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Rating Action:

Moody's upgrades Energen to Ba2

13 Aug 2018

$500 million of rated debt affected

New York, August 13, 2018 -- Moody's Investors Service ("Moody's") upgraded Energen Corporation's (Energen) Corporate Family Rating (CFR) to Ba2 from Ba3, Probability of Default Rating (PDR) to Ba2-PD from Ba3-PD and senior unsecured notes to B1 from B2. The Speculative Grade Liquidity (SGL) rating was lowered to SGL-2 from SGL-1. The rating outlook is stable.

"Energen's ratings upgrade reflects our expectation that the company will continue to execute its three year growth plan to substantially increase its production and reserves, while maintaining strong credit metrics and good liquidity. The company also benefits somewhat from its contracted takeaway capacity and Midland-Cushing price differential risk through basis hedges," said Sreedhar Kona, Moody's Senior Analyst. "The company's projected growth in scale, while reducing its cash flow outspend contributes to the stable outlook."

Rating Actions:

Upgrades:

..Issuer: Energen Corporation

. Corporate Family Rating, Upgraded to Ba2 from Ba3

. Probability of Default Rating, Upgraded to Ba2-PD from Ba3-PD

. Senior Unsecured Notes Ratings, Upgraded to B1 (LGD5) from B2 (LGD5)

. Senior Unsec. Shelf, Upgraded to (P)B1 from (P)B2

. Senior Unsecured Medium-Term Note Program, Upgraded to (P)B1 from (P)B2

Downgrades:

..Issuer: Energen Corporation

. Speculative Grade Liquidity Rating, Downgraded to SGL-2 from SGL-1

Outlook Actions

..Issuer: Energen Corporation

. Outlook, Stable

RATINGS RATIONALE

Energen's Ba2 CFR considers the company's low financial leverage and ability to grow its production at above-average returns through commodity price cycles. In early 2018, Energen laid out a three-year plan targeting to production growth by a 28% compounded annual growth rate and achieving cash flow neutrality in 2020. Per that plan, the company expects to exit 2018 with average daily production exceeding 110 Mboe/day and average near 100 Mboe/day for the full year, up 32% over 2017, although with modestly higher debt levels in the form of revolver drawings. Through 2017 and the first half of 2018, Energen achieved further efficiencies in its production costs and drilling costs, thereby improving its cash margins and capital efficiency. Moody's projects Energen's retained cash flow to debt ratio at year-end will be above 80%, while the leveraged full-cycle ratio (LFCR) will approach 2.5x on the back of strong well results. While Moody's expects the Midland-Cushing price differentials will trend higher until Permian Basin takeaway capacity improves, Energen has moderately mitigated the risk to its realized pricing by entering into meaningful basis hedges. Although basin concentration somewhat constrains Energen, the company is well positioned amongst its Ba2 peers given its low levels of absolute debt that underpin strong credit metrics.

Energen's senior unsecured notes are rated two notches below the CFR at B1 under Moody's Loss Given Default methodology reflecting their subordination to the $1.25 billion senior secured revolving credit facility, which has a priority claim on the company's assets. However, an increase in the proportion of unsecured debt compared to its revolving credit facility would likely result in the unsecured notes being rated one notch below the CFR at Ba3.

Energen has good liquidity, which is reflected in the SGL-2 rating. As of June 30, 2018, the company had $1.2 million of cash on the balance sheet and $950 million of availability under its $1.25 billion borrowing base revolving credit facility due in April 2023. Moody's expects Energen to fund its capital spending and debt service needs through 2019 from its operating cash flow and revolver borrowings. The outstanding borrowings under the revolving credit facility at year-end 2018 should be around $580 million. Moody's anticipates that Energen will be in compliance with the two financial covenants under this facility looking out through 2019. Covenants include a maximum net debt/EBITDAX of 4x and a minimum current ratio of 1x.

The stable outlook reflects Moody's view that Energen will continue to grow per its development plan, while reducing its capital outspend and maintaining a strong balance sheet. Moody's expects the company to be cash flow neutral in 2020.

An upgrade could be considered if the company consistently executes on its growth plan to sustain production above 150,000 boe/day and approach cash flow neutrality, with a leveraged full-cycle ratio (LFCR) above 2x.

While a downgrade is unlikely through 2019, ratings could come under pressure if Energen's debt/average daily production rises above $15,000 per boe or if the LFCR falls below 1.5x.

Energen, headquartered in Birmingham, Alabama, is engaged in the exploration and production of crude oil and natural gas with operations in the Permian Basin in Texas.

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.

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.

Sreedhar Kona
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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