Approximately $1.2 billion of rated debt affected
New York, January 28, 2013 -- Moody's Investor Service placed the ratings for Energen Corporation (Energen)
and Alabama Gas Corporation (Alagasco) on review for downgrade after the
company reported its fourth quarter operating and financial results.
"The review for downgrade for Energen reflects the company's increasing
leverage profile and decline in operating efficiency," said Stuart
Miller, Moody's Vice President. "Historically, Energen's
modest scale has been offset by the stable earnings from its utility and
very conservative consolidated leverage metrics. The outspending
of cash flow in 2012 raised leverage to levels that no longer support
a Baa3 senior unsecured debt rating. Moody's believes the
increasing leverage at Energen reflects a more aggressive financial policy,
that if continued, could also impact the credit risk of Alagasco."
Issuer: Energen Corporation
....Senior Unsecured: Baa3
Senior Unsecured MTN: Baa3 (Provisional)
Senior Unsecured Shelf: Baa3 (Provisional)
Preferred Shelf: Ba2 (Provisional)
..Outlook Actions:
....Outlook Changed To Ratings Under Review
Down From Stable
Issuer: Alabama Gas Corporation
Senior Unsecured: A1
Senior Unsecured MTN: A1 (Provisional)
..Outlook Changed To Ratings Under Review Down From Stable
RATINGS RATIONALE
In the third and fourth quarter of 2012, Energen experienced decreasing
levels of capital productivity as it embarked on an aggressive capital
program in its Permian Basin holdings. The company outspent cash
flow by an estimated $500 million in 2012, and while production
increased by 18%, proved reserves after revisions remained
fairly constant. As a result, by year end debt to production
increased to nearly $25,000 per Boe and debt to proved developed
reserves grew to over $6 per Boe. Both figures represent
a significant increase over the last 12 months. Looking forward,
Energen looks to spend within its cash flow which will limit the increase
in outstanding debt. However, unless finding and development
costs drop significantly from the levels experienced in 2012 -
we estimate F&D of $20 per Boe excluding revisions -
leverage will remain too high to justify Energen's Baa3 senior unsecured
debt rating, especially in light of its limited scale.
The more aggressive financial policies followed in 2012, along with
the already-high five notch differential between Energen's
rating and Alagasco's rating, justify placing Alagasco's
ratings under review at this time.
Moody's review of Energen's ratings will be completed once
the company's 2012 yearend results are finalized and after a technical
review is performed on the impact that the company's 2013 and 2014
drilling program will have on its leverage profile. To avoid a
downgrade, Moody's will be assessing the likelihood that leverage
will fall below $20,000 per Boe of production and that debt
to proved developed reserves will fall below $5 per Boe within
the next 12 to 24 months. The review of Alagasco's rating
will include a thorough examination of the ring-fencing that currently
exists to protects the creditors of this natural gas utility company.
The principal methodology used in rating Energen is the Global Independent
Exploration and Production Industry Methodology published in December
2011. The principal methodology used in rating Alagasco is the
Regulated Electric and Gas Utilities Methodology published in August 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Headquartered in Birmingham, Alabama, Energen Corporation
is a holding company whose subsidiaries engage in natural gas and crude
oil production and natural gas distribution.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Stuart Miller
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's reviews Energen and Alabama Gas Ratings for downgrade