DBRS Removes Trilogy Energy Corp. Ratings from Under Review with Positive Implications, Upgrades Ratings to BB with Stable Trends and Discontinues All Ratings

DBRS Limited (DBRS) upgraded the Issuer Rating and Senior Unsecured Notes (the Notes) ratings of Trilogy Energy Corporation (Trilogy or the Company) to BB, from B (low), with Stable trends. The recovery rating of the Notes is upgraded to RR3 from RR4. The upgrades remove the ratings from Under Review with Positive Implications where they were placed on July 10, 2017, following the announcement by Trilogy that it had agreed to merge with Paramount Resources Ltd. (Paramount) on the basis of an exchange of Trilogy common shares for Paramount common shares. At the time of the merger announcement, Paramount also announced that it had entered into an agreement with certain subsidiaries of Apache Corporation to acquire Apache Canada Ltd. (Apache Canada) for $460 million in cash. Concurrent with the rating upgrades, and at the request of Paramount, DBRS has withdrawn all of the Company’s ratings, as outlined in the table at the end of this press release.

The merger with Paramount and Paramount’s acquisition of Apache Canada have been successfully completed. The combined business is now carried on as Paramount. Trilogy’s $300 million of Notes remain outstanding and are now obligations of Paramount on a consolidated basis. DBRS’s Issuer Rating and the rating of the Notes is based on the assessment of Paramount as the merged entity, which includes the acquisition of Apache Canada.

DBRS notes that the merged entity’s business risk profile relative to Trilogy as a stand-alone entity has improved significantly; notably, the company size has increased more than threefold. Based on second quarter 2017 pro forma figures, sales volumes increased to 79,000 barrels of oil equivalents (boe)/day compared to Trilogy on a stand-alone basis of 21,669 boe/day; gross proved reserves, based on an updated reserve report as of June 1, 2017, increased to 344.8 million boe compared to Trilogy’s gross proved reserves (on a stand-alone basis) of 93.2 million boe. The merged entity also has (1) a more diversified portfolio of producing properties in Western Canada, (2) greater flexibility in allocating capital among its core operating assets and (3) the ability to gain efficiencies and optimize the combined entity’s processing and transportation infrastructure. Furthermore, the merger establishes Paramount as a leading Montney producer in Canada.

The pro forma balance sheet and credit metrics of the merged entity also improved materially compared to Trilogy as a stand-alone entity. Pro forma as of June 30, 2017, the merged entity’s outstanding debt is $462 million, composed of $300 million of Trilogy Notes and $161.9 million drawn on Paramount’s $300 million credit facility. In addition, pro forma, the merged entity’s cash position is $131.7 million. The liquidity position of the merged entity is sufficient with the current cash position and available headroom on Paramount’s credit facility. Overall, DBRS’s assessment of Trilogy as a result of the completed combination with Paramount results in a four-notch upgrade in the Issuer Rating and the rating of the Notes to BB from B (low). The recovery rating on the Notes is also upgraded to RR3 from RR4. However, since the Notes are rated within the BB range there is no notching up for a higher recovery rating.

With the Under Review with Positive Implications status resolved, and as noted per the request of Paramount, DBRS at the same time is discontinuing the rating of the Notes and the Issuer Rating of Trilogy. DBRS notes that the withdrawal of the ratings is not an expression of the credit quality of the issuer nor the credit quality of the Notes.

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 principal methodologies are Rating Companies in the Oil and Gas and Oilfield Services Industries (August 2017) and DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers (February 2017), which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did not participate in the rating process. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.