DBRS Changes Trend on Anadarko Petroleum Corporation and Kerr-McGee Corporation Ratings to Negative from Stable, Confirms Ratings at BBB

DBRS Limited (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 at BBB. At the same time, DBRS has changed all trends to Negative from Stable. Because of the sharp and steep decline in oil and gas prices, Anadarko’s key credit metrics for the last 12 months ending September 30, 2015, have weakened considerably and are now below the BBB threshold. The Company has the flexibility to respond to pricing pressures and has sharply curtailed capital spending and sold assets. Furthermore, the Company has sufficient liquidity and a low cost production base sourced from a diverse portfolio of producing assets mainly from key basins in the United States to withstand a period of weak pricing. In the current low price environment, these key attributes are highly important, and as a result, DBRS is maintaining a BBB rating. However, DBRS has changed all trends to Negative to reflect the increased risk of additional attrition in the Company’s key credit metrics if low prices persist. If within the next year Anadarko reduces its financial leverage and/or oil and gas prices improve materially such that the Company’s key credit metrics recover to a level commensurate with a BBB rating, DBRS will likely change all trends back to Stable. Otherwise, a rating downgrade by DBRS is possible.

Upon satisfaction of the Tronox settlement payment in early 2015, the Company’s $5.0 billion senior secured revolving credit facility was replaced by a $3.0 billion five-year senior unsecured revolving credit facility (Five-Year Facility), which is expandable to $4.0 billion, and a $2.0 billion 364-day senior unsecured revolving credit facility (364-Day Facility). The Company’s available financial resources at September 30, 2015, include (1) $2.1 billion of cash, (2) the $3.0 billion Five-Year Facility, (3) the $2.0 billion 364-Day Facility and (4) a commercial paper program initiated in 2015 that allows for a maximum of $3.0 billion of unsecured paper notes. The commercial paper program is supported by the Five-Year Facility. As of September 30, 2015, the Company had $547 million of commercial paper notes outstanding and no borrowings under the Five-Year and 364-Day Facilities. The Company has $2.3 billion of debt (including the commercial paper notes outstanding,) maturing over the period from September 30, 2015, to December 31, 2016. Financial liquidity is sufficient.

For the full year, DBRS estimates Anadarko’s free cash flow deficit to be between $1.5 billion to $2.0 billion. For the nine months ended September 30, 2015, the deficit was $1.4 billion. The deficit is expected to be funded by (1) asset sales ($1.25 billion of asset sales completed in the nine months), (2) the sale in June of Tangible Equity Units for $445 million in the Company’s midstream subsidiary and (3) the issuance of commercial paper.

Notes:
All figures are in U.S. 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.

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

The applicable methodologies are Rating Companies in the Oil and Gas Industry (September 2015) and DBRS Criteria: Guarantees and Other Forms of Explicit Support (February 2015), which can be found on our website under Methodologies.

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.