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Rating Action:

Moody's upgrades ConocoPhillips to Baa1, stable outlook

03 Aug 2017

Approximately $21 billion of rated debt affected

New York, August 03, 2017 -- Moody's Investors Service, ("Moody's") upgraded ConocoPhillips' (COP) senior unsecured and other long-term debt ratings to Baa1 from Baa2. At the same time, Moody's affirmed the Prime-2 short-term commercial paper ratings of ConocoPhillips and ConocoPhillips Qatar Funding Ltd, as well as the short-term ratings of guaranteed industrial revenue bonds. The rating outlook was revised to stable from positive.

"The upgrade recognizes COP's significant debt reduction and our expectation that the company will continue to manage its capital expenditures and dividends within operating cash flow," said Sajjad Alam, Moody's Senior Analyst. "COP has achieved $6 billion of debt reduction so far in 2017 with a goal to eliminate $7 billion of balance sheet debt by year end and an additional $5 billion by 2019. By lowering its debt load and divesting lower margin assets, COP will retain greater financial flexibility in navigating the low commodity price environment."

RATINGS RATIONALE

ConocoPhillips' Baa1 rating reflects its large scale and resource base, globally diversified reserves and production, as well as a durable cash flow platform underpinned by relatively low-decline conventional oil and natural gas assets and very long-life oil-linked LNG assets. COP remains the largest E&P company in Moody's rated universe with almost 1.2 million barrels of oil equivalent of daily production, despite selling $17 billion of assets in 2017. The company has significantly cut its opex, capex and dividends since 2015, reduced exposure to low margin Canadian oil sands and North American natural gas and is looking to drive down its debt balance to $15 billion by the end of 2019. However, despite these credit enhancing measures, COP's leverage will remain high relative to most of its E&P peers as the planned deleveraging materializes over time. COP's capital productivity and reserve replacement has also been weak since 2014 and further ratings increases are unlikely without material and sustainable improvements on these fronts. Moody's expects COP's margins and cash flow based leverage metrics to improve significantly over the next several years as management shifts its development efforts to higher margin assets and reduces debt. Moody's also expects COP to prioritize debt reduction over shareholder returns and exercise sound capital discipline through 2019 as it continues to work towards its long term objective of strengthening its credit profile.

The stable outlook reflects COP's commitment to live within cash flow and use part of its large cash cushion to repay debt. COP's ratings could be upgraded if the company further improves its leverage and capital efficiency. More specifically, an upgrade would be considered if the retained cash flow/debt ratio can be sustained above 40% and the leveraged full-cycle ratio can be maintained comfortably above 1.5x. COP's ratings are unlikely to be downgraded through 2018 barring a steep and sustained drop in oil prices. However, if the LFCR remains below 1x or the retained cash flow/debt ratio cannot be sustained above 20%, the Baa1 rating could be downgraded.

The affirmation of the short term Prime-2 ratings reflects COP's excellent liquidity position. Pro forma for the asset sales and debt repayments through August 3, 2017, COP would have about $11 billion of cash and cash equivalents as of June 30, 2017. COP also has a $6.75 billion multi-year committed bank credit facility maturing in June 2019 that is fully available today. The revolver backstops a $6.25 billion commercial paper (CP) program at COP and a $500 million CP program at ConocoPhillips Qatar Funding Ltd., both of which had no borrowings as of June 30, 2016. The company plans to repay an additional $1 billion of debt in late 2017 when the 1.05% notes mature, and buy back $1.9 billion worth of common stock in the second half of 2017 based on its $3 billion share repurchase target for 2017.

Upgrades:

..Issuer: Burlington Resources Finance Company

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Burlington Resources, Inc.

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Conoco Funding Company

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: ConocoPhillips

....Issuer Rating, Upgraded to Baa1 from Baa2

....Backed Senior Unsecured Shelf, Upgraded to (P)Baa1 from (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: ConocoPhillips Canada Funding Company II

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: ConocoPhillips Company

....Issuer Rating, Upgraded to Baa1 from Baa2

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

....Backed Senior Unsecured Shelf, Upgraded to (P)Baa1 from (P)Baa2

..Issuer: ConocoPhillips Holding Company (Assumed by ConocoPhillips Company)

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Louisiana Land & Exploration Company

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Polar Tankers, Inc.

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Tosco Corporation

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Valdez (City of) AK

....Backed Senior Unsecured Revenue Bonds, Upgraded to Baa1 from Baa2

Affirmed:

..Issuer: ConocoPhillips

....Backed Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: ConocoPhillips Qatar Funding Ltd.

....Backed Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Valdez (City of) AK

....Backed Senior Unsecured Revenue Bonds, Affirmed VMIG 2

Outlook Actions:

..Issuer: Burlington Resources Finance Company

....Outlook, Changed To Stable from Positive

..Issuer: Burlington Resources, Inc.

....Outlook, Changed To Stable from Positive

..Issuer: Conoco Funding Company

....Outlook, Changed To Stable from Positive

..Issuer: ConocoPhillips

....Outlook, Changed To Stable from Positive

..Issuer: ConocoPhillips Canada Funding Company II

....Outlook, Changed To Stable from Positive

..Issuer: ConocoPhillips Company

....Outlook, Changed To Stable from Positive

..Issuer: Louisiana Land & Exploration Company

....Outlook, Changed To Stable from Positive

..Issuer: Polar Tankers, Inc.

....Outlook, Changed To Stable from Positive

..Issuer: Tosco Corporation

....Outlook, Changed To Stable from Positive

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.

ConocoPhillips is the largest E&P company in the world and is headquartered in Houston, Texas.

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.

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
Vice President - Senior Analyst
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

No Related Data.
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