deficits, COP’s key financial metrics have remained largely flat. Proceeds from asset sales have more than offset the cash flow deficits, with a net increase in cash bolstering Company’s liquidity. Whereas COP is committed to increasing dividends over time while continuing to spend on various growth projects to achieve its targeted production growth of 3% to 5% compounded rate by 2017, DBRS expects free cash flow deficits to persist in the near term. The Company is likely to utilize the considerable cash on hand ($6.4 billion as at June 30, 2014) and proceeds from continued non-strategic asset dispositions to fund the expected free cash flow deficits. While all key credit metrics are likely to remain towards the weak end of the current ratings’ benchmarks, DBRS does not expect any further material deterioration and expects the Company to achieve its growth targets while maintaining its debt metrics.

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

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer and did not include participation by the issuer or any related third party.

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.

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

The applicable methodology is Rating Companies in the Oil and Gas Industry, which can be found on our web site under Methodologies.

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