DBRS Confirms Crew Energy Inc. at B, Stable

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Notes (the Notes) rating of Crew Energy Inc. (Crew Energy or the Company) at B and maintained the Stable trends. The recovery rating for the Notes, which are effectively subordinated to the Company’s secured bank facility (the Credit Facility), remains unchanged at RR4. The rating is underpinned by the Company’s strong financial and business profile. Despite the weak commodity price environment during 2016, the Company’s key credit metrics have remained consistent with a B rating. Overall, Crew’s financial profile and the Company’s lease-adjusted debt-to-capital and lease-adjusted debt-to-cash flow ratios are relatively stronger compared with the majority of its DBRS-rated, non-investment-grade peers.

DBRS reviewed its High-Yield Oil & Gas Portfolio in October 2016, and as part of the review changed the trends on Crew to Stable from Negative (see DBRS press release dated October 26, 2016, “DBRS Takes Rating Actions on High-Yield Oil & Gas Portfolio”). The trend change of Crew’s ratings was supported by DBRS’s view of gradually improving oil and natural gas prices in 2017 (see DBRS commentary dated September 21, 2016, “DBRS Updates its Outlook for the Oil & Gas Industry: Financial Stresses Ease with a Modest Improvement in Market Conditions”), Crew’s ability to maintain its key credit metrics in line with the Company’s rating and the Company’s reasonable liquidity profile. Crew’s liquidity is supported by the Company’s $235 million Credit Facility, which matures in June 2017 and as of September 30, 2016, was 43% drawn. DBRS notes that the Credit Facility is subject to semi-annual borrowing base reviews, with the last borrowing base review in October 2016 resulting in no change to the facility. Given the improved outlook for oil and gas prices, DBRS is of the view that it is unlikely the facility will be reduced in the next borrowing base review in the second quarter of 2017.

The confirmation also incorporates DBRS’s assessment of the Company’s business risk profile, which remains supportive of the current B rating, albeit moderately weaker from pre-2014 levels given the decline in production and size, as well as the Company’s limited geographic diversification. The majority of Crew’s operations are focused on developing the Montney resource play, following dispositions in 2014 and 2015. DBRS expects production in 2017 to ramp up as the Company targets a long-term goal of reaching 60 thousand barrels of oil equivalent a day (mboe/d) by the end of 2019 (compared with 23 mboe/d for the nine months ending September 30, 2016 ). As Crew ramps up production, its business risk profile is likely to improve, which could ultimately lead to a positive rating action. DBRS also expects the Company to use its capital expenditure (capex) flexibility to mitigate against significant free cash flow (cash flow after capex) deficits to preserve liquidity and maintain the Company’s key credit metrics commensurate with the rating.

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 (September 2016) and DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers (March 2016), which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.