S&P Lifts Outlook on Anadarko Petroleum (APC) to Stable; Ratings Affirmed
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S&P Global Ratings affirmed all its ratings, including the 'BBB' long-term corporate credit rating, on Houston-based oil and gas exploration and production (E&P) company Anadarko Petroleum Corp. (NYSE: APC), and revised the outlook to stable from negative.
The outlook revision follows Anadarko's announcement that it has agreed to acquire deepwater Gulf of Mexico assets from mining company Freeport-McMoRan Inc. for $2 billion. Anadarko will fund the acquisition entirely through equity, and has already raised about $1.9 billion in gross proceeds. The acquisition is expected to close by the end of the year. Based on the transaction and equity financing, our expected credit measures improve in 2017 and 2018, such that we no longer believe there is a one in three chance of a downgrade. As a result, we have revised our rating outlook to stable from negative. The 'BBB' corporate credit rating on Anadarko reflects our view of the company's strong business risk, significant financial risk, and adequate liquidity assessments.
The stable outlook reflects our view that Anadarko's debt to EBITDA will drop below 4x in 2017 and below 3x in 2018, as oil production grows, the company keeps capital spending within operating cash flows, and oil prices recover under our price deck assumptions.
We could consider raising the rating if debt/EBITDA approached 2x for a sustained period, which would most likely occur if the company executed additional noncore asset sales and used proceeds to pay down debt.
We could lower the rating if we expected debt/EBITDAX to remain above 4x for a sustained period, which would most likely occur if the company's oil production growth was below our expectations or if commodity prices weakened below our current assumptions and the company did not further rein in capital spending.
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