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Rating Action:

Moody's reviews energy companies in Canada for downgrade

21 Jan 2016

NOTE: On February 05, 2016, the press release was corrected as follows: in the debt list, under “On Review for Downgrade,” added “Senior Secured Bank Credit Facility, Ba2, Placed on Review for Downgrade” for issuer MEG Energy Corp. and “Senior Unsecured Shelf, (P)B3, Placed on Review for Downgrade” for issuer Paramount Resources Ltd. Revised release follows.

Toronto, January 21, 2016 -- Moody's Investors Service (Moody's) placed the ratings of 19 exploration and production (E&P), and oilfield services companies on review for downgrade. A list of the companies and rating actions appears below.

RATINGS RATIONALE

Oil prices have deteriorated substantially in the past few weeks and have reached nominal price lows not seen in more than a decade. Moody's has adjusted its view downward for the likely range of prices. We see a substantial risk that prices may recover much more slowly over the medium term than many companies expect, as well as a risk that prices might fall further. Even under a scenario with a modest recovery from current prices, producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows.

Today's review for downgrade considers that much weaker industry fundamentals have potential to warrant rating changes for all companies covered in this press release. While this review focuses on companies rated in the range from A1 to B3, Moody's is also reevaluating higher and lower rated companies in the context of industry conditions. The higher rated companies on average are somewhat more resilient to low oil prices and Moody's has recently downgraded many of the lower rated companies.

As part of its ongoing assessment of energy markets, Moody's sharply reduced its oil price assumptions on January 21 in light of continuing oversupply in the global oil markets and demand growth that remains tepid. Iran is poised to add more than 500,000 barrels per day to global supply while OPEC and many non-OPEC oil producers continue to produce without restraint as they battle for market share. The addition of Iranian oil to the market this year will offset or exceed expected declines in US production of about 500,000 barrels per day. Increased production vastly exceeds growth in oil consumption, given modest growth in consumption from major consumers such as China, India and the US. Production now exceeds demand by about 2 million barrels per day, adding to already high global oil stocks. Our natural gas and natural gas liquids price assumptions are unchanged. Natural gas production in the US continues to increase while costs decline and producers generate cash returns at ever-lower prices, although in many cases these appear insufficient to service their debt.

Lower oil prices will further weaken cash flows for E&P companies and the upstream portion of integrated oil and gas companies. This will cause further deterioration in financial ratios, including deeper negative free cash flow. Most companies are unable to internally fund sustaining levels of capital spending at current market prices. Current industry conditions also reduce the value of assets offered for sale and have made accessing capital markets more expensive for some companies and unavailable for others. While integrated oil and gas companies benefit from the profitability of their downstream operations, the upstream operations represent a much larger part of the capital employed and cash flow for most of these companies.

Projected capex reductions by E&P and integrated oil companies will severely challenge the drilling and oilfield services (OFS) sector beyond what it had already experienced in 2015. Moody's expects OFS sector EBITDA to drop by another 25%-30% in 2016, testing the viability of the capital structures of many of these businesses. Even if commodity prices recover, OFS companies are unlikely to gain any pricing power because of the continued excess capacity across most OFS subsectors. As a result, Moody's expects credit quality to deteriorate for all OFS players in 2016. Smaller and more leveraged OFS companies in particular will struggle to comply with debt agreement covenants, service their debt and access the capital markets, raising their risk of default. Even large, diversified investment grade OFS companies will have less financial flexibility and increasing financial leverage. Drillers with significant contract expirations will also suffer material credit degradation as contracts are either not renewed or are renewed at rates that produce far less revenue.

Although all issuers in these sectors have been adversely affected by declining prices, severity varies substantially by issuer. Accordingly, the range of possible outcomes upon conclusion of the review for given issuers varies from possible confirmation of ratings to multi-notch downgrades. Multi-notch downgrades are particularly likely among issuers whose activities are centered in North America, where natural gas prices have declined dramatically along with oil prices. Moody's expects to conclude a majority of the reviews by the end of the first quarter.

The principal methodology used in rating Seven Generations Energy Ltd., Bellatrix Exploration Ltd., MEG Energy Corp., Northern Blizzard Resources Inc., Paramount Resources Ltd., Teine Energy Ltd., Canbriam Energy Inc, Jupiter Resources Inc., Osum Production Corp. was Global Independent Exploration and Production Industry published in December 2011. The principal methodology used in rating Newalta Corporation, CHC Group Ltd., CHC Helicopter S.A., Western Energy Services Corp., Calfrac Holdings, LP, North American Energy Partners, Inc., Precision Drilling Corp., Trinidad Drilling Ltd., Archrock Partners., Helmerich & Payne Intl. Drilling Co. was Global Oilfield Services Industry Rating Methodology published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

On Review for Downgrade:

..Issuer: Bellatrix Exploration Ltd.

