New York, August 28, 2019 -- Moody's Investors Service ("Moody's") placed the ratings of Hilcorp Energy
I, L.P. (Hilcorp) under review for downgrade following
the announcement that Hilcorp Alaska, LLC and Harvest Alaska,
LLC, its wholly owned subsidiaries, have agreed to acquire
BP p.l.c.'s (BP, A1 stable) assets in
Alaska. Ratings placed under review include the Ba1 Corporate Family
Rating (CFR), Ba1-PD Probability of Default Rating,
and Ba2 senior unsecured notes ratings. Hilcorp expects the transaction
to close in 2020, pending regulatory review.
On August 27, 2019, Hilcorp announced that it will acquire
BP's entire upstream and midstream business, including BP
Exploration (Alaska) Inc., that owns all of BP's upstream
oil and gas interests in Alaska, and BP Pipelines (Alaska) Inc.'s
interest in the Trans Alaska Pipeline System. The total purchase
price is $5.6 billion, which includes a base purchase
price of $4 billion, payable through 2020 and subject to
customary adjustments, and $1.6 billion of additional
earnout consideration payable after July 1, 2021. Hilcorp,
which is privately held, is in the process of reviewing various
financing options, and therefore the funding details for the base
purchase price are uncertain.
On Review for Downgrade:
..Issuer: Hilcorp Energy I, L.P.
.... Probability of Default Rating,
Placed on Review for Downgrade, currently Ba1-PD
.... Corporate Family Rating, Placed
on Review for Downgrade, currently Ba1
....Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently Ba2 (LGD5)
Outlook Actions:
..Issuer: Hilcorp Energy I, L.P.
....Outlook, Changed To Rating Under
Review From Stable
RATINGS RATIONALE
The review was prompted by Moody's expectation that the acquisition
will increase Hilcorp's absolute debt levels and leverage significantly
following the close of the transaction and by the capital structure uncertainty
created by the lack of any funding details. A prudent mix of debt,
equity infusion, and/or alternative funding could be sufficient
to maintain a Ba1 CFR as the company currently has healthy debt leverage
on production, reserves and cash flow, along with robust interest
coverage. However, if the acquisition were to be mostly debt
funded, debt levels (including Moody's standard adjustments)
could approach $6 billion from roughly $2 billion currently.
Moody's review of Hilcorp's ratings will focus on the company's
financing plans for the acquisition, its target capital structure,
and its strategy and timing for deleveraging post-deal.
The review will also assess Hilcorp's capital spending and development
strategy to successfully execute on integration and cost efficiencies
plans; and the receipt of regulatory approvals and satisfying any
other conditions to the closing of the acquisition.
The proposed acquisition of BP's assets will more than double Hilcorp's
Alaskan production to around 125 mboe/day. The acquired production,
which is all oil, is expected to average over 70 mboe/day in 2020,
while Hilcorp's total pro forma production across its portfolio
could increase above 225 mboe/day. Hilcorp has previously employed
the strategy of acquiring older, mature, long-lived
properties, including in Alaska's Cook Inlet and North Slope regions,
with a base level of production, creating value by investing in
and exploiting characteristically declining well performance. Moody's
expects it to extend this strategy to the newly acquired BP's assets
as well.
Moody's expects to conclude the review concurrent with the closing of
the acquisition, or sooner, if enough clarity emerges regarding
Hilcorp's post-acquisition capitalization and strategic plans.
Hilcorp is a private limited partnership headquartered in Houston,
Texas. The company's primary producing assets are located in Alaska,
Texas, Louisiana and the Utica Shale.
The principal methodology used in these ratings was Independent Exploration
and Production Industry published in May 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Andrew Brooks
VP - Senior Credit Officer
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
