Note: On May 16, 2016, the press release was corrected as follows: In the Ratings Rationale section, the following was added as the eighth 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 25, 2016 -- Moody's Investors Service (Moody's) concluded rating reviews
on three A-rated US exploration and production (E&P) companies,
three Baa-rated US E&P companies, and one associated
midstream MLP. Moody's downgraded 2 companies' ratings
one notch, 2 companies' ratings two notches, 2 companies'
ratings three notches, and 1 company's ratings four notches.
A list of each company's rating actions is included below.
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 downgraded ratings by one to four notches.
RATINGS RATIONALE
Apache Corporation
Moody's downgraded Apache's senior unsecured rating to Baa3 from
Baa1, with a negative outlook. Moody's also downgraded
Apache's short-term commercial paper ratings to Prime-3
from Prime-2. The Baa3 senior unsecured rating incorporates
Moody's expectation of much lower cash flow generation and correspondingly
weak cash flow based credit metrics. The Baa3 rating is supported
by Apache's sizable cash balance, aggressive reductions in
capital spending which has limited anticipated negative free cash flow
in 2016 and 2017, and only modest debt maturities through 2020.
The company's asset portfolio benefits from the ownership of producing
properties in the North Sea and Egypt that generate meaningful cash flow
even in a low price environment, adding diversification to its high
quality large acreage positions in multiple basins in North America.
The company also has stronger asset value coverage of debt than most peers,
which combined with its sizable cash balances and flexible capital spending
requirements gives the company the optionality to further reduce debt
in order to strengthen its metrics over the course of 2016 and 2017.
ConocoPhillips
Moody's downgraded ConocoPhillips's (COP) senior unsecured ratings
to Baa2 from A2, with a negative outlook. Moody's also
downgraded COP's short-term commercial paper ratings to Prime-2
from Prime-1. The Baa2 senior unsecured rating reflects
a reasonable positioning relative to its independent exploration and production
(E&P) peers, with the benefit of a much larger and more diversified
reserves and production profile, but with a more elevated financial
leverage profile. The company has considerable scale and global
geographic diversification of reserves and production, and a large
cash flow profile generated from a wide base of mature producing assets
across oil, liquids, and oil-linked LNG, as well
as a meaningful legacy position in North American natural gas.
We expect COP's cash flow-based leverage metrics to deteriorate
in 2016 and remain weak through 2017 relative to its investment-grade
rated E&P peers. In addition, COP's debt levels
will modestly increase in 2016 as dividends and capital spending remain
in excess of internal cash flows, despite the benefit of both dividend
and capital spending reductions.
Devon Energy Corporation
Moody's downgraded Devon's senior unsecured ratings to Ba2
from Baa1, with a negative outlook. At the same time,
Moody's assigned Devon a Ba2 Corporate Family Rating (CFR).
The Ba2 CFR reflects Moody's expectation that Devon will have challenged
cash flow and asset coverage of debt during a sustained low commodity
price environment. The Ba2 CFR also reflects weak operating and
capital productivity as compared to peers. Devon's Ba2 CFR
is supported by the significant size and scale of its E&P operations,
its diversified geographic presence across key onshore hydrocarbon basins
in North America, and a manageable overall portfolio decline rate.
The rating is further supported by Devon's interest in the EnLink companies,
which own a sizeable and valuable midstream business and represents a
source of alternative liquidity for Devon.
EnLink Midstream Partners, LP
Moody's downgraded EnLink's senior unsecured ratings to Ba2
from Baa3, with a negative outlook, consistent with the downgrade
of the controlling owner of EnLink's General Partner, Devon
Energy. At the same time, Moody's assigned EnLink a
Ba2 Corporate Family Rating (CFR). While EnLink's stand-alone
credit profile is more consistent with a Ba1 rating, EnLink's
high customer concentration risk with Devon combined with Devon's
controlling ownership effectively limits its rating to that of Devon's.
EnLink's stand-alone credit profile benefits from a very
high proportion of fee-based revenue and strong amount of minimum
volume commitments that help provide volume stability and support cash
flow visibility over the next several years, and an increasingly
coordinated growth strategy with Devon. These strengths are partially
offset by EnLink LP's concentration in the mature Barnett Shale,
where volumes have been in decline, and the need to continue to
offset this exposure through growth in other regions. The rating
is also restrained by the inherent risks associated with EnLink's
high-payout master limited partnership (MLP) business model.
EOG Resources, Inc.
Moody's downgraded EOG's senior unsecured rating to Baa1 from
A3, with a stable outlook. EOG's Baa1 senior unsecured
rating reflects a long track record of good capital reinvestment productivity
and organic growth, and a good liquidity profile through 2017.
Given the weak commodity price outlook, Moody's expects EOG
to outspend cash flow in 2016 and its production to decline modestly,
which will pressure leverage and return metrics. However,
we expect leverage metrics and returns to improve in 2017 and remain well
positioned relative to its Baa-rated E&P peers.
