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Rating Action:

Moody's concludes reviews for 11 US Ba-rated E&P companies

11 Feb 2016

Note: On May 16, 2016, the press release was corrected as follows: In the Ratings Rationale section, the following was added as the fourteenth paragraph: “Please click on this link for the outlooks and factors that could lead to an upgrade or downgrade of the ratings for each of the issuers discussed in this press release. This link is an integral part of this press release.” Revised release follows.

New York, February 11, 2016 -- Moody's Investors Service (Moody's) concluded rating reviews on 11 Ba-rated US exploration and production (E&P) companies. Moody's confirmed three companies' ratings, and downgraded three companies' ratings two notches, two companies' ratings three notches, two companies' ratings four notches and one company's ratings five notches. A list of each company's rating actions is included below.

RATINGS RATIONALE

Oil prices have dropped substantially reflecting continuing oversupply in the global oil markets, very high inventory levels and additional Iranian oil exports coming on line. Furthermore, North American natural gas and natural gas liquids prices remain quite weak. Moody's lowered its oil price estimates on January 21 and expects a slow recovery for oil prices over the next several years. For E&P companies, cash flow declines in tandem with oil and natural gas prices, with the decline weakening credit metrics and liquidity, and increasing their negative free cash flow. The drop in energy prices and corresponding capital markets concerns will also raise financing costs and increase refinancing risks for E&P companies.

The drop in oil prices and weak natural gas prices has caused a fundamental change in the energy industry, and its ability to generate cash flow has fallen substantially. Moody's believes this condition will persist for several years. As a result, Moody's is recalibrating the ratings of many energy companies to reflect this industry shift. However, the impact of the drop in oil prices and low natural gas prices will vary substantially from issuer to issuer. Therefore, Moody's confirmed the current ratings of some companies, while downgrading others by multiple notches.

Antero Resources Corporation

Moody's confirmed Antero Resources' Ba2 Corporate Family Rating (CFR), which reflects its strong hedge book through 2018 and good liquidity. Antero has $3.1 billion in unrealized hedging gains, $3 billion of availability under its $4 billion committed revolving credit facility and a 67% ownership interest in Antero Midstream Partners LP. Antero is exposed to the prolonged nature of the energy price downturn and the risk that the company's continued heavy capital spending through 2018 may pressure its already high financial leverage. Antero will generate significant negative free cash flow as a result of its aggressive growth strategy, and the company has the ability to fund this shortfall with a number of tools including post-2018 hedge monetization, the sale of Antero Midstream units and potential equity market access.

Concho Resources Inc.

Moody's confirmed Concho's Ba1 Corporate Family Rating (CFR), which reflects its oil focused production mix, good hedging program and competitive cost structure that will support leading cash margins and good cash flow generation even in a weak commodity price environment. Although production growth will stall with lower capital spending, its production scale and leverage, interest coverage, and cash flow metrics will remain supportive of the Ba1 rating. The rating also incorporates Concho's history of using internal cash flow generation, asset sales and equity offerings to reduce debt balances. Geographic concentration risks associated with all operations being in a single hydrocarbon basin are high but the Permian Basin remains one of the most prolific oil producing regions in North America.

Energen Corporation

Moody's downgraded Energen's Corporate Family Rating (CFR) to B1 from Ba1. This considers the severe negative impact of weak commodity prices on Energen's credit metrics including its retained cash flow to debt. Moody's expects a significant drop in Energen's 2016 and 2017 EBITDA resulting in much weaker leverage metrics. Energen could potentially breach its Debt to EBITDAX covenant by the end of 2016 unless the outstanding borrowings under its senior secured revolving credit facility are reduced significantly or an amendment is secured.

