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04 Jun 1997
MOODY'S UPGRADES SNYDER OIL (SR. SUB TO B2 FROM B3) AND CONFIRMS SUBSIDIARY; NEW ISSUE RATED
New York, 06-04-97 -- Moody's Investors Service upgraded Snyder Oil Corporation's $80 million issue of 7% convertible senior subordinated debt, due 2001, to B2 from B3; its $103 million of $1.50 convertible preferred stock to "b2" from "b3"; and its $500 million unsecured bank credit facility, with a $140 million borrowing base, to Ba3 from B1. Moody's also assigned a B2 rating to the company's proposed $150 million issue of senior subordinated debt, due 2007.
Concurrently, Moody's confirmed Patina Oil and Gas Corporation, Snyder's 74%-owned unrestricted subsidiary. Confirmed are Patina's $140 million secured revolving bank credit facility, with a $110 million borrowing base at Ba3, and its $37 million of 7.125% convertible preferred stock issue at "b3". The new ratings and a stable outlook reflect the successful initiatives undertaken by Snyder over the last 18 months to simplify its structure; to focus on its redefined core areas of the Gulf of Mexico, the western Rocky Mountains and North Louisiana; and to reduce substantially its exposure to broad geographic exploration and political risks. The ratings also anticipate that higher capital spending on the development of core areas will improve cash flow and coverage measures from currently low levels.
Still, Snyder's debt remains at 60% of capitalization, including preferred stock. The use of proceeds from the offering will be to redeem the 7% convertible subordinated notes and reduce bank debt. The company's equity could be dramatically diminished if any program incremental to its currently authorized $50 million stock buyback is implemented, and the preferred stock does not achieve the $20.46 strike price necessary to force conversion to equity. An aggressive stock buyback, especially in conjunction with weak commodity prices, could prompt a reassessment of the rating.
In addition to asset sales, Snyder has redefined its core properties through the placement of its Wattenberg Field (Colorado) properties into Patina Oil and Gas Corporation, an independently operated subsidiary. Patina, the results of which are consolidated with that of Snyder's, has been enlarged by its subsequent merger with Gerrity Oil and Gas Corporation, an exploration and production company with a large number of properties in the DJ Basin of Colorado.
Snyder also reduced its operating risk when, in May 1997, SOCO International plc, one of Snyder's unrestricted subsidiaries successfully completed an initial public offering. SOCO plc, with interests in oil and gas in Mongolia, European Russia, the UK, Yemen, Thailand, and Tunisia, has an initial market capitalization of approximately $210 million, $60 million in cash, and no outstanding debt. Snyder owns 7.8 million shares (15.9% of the total), net of minority interests, which are valued at approximately $33 million. Until such time that Snyder should decide to sell its shares in SOCO plc, which under London Stock Exchange rules must be at least two years, the company will benefit from the earnings of SOCO plc while limiting its downside risk to its equity holdings. Snyder is also managing its risk profile in the U.S. through joint ventures, including its gas development activities in Wyoming and Colorado, and its exploration efforts in North Louisiana.
Snyder Oil Corporation is engaged in the acquisition, exploration, development, and production of domestic oil and gas properties, and also has investments in two international exploration and production companies, SOCO plc and Cairn Energy plc. end
No Related Data.
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