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Global Credit Research - 03 Aug 2010
Approximately $2.5 billion of debt affected
New York, August 03, 2010 -- Moody's Investors Service moved the outlook for Petrohawk Energy Corporation
(HK) to stable from negative. Moody's also rated HK's
proposed notes offering B3 (LGD 4, 65%) and affirmed the
company's B2 Corporate Family Rating (CFR), B2 Probability
of Default Rating (PDR), B3 rating on the existing senior unsecured
notes. The Speculative Grade Liquidity Rating was upgraded to SGL-2
Proceeds from the senior notes offering will be used to repay fund the
tender of the company's 7.125% notes due 2012 and
the 9.125% notes due in 2013.
"The move to a stable outlook reflects Petrohawk's improved
leverage, especially on its production, combined with better
than expected assets sales that will fill the shortfall in cash needed
for its 2010 capital spending program and alleviates the concern of the
company taking on additional debt," said Ken Austin,
Moody's Senior Credit Officer. "In addition,
Petrohawk's growing scale of its reserves reduces the leverage on
its proven developed reserves, although it still remains on the
high end of the peer group"
HK's continued growth of its production compares favorably to the
peer group of rated exploration and production (E&P) companies.
For 2009, production grew by approximately 64% compared from
to 2008 and that trend carried into the second quarter of 2010 even after
adjusting for asset sales. This production growth has translated
into leverage on production decreasing from a peak of nearly $39,000/boe
of average daily production in Q2 2008 to around $25,000/boe
of average daily production for Q2 2010, (pro forma for asset sales).
This deleveraging was achieved despite adding nearly $400 million
of debt during that time and has brought leverage in-line with
the B2 average. If HK meets its production targets for 2010,
leverage could improve further and could compare favorably to some higher
The move to stable also reflects HK's ability to raise more than
enough cash through asset sales to fund its aggressive drilling program.
Coming into 2010, HK was expected to outspend cash flow by approximately
$1.0 billion. Since the beginning of 2010,
HK has closed four major assets sales/monetizations that have generated
nearly $1.4 billion in proceeds. These sales essentially
fill the funding gap expected for this year's capital program and
will result in little added debt through the end of the year.
The stable outlook assumes that HK will continue to grow its production
at reasonable costs, which in turn reduces leverage on production
and provides intra-year signals that it is realizing good capital
productivity from its aggressive capital spending program.
A positive outlook would be considered if the company's capital
productivity trends remain strong while leverage continues to improve
from current levels. Evidence of this trend would be in the form
of sustained sequential quarterly production trends and good reserve replacement
for 2010 at competitive costs.
The upgrade to SGL-2 reflects HK's improved liquidity profile.
After raising more than enough cash to cover the remainder of its 2010
capital spending program, HK's liquidity profile is strong.
Through a combination of excess cash on hand and an undrawn revolving
credit facility, HK is expected to have ample liquidity to cover
its cash needs over the next 12 months. Although HK is expected
to outspend cash flow over the next four quarters, the approximate
$1.4 billion in proceeds from divestitures along with a
$1.0 billion borrowing base under its credit facility should
be sufficient cover that cash shortfall.
The B2 CFR reflects HK's considerable scale in terms of both production
and reserves, it's competitive cost structure, the willingness
to issue equity to help fund growth, and its aggressive use of hedging
which protects cash flows from weak natural gas prices.
The B2 CFR also considers HK's very high levels of debt and the
resulting leverage on PD reserves, which ranks among the high end
of the rated E&P peer group. The B2 also reflects the expectation
that HK will continue to have an aggressive drilling program into 2011
as it works to establish production on its Haynesville acreage and proves
up its Eagle Ford positions as well.
Moody's last rating action for Petrohawk Energy Corporation was on January
22, 2009 when we moved the outlook to negative following the issuance
of new notes.
The principal methodology used in rating Petrohawk was the Global Exploration
and Production (E&P) rating methodology, published in December
2008 and is available on www.moodys.com in the Rating Methodologies
sub-directory under the Research and Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating Petrohawk can also be found in the Rating Methodologies directory
sub-directory on Moody's website.
Petrohawk Energy Corporation is headquartered in Houston, Texas.
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's changes Petrohawk's outlook to stable from negative
250 Greenwich Street
New York, NY 10007
No Related Data.
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