Hilcorp Energy I, L.P

Moody's confirmed Hilcorp's Ba1 Corporate Family Rating (CFR), which reflects its modest debt leverage and disciplined approach in adhering to a cost-focused operating strategy. Absolute debt levels have doubled since 2013 to $1.6 billion, but remain modestly sized relative to cash flow, production and proved developed (PD) reserves. Moody's expects cash flow metrics to weaken in 2016 reflecting the company's monetization of its oil price hedges, before strengthening in 2017, a function of its focus on cost reduction and disciplined hedging of production. Acquisitions have added geological diversification to Hilcorp's traditional Texas-Louisiana Gulf Coast base of operations, such that about one-third of Hilcorp's proved reserves are now attributable to its expansion into Alaska. Moody's expects that Hilcorp's debt levels are unlikely to expand materially, although the Ba1 rating recognizes the high call on cash flow of future development costs, including asset retirement obligations. The singular control Mr. Jeffery Hildebrand wields over Hilcorp's operations through his ownership of Hilcorp's general partner is also reflected in the Ba1 CFR; however, Moody's notes that the company has prospered under his control and leadership, limiting its exploitation of debt financing and maintaining a solid credit profile.

Newfield Exploration Company

Moody's downgraded Newfield's Corporate Family Rating (CFR) to Ba3 from Ba1. This reflects the decline in cash flow generation, material worsening of cash flow credit metrics, and a gradual increase in liquidity stress as the hedge roll off accelerates through 2017. This is partially mitigated by the company's hedging program, large drilling inventory and geographically diverse portfolio of properties that provides flexibility to reduce capital spending in 2016. Newfield's focus on areas with the best returns such as the STACK and SCOOP plays will reduce its cost structure to combat low commodity prices. A reduced capital budget will avoid significantly higher debt balances through 2016. However, a concerted effort to diversify its asset base and increase its liquids production over the past four years contributed to relatively weak capital efficiency. Despite significant improvements in its cost structure and forecasted efficiency gains through focused drilling, expected low oil and gas prices will keep capital efficiency metrics at weak levels through 2017.

QEP Resources Inc.

Moody's downgraded QEP's Corporate Family Rating (CFR) to B1 from Ba1. This reflects the risks of the company's capital intensive process of transitioning its portfolio towards a more balanced mix of oil and gas exposure, especially in the current depressed price environment for all hydrocarbons. Even though both organic improvements and acquisitions have added more commodity and basin diversification to its property portfolio, QEP's cash margins and returns are expected to weaken at least through 2017. We expect the company to cut capex in 2016 but still modestly outspend its generated cash flow. Nonetheless, QEP's B1 rating is supported by the expectation of reasonable leverage and interest coverage metrics, which will be aided by the company's hedges for 2016-17. The rating also recognizes QEP's track record of conservative financial policies and Moody's expectation of good liquidity with meaningful cash balances and an undrawn revolver as of early 2016.

Range Resources Corporation

Moody's downgraded Range Resources' Corporate Family Rating (CFR) to Ba3 from Ba1. This reflects the impact of weaker commodity prices on Range's cash flow-based financial leverage metrics in 2016 and particularly in 2017, as Range's hedge book rolls off. Helping to offset weak cash flow-based credit metrics are Range's strong asset-based financial leverage metrics. The Ba3 rating is supported by Range's leading position in the Marcellus Shale region, its considerable size and scale, and its history of strong operational efficiency.

SM Energy Company

Moody's downgraded SM Energy's (SM) Corporate Family Rating (CFR) to B2 from Ba1, which reflects the likelihood of a dramatic increase in financial leverage in 2017. SM entered this downturn with less leverage than many of its peers and the company has significantly lowered its cost structure since late 2014 to cope with the collapse in commodity prices. However, as hedges roll off and production declines due to restrained capital investments, the company will see a sharper drop in 2017 EBITDAX increasing the risk of a potential covenant violation. The company has price protection for 44% of its projected 2016 production, plans to manage its capex program within EBITDAX and has $1.3 billion of availability under its $1.5 billion committed revolver. SM has limited borrowing base reduction risk and refinancing risk.