Marathon Oil Corporation
Moody's downgraded Marathon's senior unsecured rating to Ba1
from Baa1 with a negative outlook. At the same time, Moody's
assigned a Corporate Family Rating (CFR) of Ba1. Marathon's Ba1
CFR reflects the considerable deterioration of credit metrics likely in
2016 due to the weak commodity price outlook. The oil focused production
base will contribute to worsening cash margins, cash flow generation,
capital efficiency ratios and leverage metrics. The company's
position as a large independent exploration and production (E&P) company
with a diversified reserve and production base supports the rating.
In 2016, management is likely to adjust its capital spending program
to a significantly lower level and focus capital expenditures on the North
American resource plays having the best returns and lower risk.
There is some refinancing risk associated with the 2017 and 2018 maturities
and liquidity stress on the company could increase, absent sizable
asset sales. However, the company's large cash balance
and undrawn revolver alleviate near-term liquidity concerns.
Occidental Petroleum Corporation
Moody's downgraded Occidental's (OXY) senior unsecured debt
rating to A3 from A2, with a stable outlook. Moody's
also downgraded OXY's short-term commercial paper rating
to Prime-2 from Prime-1. The A3 unsecured debt rating
is supported by OXY's substantial scale and diversification,
its long-lived US oil and gas assets predominantly located in the
Permian Basin and its modest financial leverage, offset by weakness
in cash flow brought about by the multi-year low price of crude
oil and US natural gas. Because of its relatively limited exposure
to high decline rate unconventional resource production, OXY can
adjust the capital spending required to maintain its asset base while
generating modest production growth. OXY entered 2016 with a $4.4
billion cash balance, which readily funds two years of declining
negative free cash flow and helps enable the company maintain its high
cash dividend payout. The size of its annual dividend pressures
OXY's modest retained cash flow to debt metric, without which
would be significantly higher. Notwithstanding healthy cash balances,
minimal debt reduction is anticipated.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_189600 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 rating ConocoPhillips, Burlington
Resources, Inc., Burlington Resources Finance Company,
ConocoPhillips Canada Funding Company II, Louisiana Land & Exploration
Company, ConocoPhillips Canada Funding Company I, ConocoPhillips
Company, Conoco Funding Company, ConocoPhillips Canada Resources
Limited, ConocoPhillips Holding Company, Polar Tankers,
Inc., Tosco Corporation, ConocoPhillips Qatar Funding
Ltd., Occidental Petroleum Corporation, EOG Resources,
Inc., Apache Corporation, Apache Finance Canada Corporation,
Apache Finance Canada II Corporation, Marathon Oil Corporation,
Devon Energy Corporation, Devon Financing Corporation U.L.C.,
and Devon Financing Trust II was Global Independent Exploration and Production
Industry published in December 2011. The principal methodology
used in rating EnLink Midstream Partners, LP was Global Midstream
Energy published in December 2010. Please see the Ratings Methodology
page on www.moodys.com for a copy of these methodologies.
..Issuer: Burlington Resources Finance Company
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Baa2 from A2
Outlook Actions:
..Issuer: Burlington Resources Finance Company
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Burlington Resources, Inc.
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Baa2 from A2
Outlook Actions:
..Issuer: Burlington Resources, Inc.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Conoco Funding Company
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa2 from A2
Outlook Actions:
..Issuer: Conoco Funding Company
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: ConocoPhillips
.... Issuer Rating, Downgraded to Baa2
from A2
.... Senior Unsec. Shelf, Downgraded
to (P)Baa2 from (P)A2
....Senior Unsecured Commercial Paper,
Downgraded to P-2 from P-1
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Baa2 from A2
Outlook Actions:
..Issuer: ConocoPhillips
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: ConocoPhillips Canada Funding Company I
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa2 from A2
Outlook Actions:
..Issuer: ConocoPhillips Canada Funding Company I
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: ConocoPhillips Canada Funding Company II
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa2 from A2
Outlook Actions:
..Issuer: ConocoPhillips Canada Funding Company II
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: ConocoPhillips Canada Resources Limited
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa2 from A2
Outlook Actions:
Issuer: ConocoPhillips Canada Resources Limited
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: ConocoPhillips Company
.... Issuer Rating, Downgraded to Baa2
from A2
....Senior Secured Regular Bond/Debentures,
Downgraded to Baa2 from A2
.Senior Unsecured Regular Bond/Debentures, Downgraded
to Baa2 from A2
....Senior Secured Equipment Trust,
Downgraded to Baa1 from A1
....Senior Secured Shelf, Downgraded
to (P)Baa1 from (P)A1
....Senior Unsecured Shelf, Downgraded
to (P)Baa2 from (P)A2
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Baa2 from (P)A2
Outlook Actions:
..Issuer: ConocoPhillips Company
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: ConocoPhillips Holding Company
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa2 from A2
..Issuer: ConocoPhillips Qatar Funding Ltd.
....Senior Unsecured Commercial Paper,
Downgraded to P-2 from P-1
..Issuer: EOG Resources, Inc.
