DBRS Confirms Northern Blizzard Resources Inc. at B (low), Stable

DBRS Limited (DBRS) has today confirmed the Issuer Rating and the rating of the Senior Unsecured Notes (the Notes) of Northern Blizzard Resources Inc. (NBR or the Company) at B (low), with a Stable trend. The Recovery Rating of the Notes remains at RR4. The confirmation reflects DBRS’s expectation that NBR will be able to maintain its production profile and key credit metrics at levels that are in line with its current rating, considering the current crude oil pricing environment. The confirmation also factors in NBR’s adequate liquidity position, which is expected to be sufficient to finance its planned capital expenditures (capex) and operations for the foreseeable future.

In August 2014, NBR completed its initial public offering (IPO), which included a $350 million treasury offering and a $169 million secondary offering (including the over-allotment option). Net proceeds from the treasury offering were used to reduce debt, including the redemption of USD 148.8 million of Notes (USD 425 million of Notes were originally issued in January 2014). As a result, the Company’s leverage, including its adjusted debt-to-capital and adjusted debt-to-cash flow, improved significantly relative to its pre-IPO balance sheet. This provides the Company with greater financial flexibility to withstand a prolonged period of weak commodity prices. In addition, the Company’s capex program remains relatively flexible, which should allow NBR to curtail capex if commodity prices continue to weaken. For example, the Company recently reduced its planned 2015 capex to $215 million from $260 million given the current pricing environment. DBRS expects the Company to continue to prudently manage its capex and growth strategy to maintain adequate liquidity and to keep its key credit metrics in line with the current rating. NBR’s current liquidity is supported by its $530 million credit facility, of which, $488.9 million was available as of September 30, 2014.

For the nine months ended September 30, 2014, NBR increased its production modestly to 20,021 barrels of oil equivalent per day (boe/d), driven by increased drilling activity and the start-up of its Plover SAGD project (first steam in July 2014, with an expected ramp up to 2,400 barrels per day (bbl/d) by year-end 2014). The Company’s current production size remains reasonable for its current rating. In 2015, with the expected full ramp-up of the Plover SAGD project and the Company’s continued drilling plans, NBR expects to grow production to approximately 24,500 boe/d to 25,500 boe/d, which DBRS would view as solid for the current rating. However, as NBR’s production is predominantly heavy oil, the Company remains heavily exposed to the heavy/light oil pricing differential relative to its peers. This is partially mitigated by the Company’s hedging strategy as NBR currently has 7,214 bbl/d of West Texas Intermediate (WTI) hedges and 9,241 bbl/d of heavy oil differential hedges for 2015 in place.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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 applicable methodologies are Rating Companies in the Oil and Gas Industry and DBRS Recovery Ratings for Non-investment Grade Corporate Issuers, which can be found on our website under Methodologies.

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