Unit Corporation

Moody's downgraded Unit's Corporate Family Rating (CFR) to B2 from Ba3, which reflects its elevated risk of a covenant violation because of increasing financial leverage. The company may breach the 4x consolidated funded debt to EBITDA covenant later in 2016 if commodity prices remain depressed. However, Unit's unsecured capital structure may help in negotiations with its banks and allow the company to shed assets without material constraints. Unit has historically maintained low leverage and it plans to live within operating cash flow in 2016. Unit also has low refinancing risk given its revolver expires in April 2020 and the nearest bond maturity is in December 2021.

Whiting Petroleum Corporation

Moody's downgraded Whiting's Corporate Family Rating (CFR) to Caa1 from Ba2. This reflects Moody's expectations of very weak cash flow-based leverage metrics in 2016 and particularly in 2017, when its hedges roll off. With the company facing structurally low oil prices through 2017 and a heavy debt burden, there is a heightened risk of a debt restructuring. Whiting's Caa1 CFR is supported by the company's reserves and production scale and its long-lived reserves profile. While we recognize the steps that Whiting has undertaken in response to weak pricing levels, we believe the ability to further adjust to a lower price environment will be more challenging and the timing and execution of assets sales more uncertain.

WPX Energy, Inc.

Moody's downgraded WPX's Corporate Family Rating (CFR) to B2 from Ba1. This reflects its elevated leverage and Moody's expectation that the company's cash flows and credit metrics will worsen in 2017 when its hedged production volumes decline. The company's financial results in 2016 will be buffered by the strong hedge position (three fourths of oil production and substantially all of natural gas production is hedged after the Piceance assets sale), but in 2017 hedged volumes drop. WPX continues to have material capital spending requirements to keep production flat, such that it will generate negative free cash flow in 2017. WPX had $3.4 billion of balance sheet debt as of September 30, 2015, but asset sales will allow it to reduce debt and address the $400 million notes maturing in January 2017. Even after the sale of its Piceance basin operations ($910 million cash proceeds), the company will benefit from diverse operations with exposure to the Williston, Permian and San Juan basins. However, asset sales and capital spending reductions will result in much smaller production in 2016. The company may need to amend its revolving credit facility's financial covenants, but is expected to be able to do so and maintain adequate liquidity.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_189596 for the outlooks and factors that could lead to an upgrade or downgrade of the ratings for each of the issuers discussed in this press release. The link is an integral part of this press release.

The principal methodology used in these ratings was Global Independent Exploration and Production Industry published in December 2011. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

..Issuer: SM Energy Company

Downgrades:

.... Probability of Default Rating, Downgraded to B2-PD from Ba1-PD

.... Corporate Family Rating, Downgraded to B2 from Ba1

....Senior Unsecured Regular Bond/Debentures, Downgraded to B3 (LGD 4) from Ba2 (LGD 5)

Lowered:

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

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Newfield Exploration Company

Downgrades:

.... Probability of Default Rating, Downgraded to Ba3-PD from Ba1-PD

.... Corporate Family Rating, Downgraded to Ba3 from Ba1

....Pref. Shelf , Downgraded to (P)B2 from (P)Ba3

....Pref. shelf Non-cumulative, Downgraded to (P)B2 from (P)Ba3

....Subordinate Shelf, Downgraded to (P)B1 from (P)Ba2

....Senior Subordinate Shelf, Downgraded to (P)B1 from (P)Ba2

....Senior Unsec. Shelf, Downgraded to (P)Ba3 from (P)Ba1

....Senior Unsecured Regular Bond/Debentures, Downgraded to Ba3 (LGD 3) from Ba1 (LGD 4)

Affirmations:

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

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Range Resources Corporation

Downgrades:

.... Probability of Default Rating, Downgraded to Ba3-PD from Ba1-PD

.... Corporate Family Rating, Downgraded to Ba3 from Ba1

....Senior Subordinated Regular Bond/Debentures, Downgraded to B1 (LGD 5) from Ba2 (LGD 5)

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba3 (LGD 3) from Ba1 (LGD 3)

Affirmations:

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

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Concho Resources Inc.

