DBRS : Confirms Anadarko Petroleum Corporation and Kerr-McGee Corporation at BBB, Stable Trends

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Date of Release: January 25, 2017

January 25, 2017

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DBRS Limited (DBRS) has today confirmed the Issuer Rating of Anadarko Petroleum Corporation (Anadarko or the Company) and the Senior Unsecured Notes and Debentures ratings of Anadarko and Kerr-McGee Corporation at BBB. All trends are Stable. As a result of the steep decline in oil and gas prices, Anadarko's key credit metrics eroded considerably over the past two years. Based on the last 12 months ended September 30, 2016, the Company's lease-adjusted debt-to-cash flow ratio was 4.39 times and lease-adjusted debt-to-capital ratio was 53.2% - both well outside the BBB range.

However, the Company has adapted to lower pricing by curtailing capital expenditures (capex), reducing the payout of cash dividends, cutting costs and selling assets. These actions, coupled with DBRS's view of a gradually improving pricing environment ($50 to $55 per barrel (bbl) in 2017 and 2018 for West Texas Intermediate oil and $3 per thousand cubic feet for New York Mercantile Exchange natural gas), should result in Anadarko's key credit metrics recovering to a level consistent with a BBB rating within two years. As a result, on October 7, 2016 (see the press release 'DBRS Takes Rating Actions on Investment-Grade Oil and Gas Portfolio'), DBRS changed all trends to Stable from Negative and confirmed Anadarko's BBB rating.

The Company's BBB rating is also supported by its business profile, which includes (1) a low-cost production base; (2) a substantive and diverse portfolio of lower-risk development opportunities in key areas within the United States, such as the Denver-Julesburg and Delaware basins; (3) a strong and growing position in the U.S. deepwater Gulf of Mexico (GOM); and (4) sufficient liquidity. Because of the active acquisition and disposition program in the last two years coupled with a pared-down and focused capex program, the Company has streamlined its asset base. Lower-return natural gas-weighted assets have been shed, and capital has been redeployed into more oil-weighted opportunities that provide higher returns and more growth. The outcome is a slightly more concentrated asset base of better quality and greater growth potential in a lower-price environment.

The Company's liquidity is supported by $4.0 billion of cash as at the end of September 30, 2016; $5.0 billion of undrawn credit facilities; and a modest debt maturity schedule though 2020. Since late December 2016, the Company has announced additional asset sales totalling $3.5 billion gross in cash, with closing anticipated in the first quarter of 2017. Also, a $2.0 billion acquisition of producing properties in the deepwater GOM closed in December 2016. The Company has not announced a 2017 capex budget but has indicated that capex is expected to be aligned with cash inflows. The Company has no oil production and a modest amount of natural gas production hedged in 2017. When combined with limited vertical integration, cash flow is very sensitive to any change in oil and natural gas prices. Should commodity prices weaken substantially again (West Texas Intermediate oil below $40 per bbl), DBRS may take negative rating actions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at [e-mail].

The applicable methodologies are Rating Companies in the Oil and Gas Industry (September 2016) and DBRS Criteria: Guarantees and Other Forms of Support (February 2016), which can be found on our website under Methodologies.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at [e-mail].

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