.... Commercial Paper, Confirmed at
P-2
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Baa1 from A3
.... Senior Unsec. Shelf, Downgraded
to (P)Baa1 from (P)A3
.... Subordinate Shelf, Downgraded to
(P)Baa2 from (P)Baa1
.... Pref. Shelf, Downgraded
to (P)Baa3 from (P)Baa2
Outlook Actions:
..Issuer: EOG Resources, Inc.
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Louisiana Land & Exploration Company
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa2 from A2
Outlook Actions:
..Issuer: Louisiana Land & Exploration Company
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Polar Tankers, Inc.
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa2 from A2
Outlook Actions:
..Issuer: Polar Tankers, Inc.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Tosco Corporation
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Baa2 from A2
..Issuer: Valdez (City of) AK
....Senior Unsecured Revenue Bonds,
Downgraded to Baa2 from A2
....Senior Unsecured Revenue Bonds,
Downgraded to VMIG 3 from VMIG 1
..Issuer: Occidental Petroleum Corporation
.... Commercial Paper, Downgraded to
P-2 from P-1
.... Issuer Rating, Downgraded to A3
from A2
.... Senior Unsec. Shelf, Downgraded
to (P)A3 from (P)A2
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)A3 from (P)A2
....Senior Unsecured Regular Bond/Debentures,
Downgraded to A3 from A2
Outlook Actions:
..Issuer: Occidental Petroleum Corporation
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Maryland Industrial Development Financ.
Auth.
....Senior Unsecured Revenue Bonds,
Downgraded to A3 from A2
....Senior Unsecured Revenue Bonds,
Downgraded to VMIG 2 from VMIG 1
..Issuer: Maury (County of) TN, Indust.
Devel. Board
....Senior Unsecured Revenue Bonds,
Downgraded to A3 from A2
..Issuer: Apache Corporation
....Senior Unsecured Commercial Paper,
Downgraded to P-3 from P-2
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Baa3 from Baa1
Outlook Actions:
..Issuer: Apache Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Apache Finance Canada Corporation
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa3 from Baa1
Outlook Actions:
..Issuer: Apache Finance Canada Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Apache Finance Canada II Corporation
.... Senior Unsec. Shelf, Downgraded
to (P)Baa3 from (P)Baa1
.... Subordinate Shelf, Downgraded to
(P)Ba1 from (P)Baa2
Outlook Actions:
..Issuer: Apache Finance Canada II Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Marathon Oil Corporation
Assignments:
.... Probability of Default Rating,
Assigned Ba1-PD
.... Speculative Grade Liquidity Rating,
Assigned SGL-2
.... Corporate Family Rating, Assigned
Ba1
Downgrades:
.... Senior Unsec. Shelf, Downgraded
to (P)Ba1 from (P)Baa1
....Senior Unsecured Commercial Paper,
Downgraded to NP from P-2
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Ba1 from (P)Baa1
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Ba1 (LGD 4) from Baa1
Outlook Actions:
..Issuer: Marathon Oil Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: St. John the Baptist (Parish of)
LA
....Senior Unsecured Revenue Bonds,
Downgraded to Ba1 from Baa1
..Issuer: Devon Energy Corporation
Assignments:
.... Probability of Default Rating,
Assigned Ba2-PD
.... Speculative Grade Liquidity Rating,
Assigned SGL-2
.... Corporate Family Rating, Assigned
Ba2
Downgrades:
.... Pref. Shelf, Downgraded
to (P)B1 from (P)Baa3
.... Subordinate Shelf, Downgraded to
(P)Ba3 from (P)Baa2
.... Senior Unsec. Shelf, Downgraded
to (P)Ba2 from (P)Baa1
....Senior Unsecured Commercial Paper,
Downgraded to NP from P-2
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Ba2 (LGD 4) from Baa1
Outlook Actions:
..Issuer: Devon Energy Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Devon Financing Corporation U.L.C.
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba2 (LGD 4) from Baa1
....Senior Unsecured Shelf, Downgraded
to (P)Ba2 from (P)Baa1
Outlook Actions:
..Issuer: Devon Financing Corporation U.L.C.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Devon Financing Trust II
....Pref. Stock Shelf, Downgraded
to (P)B1 from (P)Baa3
Outlook Actions:
..Issuer: Devon Financing Trust II
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: EnLink Midstream Partners, LP
.... Senior Unsec. Shelf, Downgraded
to (P)Ba2 from (P)Baa3
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Ba2 (LGD 4) from Baa3
Reinstatements:
.... Probability of Default Rating,
Reinstated to Ba2-PD
.... Speculative Grade Liquidity Rating,
Reinstated to SGL-3
.... Corporate Family Rating, Reinstated
to Ba2
Outlook Actions:
..Issuer: EnLink Midstream Partners, LP
....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.
Gretchen French
VP - Senior Credit Officer
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 6 A & Baa-rated US E&P companies and 1 MLP