Confirmations:

.... Probability of Default Rating, Confirmed at Ba1-PD

.... Corporate Family Rating, Confirmed at Ba1

....Senior Unsecured Regular Bond/Debentures, Confirmed at Ba2 (LGD 4)

Affirmations:

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

Outlook Actions:

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Hilcorp Energy I, L.P

Confirmations:

.... Probability of Default Rating, Confirmed at Ba1-PD

.... Corporate Family Rating, Confirmed at Ba1

....Senior Unsecured Regular Bond/Debentures, Confirmed at Ba2 (LGD 5)

Outlook Actions:

....Outlook, Changed To Stable From Rating Under Review

..Issuer: QEP Resources, Inc.

Downgrades:

.... Probability of Default Rating, Downgraded to B1-PD from Ba1-PD

.... Corporate Family Rating, Downgraded to B1 from Ba1

....Senior Unsecured Regular Bond/Debentures, Downgraded to B1 (LGD 4) from Ba1(LGD 4)

Affirmations:

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

Outlook Actions:

....Outlook, Changed To Stable From Rating Under Review

..Issuer: WPX Energy, Inc.

Downgrades:

.... Probability of Default Rating, Downgraded to B2-PD from Ba1-PD

.... Corporate Family Rating, Downgraded to B2 from Ba1

....Senior Unsecured Regular Bond/Debentures, Downgraded to B2 (LGD 4) from Ba1 (LGD 4)

....Senior Unsecured Shelf, Downgraded to (P)B2 from (P)Ba1

Raised:

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

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Energen Corporation

Downgrades:

.... Probability of Default Rating, Downgraded to B1-PD from Ba1-PD

.... Corporate Family Rating, Downgraded to B1 from Ba1

....Senior Unsec. Shelf, Downgraded to (P)B3 from (P)Ba2

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)B3 from (P)Ba2

....Senior Unsecured Regular Bond/Debentures, Downgraded to B3 (LGD 5)from Ba2 (LGD 5)

Lowered:

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

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Whiting Petroleum Corporation

Downgrades:

.... Probability of Default Rating, Downgraded to Caa1-PD from Ba2-PD

.... Corporate Family Rating, Downgraded to Caa1 from Ba2

....Senior Subordinated Regular Bond/Debenture, Downgraded to Caa3(LGD 6) from B1 (LGD 6)

....Senior Unsecured Conv./Exch. Bond/Debenture, Downgraded to Caa2(LGD 5) from Ba3 (LGD 4)

....Senior Unsecured Regular Bond/Debentures, Downgraded to Caa2 (LGD 5) from Ba3 (LGD 4)

Lowered:

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

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Antero Resources Corporation

.... Probability of Default Rating, Confirmed at Ba2-PD

.... Corporate Family Rating, Confirmed at Ba2

....Senior Unsecured Regular Bond/Debentures, Confirmed at Ba3 (LGD 5)

Affirmations:

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

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Antero Resources Finance Corporation

....Senior Unsecured Regular Bond/Debentures, Confirmed at Ba3 (LGD 5)

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Unit Corporation

Downgrades:

.... Probability of Default Rating, Downgraded to B2-PD from Ba3-PD

.... Corporate Family Rating, Downgraded to B2 from Ba3

....Senior Subordinated Regular Bond/Debentures, Downgraded to B3 (LGD 5) from B1 (LGD 5)

Lowered:

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

Outlook Actions:

....Outlook, Changed To Negative From Rating Under Review

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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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.

Sajjad Alam
Asst Vice President - Analyst
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

Moody's concludes reviews for 11 US Ba-rated E&P companies
No Related Data.
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