.... Probability of Default Rating, B1-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B1, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, B3, Placed on Review for Downgrade

..Issuer: Canbriam Energy Inc

.... Probability of Default Rating, B3-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B3, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, Caa1, Placed on Review for Downgrade

..Issuer: Jupiter Resources Inc.

.... Probability of Default Rating, B3-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B3, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, Caa1, Placed on Review for Downgrade

..Issuer: MEG Energy Corp.

.... Probability of Default Rating, B1-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B1, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, B2, Placed on Review for Downgrade

....Senior Secured Bank Credit Facility, Ba2, Placed on Review for Downgrade

..Issuer: Northern Blizzard Resources Inc.

.... Probability of Default Rating, B1-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B1, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, B3, Placed on Review for Downgrade

..Issuer: Osum Production Corp.

.... Probability of Default Rating, B3-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B3, Placed on Review for Downgrade

....Senior Secured 1st Lien Term Loan, B3, Placed on Review for Downgrade

....Senior Secured Revolving Credit Facility Ba3, Placed on Review for Downgrade

..Issuer: Paramount Resources Ltd.

.... Probability of Default Rating, B1-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B1, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, B3, Placed on Review for Downgrade

....Senior Unsecured Shelf, (P)B3, Placed on Review for Downgrade

..Issuer: Seven Generations Energy Ltd.

.... Probability of Default Rating, B1-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B1, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, B2, Placed on Review for Downgrade

..Issuer: Teine Energy Ltd.

.... Probability of Default Rating, B2-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B2, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, B3, Placed on Review for Downgrade

..Issuer: Archrock Partners.

.... Probability of Default Rating, Ba3-PD, Placed on Review for Downgrade

.... Corporate Family Rating, Ba3, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, B1, Placed on Review for Downgrade

..Issuer: Calfrac Holdings, LP

.... Probability of Default Rating, B3-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B3, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, Caa1, Placed on Review for Downgrade

..Issuer: CHC Group Ltd.

.... Probability of Default Rating, B2-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B2, Placed on Review for Downgrade

..Issuer: CHC Helicopter S.A.

....Senior Secured Regular Bond/Debenture, B1, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, Caa1, Placed on Review for Downgrade

..Issuer: Helmerich & Payne Intl. Drilling Co.

....Senior Unsecured Regular Bond/Debenture, A3, Placed on Review for Downgrade

..Issuer: Newalta Corporation

.... Probability of Default Rating, B1-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B1, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, B2, Placed on Review for Downgrade

..Issuer: North American Energy Partners, Inc.

.... Probability of Default Rating, B3-PD, Placed on Review for Downgrade

.... Corporate Family Rating , B3, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, Caa1, Placed on Review for Downgrade

..Issuer: Precision Drilling Corporation

.... Probability of Default Rating, Ba2-PD , Placed on Review for Downgrade

.... Corporate Family Rating, Ba2, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, Ba2, Placed on Review for Downgrade

..Issuer: Trinidad Drilling Ltd.

.... Probability of Default Rating, Ba3-PD, Placed on Review for Downgrade

.... Corporate Family Rating, Ba3, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, B1, Placed on Review for Downgrade

..Issuer: Western Energy Services Corp.

.... Probability of Default Rating, B2-PD, Placed on Review for Downgrade

.... Corporate Family Rating, B2, Placed on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, B3, Placed on Review for Downgrade

Outlook Actions:

..Issuer: Bellatrix Exploration Ltd.

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

..Issuer: Canbriam Energy Inc

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

..Issuer: Jupiter Resources Inc.

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

..Issuer: MEG Energy Corp.

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

..Issuer: Northern Blizzard Resources Inc.

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

..Issuer: Osum Production Corp.

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

..Issuer: Paramount Resources Ltd.

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

..Issuer: Seven Generations Energy Ltd.

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

..Issuer: Teine Energy Ltd.

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

..Issuer: Archrock Partners.

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

..Issuer: Calfrac Holdings, LP

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

..Issuer: CHC Group Ltd.

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

..Issuer: CHC Helicopter S.A.

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

..Issuer: Helmerich & Payne Intl. Drilling Co.

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

..Issuer: Newalta Corporation

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

..Issuer: North American Energy Partners, Inc.

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

..Issuer: Precision Drilling Corporation

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

..Issuer: Trinidad Drilling Ltd.

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

..Issuer: Western Energy Services Corp.

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

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Moody's has not provided advisory services but may have provided Ancillary or Other Permissible Service(s) to the rated entity, its related third parties and/or the party that requested the rating within the past two years (including during the most recently ended fiscal year). Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's credit rating agency in Canada" on the ratings disclosure page www.moodys.com/disclosures on our website for further information.

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.

Terry Marshall
Senior Vice President
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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