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Rating Action:

Moody's changes Anadarko Petroleum and Western Gas outlooks to positive

22 Jan 2019

New York, January 22, 2019 -- Moody's Investors Service ("Moody's") changed the rating outlook for Anadarko Petroleum Corporation (Anadarko) to positive from stable. Moody's also affirmed the ratings for Anadarko and its guaranteed subsidiaries, including Anadarko's Ba1 Corporate Family Rating (CFR), Ba1 senior unsecured ratings and SGL-2 Speculative Grade Liquidity Rating.

Concurrently, Moody's changed the rating outlook for Western Gas Partners, LP (WES) to positive from stable. Moody's affirmed WES's ratings, including its Ba1 CFR, Ba1 senior unsecured ratings and SGL-3 Speculative Grade Liquidity Rating.

"The positive outlook reflects our expectations of significant growth in Anadarko's reserves and production in 2019 and 2020, further lowering its cost structure and increasing its investment returns," commented Pete Speer, Moody's Senior Vice President. "Despite continued increases in consolidated debt and share repurchases, the rise in cash flow from production and third party midstream customers could drive sufficient improvement in financial leverage metrics to consider an upgrade to Baa3."

RATINGS RATIONALE

Anadarko has streamlined its asset portfolio in recent years through multiple assets sales and a strategic acquisition resulting in it focusing on its large acreage positions in the Delaware Basin, DJ Basin and US Gulf of Mexico. This US focus is complemented by cash flow generating assets in Algeria and offshore Ghana. This property base, combined with Anadarko's strong operating capability, provides the company with significant and predictable oil weighted production growth at competitive returns on investment.

Moody's forecasts production to rise steadily towards 775,000 barrels-of-oil-equivalent per day in 2020, substantially replacing the production from past asset sales. More beneficially, the production stream is now about 75% liquids (58% oil), a huge transformation from 2013 when natural gas was 58% of production. The rising oil weighted production and ongoing reduction in operating costs and finding and development costs is resulting in higher margins and cash flows. At our base assumption of $60 per barrel WTI crude oil, Moody's forecasts Anadarko's consolidated RCF/Debt to modestly exceed 30% in 2019 and 2020 with a leveraged full-cycle ratio (LFCR) at or above 2x.

This positive momentum in the credit profile continues to be tempered by Moody's view that the company follows more aggressive financial policies relative to its peers regarding financial leverage and share repurchases. The company's consolidated debt will increase in 2019 and 2020 with the planned asset drop-down transaction with WES, debt funded negative free cash flow at WES and potentially some borrowings related to the Mozambique project. This additional debt well exceeds the planned debt reduction at Anadarko announced to date.

While WES burdens Anadarko's financial leverage metrics, its ownership of WES adds strength to its overall credit profile. WES allows Anadarko to control the development of strategic infrastructure supporting its upstream growth objectives and provides a separate financing vehicle for funding that investment and readily saleable marketable securities for alternative liquidity. WES also has substantial and rising third party cash flow which supports an equivalent proportion of its debt. Therefore Anadarko can bear somewhat higher financial leverage than its peers that don't own meaningful midstream assets.

The positive outlook incorporates the improving trajectory for Anadarko's financial leverage metrics and that the company could achieve free cash flow on a consolidated basis in 2020 as the capital spending at WES begins to taper off. However, this outlook is subject to actual oil prices and how the company adapts its capital spending, share repurchase and debt reduction decisions to its actual cash flows.

Anadarko's ratings could be upgraded if it achieves its forecasted production and proved reserves growth at strong investment returns, reduces Anadarko debt as planned, and adjusts its share repurchases in line with actual results and cash flow. RCF/Debt sustained above 30% with an LFCR at or above 2x would be supportive of an upgrade. The ability of the company to sustain adequate RCF/debt and LFCR metrics in a $50 per barrel WTI price scenario will also be an important consideration in upgrading the company, demonstrating its resiliency to weaker oil prices.

While unlikely given the positive outlook, much weaker than expected operating performance and greater negative free cash flow and debt could result in a ratings downgrade. Debt funded acquisitions or debt funded share repurchases could also pressure the ratings. RCF/Debt below 15% could result in a ratings downgrade.

