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Rating Action:

Moody's changes Anadarko Petroleum's rating outlook to stable

16 Sep 2016

Western Gas Partners' outlook also changed to stable

New York, September 16, 2016 -- Moody's Investors Service (Moody's) changed the rating outlook for Anadarko Petroleum Corporation (Anadarko) and its guaranteed subsidiaries to stable from negative. Moody's affirmed Anadarko's Ba1 Corporate Family Rating (CFR) and Ba1 senior unsecured ratings and raised the company's Speculative Grade Liquidity (SGL) Rating to SGL-2 from SGL-3.

Concurrently, Moody's changed the rating outlook for Western Gas Partners, LP (Western Gas) to stable from negative and affirmed Western Gas' Ba1 CFR, Ba1 senior unsecured ratings and SGL-3 rating.

"Anadarko's substantial asset sales and refinancing transactions completed to date have greatly lowered its refinancing requirements for 2016 and 2017, which combined with good prospects for further asset sales should allow the company to fund negative free cash flow and reduce debt," commented Pete Speer, Moody's Senior Vice President. "The company's equity funded acquisition of deepwater producing properties adds cash flows to 2017, further supporting the stable outlook."

..Issuer: Anadarko Petroleum Corporation

Affirmations:

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

.... Corporate Family Rating, Affirmed Ba1

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

....Senior Unsecured Commercial Paper, Affirmed NP

....Senior Unsecured Regular Bond/Debentures, Affirmed Ba1 (LGD 4)

Upgrades:

.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3

Outlook Actions:

..Issuer: Anadarko Petroleum Corporation

....Outlook, Changed To Stable From Negative

..Issuer: Anadarko Finance Company

Affirmations:

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 (LGD 4)

Outlook Actions:

..Issuer: Anadarko Finance Company

....Outlook, Changed To Stable From Negative

..Issuer: Kerr-McGee Corporation

Affirmations:

....Senior Unsecured Regular Bond/Debentures, Affirmed Ba1 (LGD 4)

Outlook Actions:

..Issuer: Kerr-McGee Corporation

....Outlook, Changed To Stable From Negative

..Issuer: Union Pacific Resources Group Inc.

Affirmations:

....Senior Unsecured Regular Bond/Debentures, Affirmed Ba1 (LGD 4)

Outlook Actions:

..Issuer: Union Pacific Resources Group Inc.

....Outlook, Changed To Stable From Negative

..Issuer: Western Gas Partners, LP

Affirmations:

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

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

.... Corporate Family Rating, Affirmed Ba1

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

....Senior Unsecured Regular Bond/Debentures, Affirmed Ba1 (LGD 4)

Outlook Actions:

..Issuer: Western Gas Partners, LP

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

During the first half of 2016, the company raised almost $2.5 billion of cash proceeds from the sales of non-core assets, a portion of its limited partnership (LP) interests in Western Gas Equity Partners, LP (WGP, the general partner of Western Gas), and certain midstream assets to WES. The company also issued $3 billion of senior notes in March 2016 that was used to refinance 2016 and 2017 debt maturities. The company's remaining debt maturities this year and next have been reduced to the potential put of the Zero Coupon senior notes in October 2016 at their then-accreted value of $839 million and $750 million of senior notes that mature in September 2017.

Anadarko announced on September 12, 2016 an agreement to acquire deepwater Gulf of Mexico (GOM) assets from Freeport McMoRan Oil & Gas (B1 negative) for $2 billion, funded by an equity offering that was launched simultaneously and raised about $1.9 billion ($2.2 billion if the overallotment option is exercised). This attractively priced acquisition of developed properties adds meaningful cash flow to 2017 from about 80,000 barrel-of-oil equivalent daily production that is over 80% oil. The acquisition has little integration risk given the overlap with Anadarko's existing GOM assets. The benefits of this acquisition, combined with operating and capital cost reductions and improvements in oil prices have reduced Moody's forecasted negative free cash flow for Anadarko over the remainder of 2016 and 2017. With line of sight to additional asset sales, the company is well positioned to fund negative free cash flow and achieve some debt reduction through 2017. The substantially reduced refinancing risk and the lower negative free cash flow has resulted in the outlook change to stable.

Anadarko's Ba1 Corporate Family Rating reflects the company's still high debt levels relative to cash flow and Moody's expectation of some production declines caused by reduced capital investment. These risks are partially offset by the company's low operating and reserve replacement costs, allowing Anadarko to replace reserves at lower break-even commodity prices than many of its large E&P peers. The company benefits from a globally diversified property base that includes a mix of conventional and unconventional onshore and offshore resources, which provides a lower overall production decline rate and capital intensity than peers focused solely on unconventional onshore US properties.

Anadarko's SGL-2 rating reflects its good liquidity to fund its planned capital spending, debt maturities and potential working capital needs through 2017. The company had $1.4 billion of cash at June 30, 2016, and $5 billion of committed undrawn credit facilities ($3 billion being a long-term facility that matures in 2021). The company has good headroom for future covenant compliance. Moody's expects Anadarko to continue to supplement its liquidity through asset sales, given its large inventory of undeveloped acreage and offshore discoveries and its remaining ownership of a substantial majority of WGP's LP interests.

Western Gas' Ba1 CFR is supported by its high proportion of fee-based revenues that provides revenue stability, good commodity and basin diversification, and relatively low financial leverage. The partnership's direct commodity price exposure is limited by hedging arrangements with Anadarko, but it does have exposure to fluctuations in production volumes, particularly in its gathering business. While its stand-alone credit attributes could support a Baa3 rating, Western Gas's high customer concentration risk with Anadarko combined with Anadarko's controlling ownership effectively limits its rating to that of Anadarko's. Given this rating relationship, the rating outlook for Western Gas was changed to stable consistent with the change in Anadarko's outlook.

Anadarko's stable outlook is based on Moody's expectation that the company will continue to work towards aligning its capital spending with operating cash flows and increase its RCF/Debt metric to above 15% in 2017. Increased debt or weaker than anticipated cash flows could result in RCF/Debt being sustained below 15%, which could lead to a ratings downgrade.

In order for Anadarko's ratings to be upgraded to Baa3, the company's production and proved developed reserves volumes have to be stabilized, consolidated debt levels reduced and returns on investment increased. Moody's expects oil prices to remain in a range of $40 to $60 per barrel for the medium term with significant volatility both within and possibly outside that band. Therefore Anadarko's debt and cost structure will have to be reduced to levels where the company can sustain RCF/Debt above 20% and an LFCR above 1x even at the low end of that commodity price range in order to uphold an investment grade rating.

Western Gas' 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 could result in a ratings downgrade.

In order for Western Gas's ratings to be upgraded to Baa3, Anadarko's ratings must be upgraded to Baa3 or higher and the partnership will have to sustain its asset and earnings scale while maintaining its fee-based focus and low financial leverage on a consistent basis.

The principal methodology used in rating Anadarko Petroleum Corporation, Anadarko Finance Company, Kerr-McGee Corporation and Union Pacific Resources Group Inc. was Global Independent Exploration and Production Industry published in December 2011.The principal methodology used in rating Western Gas Partners, LP was Global Midstream Energy published in December 2010. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Anadarko Petroleum Corporation is among the largest independent exploration and production (E&P) companies and is headquartered in The Woodlands, Texas. 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 Western Gas through its ownership of the general partner (GP) of WGP, which in turn owns the GP of Western Gas and a meaningful amount of Western Gas' 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: 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

No Related Data.
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