DBRS Confirms Anadarko Petroleum Corporation and Kerr-McGee Corporation at BBB, Stable Trends

DBRS Limited (DBRS) 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. All trends are Stable. The Stable trend reflects improvement in Anadarko’s key credit metrics over the past year due primarily to increased higher-margin oil production and improving oil and natural gas prices. Over the last twelve months ended September 30, 2017 (LTM 2017), the Company’s lease-adjusted debt-to-capital ratio was 54.6% and lease-adjusted debt-to-cash flow ratio was 3.81 times. However, the key credit metrics remain outside the BBB range. The Company’s focus continues to be (1) maintaining capital discipline, (2) concentrating on higher-margin oil levered opportunities and (3) capturing operating and capital efficiencies. These actions, coupled with DBRS’s view of a gradually improving pricing environment ($55 per barrel (bbl) in 2018 and 2019 for West Texas Intermediate (WTI) oil and $3 per thousand cubic feet (mcf) for New York Mercantile Exchange (NYMEX) natural gas), should result in Anadarko’s key credit metrics further strengthening and support the Company’s BBB rating.

The Company’s BBB rating is primarily backed by its business profile, which includes (1) a large and low-cost production base, (2) a substantive portfolio of lower-risk development opportunities largely within the U.S. onshore Denver-Julesburg (DJ) and Delaware basins, (3) a significant presence in the U.S. deepwater Gulf of Mexico (GOM) and (4) sufficient liquidity. Because of the active acquisition and disposition program in the last two years, coupled with a pared-down and focused capex program, the Company has streamlined its asset base. Lower-return natural gas-weighted assets have been shed, and capital has been redeployed into more oil-weighted opportunities that provide higher returns and more growth. During the nine months ended September 30, 2017 (9M 2017), oil and natural gas liquids (NGL) accounted for 66% of total production, up from 55% during 9M 2016. This trend is expected to continue as the Company plans to allocate about 80% of 2018 budgeted capital expenditures (capex) toward the Delaware and DJ basins, the deepwater GOM plus Company-owned midstream assets. Given DBRS’s base case price assumptions, the Company’s dividend and capex should be in line with cash flow.

The Company’s liquidity is buttressed by $5.3 billion of cash as at the end of September 30, 2017; $5.0 billion of undrawn credit facilities; and a modest debt maturity schedule though 2021. The Company has a modest amount of natural gas and oil production hedged for 2018. Combined with limited vertical integration, cash flow is very sensitive to a change in oil and natural gas prices. Furthermore, in September 2017 the Company announced a $2.5 billion share repurchase program to be completed by year-end 2018 that could have an impact on liquidity. Nonetheless, DBRS anticipates the Company should be able to maintain sufficient liquidity. If commodity prices again weaken substantially and remain weak (i.e., WTI oil in the $40/bbl to $45/bbl range) for an extended period, DBRS may consider a negative rating action.

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

The principal methodologies are Rating Companies in the Oil and Gas and Oilfield Services Industries (August 2017) and DBRS Criteria: Guarantees and Other Forms of Support (February 2017), which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

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

This is an unsolicited credit rating.

Kerr-McGee Corporation’s Senior Unsecured Notes and Debentures are guaranteed by Anadarko Petroleum Corporation.

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