Fitch Ratings has assigned a first-time 'BB-' Long-Term Issuer Default Rating (IDR) to
Fitch has also assigned 'BB+'/'RR1' ratings to Rockcliff's new senior secured reserve-based lending (RBL) credit facility and affirmed the 'BB-'/'RR4' ratings for Rockcliff's current senior unsecured notes.
In addition, Fitch has affirmed and withdrawn the 'BB+'/'RR1' ratings for Rockcliff's
TGNR's rating, following the closing of the Rockcliff acquisition on
Fitch has withdrawn the rating on Rockcliff's senior secured reserve-based lending credit facility following its termination at the close of the acquisition.
Key Rating Drivers
Strong Strategic Owner: Under Fitch's parent-subsidiary linkage criteria, TGNR's IDR receives a one-notch uplift due to the moderate linkage between the company and its parent
While Fitch does not rate
Strong Haynesville Focus: Proforma TGNR will be the second largest private producer in the
While the
Positive FCF and Improved Liquidity: Fitch believes proforma TGNR can generate positive FCF throughout the base case given its low operating cost structure and no current expectations for the initiation of a dividend. Fitch assumes no dividend program with a focus on debt reduction through the forecast. The RBL maturity is not until
Continued Absolute Debt Reduction: Under Fitch's current Base Case pricing, Fitch expects TGNR to use its positive FCF for absolute debt reduction in the near term following the Rockcliff acquisition. This includes repaying the RBL facility given the company's high absolute debt levels following the Rockcliff acquisition. Under Fitch's model, EBITDA leverage is expected to be 1.9x by year-end 2024, before declining towards 1.0x in the outer years of the forecast.
Hedging Strategy Reduces Price Risk: TGNR has implemented a multiyear hedging strategy to limit downside commodity price risk on completion of the acquisition. Under the RBL facility, TGNR has to hedge a minimum of 60% of gas PDP volumes for months 1-12 and 40% for months 13-24, which is tested quarterly. Fitch expects the company to maintain its hedging program to de-risk cash flows and reduce pricing volatility.
Derivation Summary
Following the Rockcliff acquisition, TGNR's production will rise to just under 1.3 BCFE/d in 2024, which is below
Proforma, the company is expected to continue to achieve favorable netbacks due to its low operating cost profile and proximity to
Key Assumptions
WTI oil price of
Production increased above 1.25 bcfe/d in 2024 following the closing of the acquisition and mid-to-low single digit decline from 2025 as TGNR focusses on RBL reduction following the acquisition;
Capex of
Assumed no dividend payment;
No material M&A activity following the Rockcliff acquisition.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Material increase in size and scale with an emphasis on diversification;
Commitment to its stated financial policy, resulting in consistent positive free cash flow generation;
Mid-cycle EBITDA leverage consistently below 2.0x.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Inability to generate FCF and failure to reduce the RBL borrowings that materially erodes the liquidity profile;
Loss of operational momentum resulting in production consistently below 1.0 BCFE/d;
Change in financial policy that results materially weaker credit metrics;
Mid-cycle EBITDA leverage consistently at or above 2.5x.
Liquidity and Debt Structure
Proforma the Rockcliff acquisition, TGNR's debt will be under Rockcliff and consist of approximately
As a result of the transaction, TGNR's liquidity position at close is expected to be approximately
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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