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Rating Action:

Moody's upgrades Diamondback to Ba1

03 Dec 2018

Approximately $2 billion of rated debt affected

New York, December 03, 2018 -- Moody's Investors Service ("Moody's") upgraded Diamondback Energy, Inc.'s (Diamondback) Corporate Family Rating (CFR) to Ba1 from Ba2, Probability of Default Rating (PDR) to Ba1-PD from Ba2-PD and senior unsecured notes to Ba2 from Ba3. The SGL-2 Speculative Grade Liquidity (SGL) rating was affirmed reflecting good liquidity. The rating outlook is stable. Moody's has withdrawn all ratings on Energen Corporation (Energen), which is now a wholly-owned subsidiary of Diamondback.

This concludes Moody's ratings review that was initiated on August 15, 2018 following the announcement that Diamondback would acquire Energen in an all-stock transaction valued at approximately $9.2 billion. The transaction closed on November 29, 2018.

"Diamondback is now a much larger, better diversified and financially stronger pure-play Permian Basin player that should be able to deliver strong volume and cash flow growth over the next several years," said Sajjad Alam, Moody's Senior Analyst. "The enhanced capital and operating flexibility as well as synergy opportunities from the merger will make the company more resilient to oil price volatility and boost its free cash flow generation ability."

Ratings Upgraded:

..Issuer: Diamondback Energy, Inc.

....Corporate Family Rating, Upgraded to Ba1 from Ba2

....Probability of Default Rating, Upgraded to Ba1-PD from Ba2-PD

....Senior Unsecured Notes, Upgraded to Ba2 (LGD5) from Ba3 (LGD5)

....Senior Unsecured Notes, Upgraded to Ba2 (LGD5) from Ba3 (LGD4)

Ratings Affirmed:

..Issuer: Diamondback Energy, Inc.

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

Ratings Withdrawn:

..Issuer: Energen Corporation

....Corporate Family Rating, Withdrew Ba2

....Probability of Default Rating, Withdrew Ba2-PD

....Senior Unsecured Notes Ratings, Withdrew B1 (LGD5)

....Senior Unsecured Shelf, Withdrew (P)B1

....Senior Unsecured Medium-Term Note Program, Withdrew (P)B1

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

Outlook Actions:

..Issuer: Diamondback Energy, Inc.

....Outlook, Changed to Stable from Rating Under Review

..Issuer: Energen Corporation

....Outlook, Withdrew Rating Under Review

RATINGS RATIONALE

Diamondback's Ba1 CFR reflects its low cost and oil-weighted production platform in the Permian Basin; excellent growth potential and large drilling inventory following its acquisition of Energen; low financial leverage and peer leading cash margins, and significant alternative liquidity through its 64% ownership interest in Viper Energy Partners LP (VEP, unrated), which had a market capitalization of $3.7 billion as of November 30, 2018. The rating is also supported by the company's excellent operating track record and history of conservative financial management. The CFR is restrained by Diamondback's limited geographic focus and the attendant event risks, significant undeveloped reserves and acreage, integration risk with the acquired Energen assets, and aggressive growth profile that will pose elevated execution risks and require heavy capital investments through 2020.

The SGL-2 rating reflects Diamondback's good liquidity position. At closing of the Energen transaction, Diamondback used its revolver to repay the outstanding borrowings on Energen's revolving credit facility and terminated that facility. Moody's estimates that Diamondback had roughly $800 million of availability under its $2 billion committed revolver at closing. Diamondback should be able to increase its borrowing base and secure a higher commitment amount from its banks in 2019 should it choose to do so given the substantial reserves acquisition from Energen as well as from its own vigorous drilling activity. Moody's expects Diamondback to remain largely cash flow neutral in 2019 backed by its extensive hedging and takeaway contract arrangements. Diamondback's 64% ownership interest in VEP and substantial undeveloped Permian Basin acreage could also be a source of alternative liquidity, if needed.

Diamondback's senior unsecured notes are rated Ba2, one notch below the Ba1 CFR given the significant size of the secured revolving credit facility relative to the total amount of outstanding senior notes, under Moody's Loss Given Default Methodology. The revolver has a first-lien claim to substantially all of Diamondback's assets.

Moody's is withdrawing the ratings on Energen's senior unsecured notes because Diamondback will not guarantee Energen's debt obligations. Energen will operate as a restricted subsidiary of Diamondback, but Energen will not produce audited financial statements, which will preclude ongoing monitoring of these obligations on a standalone basis. Diamondback has indicated that Energen's common stock will no longer be listed for trading on NYSE, and Energen will no longer have reporting obligations under the Securities Exchange Act of 1934.

The stable outlook reflects Moody's view that Diamondback will live largely within operating cash flow. Diamondback's ratings could be upgraded to investment grade if the company can replicate its past organic drilling and development success in growing production above 250,000 boe/day, sustaining the leveraged full-cycle ratio above 2x and delivering steady free cash flow. An upgrade would also be contingent on the company's ability to achieve an unsecured capital structure and extending its PD reserve life. While a downgrade is unlikely through 2019, ratings could come under pressure if Diamondback significantly outspends operating cash flow or capital productivity weakens materially. More specifically, if the RCF/debt ratio falls below 30% or the LFCR falls below 1.5x, a downgrade is possible.

Diamondback Energy, Inc. is an independent exploration and production company with assets in the Midland and Delaware Basins in West Texas.

Moody's has decided to withdraw the ratings because it believes it has insufficient or otherwise inadequate information to support the maintenance of the ratings. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

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 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.

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 rating analyst and the Moody's legal entity that has issued the ratings.

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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