The positive rating outlook for WES reflects both Anadarko's positive outlook and the forecasted growth in EBITDA and deleveraging following the planned simplification and asset purchase transactions announced in November 2018. While the asset drop down transaction will increase WES's Debt/EBITDA towards 5x, Moody's expects this leverage metric to decline towards 4x by the end of 2019 and fall below 4x in 2020, consistent with the partnership's historic leverage levels.

WES's Ba1 CFR reflects its high proportion of fee-based revenues that provide cash flow stability, good commodity and basin diversification, and relatively low financial leverage. The partnership's direct commodity price exposure is limited and largely hedged through contracts with Anadarko, but it does have exposure to fluctuations in production volumes, particularly in its large gathering business. The partnership has solid growth visibility from organic projects tied to its operations in the Delaware and DJ Basins, and the planned acquisition of Anadarko's remaining midstream assets in the first quarter of 2019. While many of its credit attributes could support a Baa3 rating, WES's high customer concentration risk with Anadarko combined with Anadarko's controlling ownership effectively limits its rating to that of Anadarko's.

If Anadarko is upgraded to Baa3 and WES's Debt/EBITDA is at or under 4x, then WES could be upgraded to Baa3. Conversely, WES's ratings would likely be downgraded if Anadarko's ratings were downgraded. The partnership's ratings could also be downgraded if leverage were to significantly increase because of debt-funded acquisitions or significant earnings declines from lower customer production volumes. Debt/EBITDA sustained above 5x or distribution coverage below 1x could result in a ratings downgrade.

Both Anadarko and WES's capital structures are comprised primarily of revolving credit facilities and senior notes that are all unsecured and pari passu. As a result both companies' senior notes are rated the same as their respective Ba1 CFRs under Moody's Loss Given Default methodology.

Outlook Actions:

..Issuer: Anadarko Petroleum Corporation

....Outlook, Changed To Positive From Stable

..Issuer: Anadarko Finance Company

....Outlook, Changed To Positive From Stable

..Issuer: Kerr-McGee Corporation

....Outlook, Changed To Positive From Stable

..Issuer: Union Pacific Resources Group Inc. (Anadarko Holding Company)

....Outlook, Changed To Positive From Stable

..Issuer: Western Gas Partners, LP

....Outlook, Changed To Positive From Stable

Affirmations:

..Issuer: Anadarko Petroleum Corporation

.... Probability of Default Rating, Affirmed Ba1-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

.... Corporate Family Rating, Affirmed Ba1

....Senior Unsecured Commercial Paper, Affirmed NP

....Senior Unsecured Notes, Affirmed Ba1 (LGD4)

..Issuer: Anadarko Finance Company

....Senior Unsecured Notes, Affirmed Ba1 (LGD4)

..Issuer: Kerr-McGee Corporation

....Senior Unsecured Notes, Affirmed Ba1 (LGD4)

..Issuer: Union Pacific Resources Group Inc. (Anadarko Holding Company)

....Senior Unsecured Notes, Affirmed Ba1 (LGD4)

..Issuer: Western Gas Partners, LP

.... Probability of Default Rating, Affirmed Ba1-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-3

.... Corporate Family Rating, Affirmed Ba1

....Senior Unsecured Shelf, Affirmed (P)Ba1

....Senior Unsecured Notes, Affirmed Ba1 (LGD4)

The principal methodology used in rating Western Gas Partners, LP was Midstream Energy published in December 2018. The principal methodology used in rating Anadarko Petroleum Corporation, Anadarko Finance Company, Kerr-McGee Corporation and Union Pacific Resources Group Inc. (renamed Anadarko Holding Company), was Independent Exploration and Production Industry published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Anadarko Petroleum Corporation is headquartered in The Woodlands, Texas and is among the largest independent exploration and production companies. Western Gas is a publicly traded master limited partnership (MLP) that provides midstream energy services primarily to Anadarko as well as other third party oil and gas producers and customers. Anadarko controls WES through its ownership of the general partner (GP) of Western Gas Equity Partners (WGP, unrated), which owns the GP of WES and a meaningful amount of WES's limited partner (LP) interests.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Peter Speer
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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