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11 Apr 2001
MOODY'S INVESTORS SERVICE UPGRADES LONG-TERM DEBT RATINGS OF MITCHELL ENERGY AND DEVELOPMENT CORP. TO Baa2
New York, April 11, 2001 -- Moody's Investors Service upgraded Mitchell Energy & Development Corp.'s
long-term debt to Baa2 from Baa3. The rating upgrade reflects
Mitchell's improved competitive position and financial profile,
as well as prospects for growing natural gas production and cash flow
protection in the medium-term due to significant success in its
Barnett shale gas drilling program in Texas. Rising free cash flow
also enabled the company to continue a multi-year trend of debt
Mitchell controls a sizeable acreage position in the Barnett shale in
North Texas and is showing good success in adding reserves and increasing
production through light sand fracturing, a technology that reduces
drilling costs and renders gas production more economic. Mitchell
booked approximately 532 BCF of natural gas reserves in 2000, with
gas reserve replacement in excess of 450%. Low total finding
costs for 2000 at $2.72 per BOE reflected a large component
of undeveloped gas reserves, which understates the full cycle development
cost of the resource, but they are indicative of an improving and
competitive cost trend. In 2001, drilling success and a stronger
gas pricing outlook are supporting Mitchell's increased capital spending
program, which will be financed from internal cash flow.
Moreover, identified drilling prospects from the company's existing
inventory are expected to support significant gas sales growth in the
medium term, even if gas prices decline from current levels.
In the past, Moody's has noted that Mitchell's gas reserve base
is relatively small and geographically concentrated, both of which
add to its risk profile relative to its investment grade exploration and
production peer group companies. In addition, the relatively
large proved undeveloped reserve component indicates both the necessity
for high levels of reinvestment and continuing development success to
sustain production growth. However, the company is establishing
a successful operating record in its core areas and the rating upgrade
reflects the expectation that Mitchell can extend its Barnett shale reserves
in the medium-term as it rolls out an aggressive drilling program.
Given the company's reserve concentration, a stable rating outlook
will depend on this success.
The company has also managed its balance sheet conservatively during the
upturn in gas markets, using free cash flow to reduce debt.
Under reasonable gas price scenarios Mitchell should be able to fund capital
and further strengthen its balance sheet via earnings growth and debt
reduction. Further supporting Mitchell's upstream success is a
streamlined and highly integrated natural gas liquids gathering and processing
business, which adds value to its equity natural gas production
and generates sizable, if periodically volatile, free cash
flow for upstream reinvestment.
Mitchell Energy & Development Corp. is headquartered in The
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
Thomas S. Coleman
Senior Vice President
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
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