Fitch Revises Anadarko's Outlook to Positive; Affirms Ratings
CHICAGO -- April 8, 2014
Fitch Ratings has revised Anadarko Petroleum Corp.'s and its subsidiary,
Kerr-McGee's, Rating Outlooks to Positive from Stable following the
announcement late last week that Anadarko has settled its Tronox litigation
with the plaintiffs for $5.15 billion. Additionally, Fitch has affirmed all
ratings for Anadarko and Kerr-McGee. A full list of the ratings is included at
the end of this press release.
KEY RATING DRIVERS
The settlement agreement for $5.15 billion results in a complete release of
all claims asserted by the plaintiffs against Kerr-McGee. The agreement is
subject to recommendation by the U.S. bankruptcy court and a U.S. District
Court approval as well as the issuance of an injunction barring similar claims
from being asserted by third parties. This process is expected to be completed
by the end of the third quarter and payment is expected soon thereafter from
existing cash balances. Additional liquidity is provided by an undrawn $5
billion credit facility.
The Outlook revision results from the removal of litigation risk of a larger
judgment and Anadarko's very strong operating results over the last few years
and improving credit metrics. The settlement amount of $5.15 billion is at the
low end of the range given by the U.S. Bankruptcy Court judge in December of
last year. Anadarko has experienced strong exploration and development success
over the last five years that have resulted in strong reserve and production
growth. For example, production has grown slightly over 38% to approximately
781,000 barrels of oil equivalent since the end of 2009 with roughly the same
balance sheet debt levels. Resultantly, this has helped to drive debt/EBITDA
over that time period from 3.1 times (x) at year-end 2009 to 1.6x at the end
of 2013. Other debt/operating metrics has decreased noticeably over that time
frame as well. These figures are unadjusted for Western Gas's debt which is
consolidated into Anadarko's financial statements.
The current ratings reflect Anadarko's large size and high-quality asset
position worldwide, modestly levered capital structure and strong liquidity
position. It had nearly 2.8 billion barrels of proved reserves at the end of
2013 making it one of the larger independent exploration and production
companies globally. Of the proved reserves, slightly over 70% were developed
at year-end 2013. Reserve replacement on a three-year average basis is well
over 100% at finding, development and acquisition costs of approximately $15
per barrel of oil equivalent.
Liquidity is provided by existing cash balances and the aforementioned $5
billion credit facility. Maturities are $775 million in 2014 and $1,750
million in 2016. In addition, holders of the company's zero coupon senior
notes due 2036 have the option to put the then accreted value of the
outstanding notes in October of each year. Fitch does not currently expect
these notes to be put.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
--Large debt-financed acquisitions or share repurchases;
--A significant and sustained deterioration in credit metrics.
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--Completion of necessary final and non-appealable recommendations, approvals
and injunctions related to the Tronox Adversary Proceeding settlement process.
--Strong operating results combined with continued conservative financial
management of the balance sheet.
Fitch has affirmed the following ratings:
Anadarko Petroleum Corp.
--Long-term Issuer Default Rating (IDR) at 'BBB-';
--Senior notes and debentures at 'BBB-';
--Secured credit facility at 'BBB'.
--Long-term IDR at 'BBB-';
--Senior unsecured at 'BBB-'.
The Rating Outlooks are revised to Positive from Stable.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Relevant Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'Cash Flow Trends in the U.S. Energy Sector-Shareholder Activism Having an
Impact' (Feb. 4, 2014);
--'Scenario Analysis: Lifting the U.S. Crude Export Ban' (Jan. 27, 2014);
--'2014 Outlook: North American Oil & Gas' (Dec. 12, 2013).
Applicable Criteria and Related Research:
Scenario Analysis: Lifting the Crude Export Ban (Overall Credit Impact Limited
but Varies by Industry)
2014 Outlook: North American Oil & Gas (Strong Oil Prices Continue to Support
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Cash Flow Trends in the U.S. Energy Sector (Shareholder Activism Having an
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Sean T. Sexton, CFA, +1-312-368-3130
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
Dino Kritikos, +1-312-368-3150
Stephen Brown, +1-312-368-3139
Brian Bertsch, +1-212-908-0549
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