Fitch: NA Upstream Firms Strategize amid Ongoing Energy Downturn

NEW YORK & CHICAGO--(BUSINESS WIRE)-- North American upstream companies are displaying a range of strategies in an effort to maintain their balance sheets two years into the energy downturn, according to Fitch Ratings.

To date, exploration and production companies (E&Ps) appear to have employed two different types of strategies in managing capital structures in the downturn: some are publicly committing to material gross balance sheet deleveraging, while others are more focused on growth, choosing minimal or no debt reduction. The majority of E&Ps have fallen somewhere in between these two poles, with some level of planned debt repayment through tenders, exchanges, swaps or planned repayment as maturities come due.

However, gross debt reduction isn't the only lever E&Ps have used to help offset balance sheet risk in the downturn. Firms have instituted self-help measures, such as cuts in capex, general and administrative costs, dividends and drilling and completion cost savings, as well as equity raises, asset sales and accelerated production growth.

E&Ps that elect to manage their capital structures face additional considerations like whether or not to push a maturity wall out by targeting near-term maturities or to repurchase longer dated/higher duration debt to pick up a bigger market discount. This choice is sometimes constrained by the presence or absence of make-whole provisions, calls and the relative liquidity of different bond issuances, which can limit a company's ability to pick and choose which debt to retire.

In addition to this, some fallen angel issuers have taken advantage of unsecured bond indentures to issue secured and subsidiary-guaranteed unsecured debt in the downturn. Secured issuance has generally been constrained by net tangible assets covenants in unsecured bond indentures, while subsidiary-guaranteed unsecured debt has been enabled by the lack of guarantee restrictions. Fitch sees mid-level risk that additional natural resource issuers may issue guarantee-enhanced unsecured debt with a heightened risk among the offshore drillers.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Related Research

Capital Structure Management in the Trough (What North American Upstream Companies Are Saying in Q2)

https://www.fitchratings.com/site/re/887273

Natural Resources Fallen Angel Subordination (Weak Commodity Prices, Lax Indenture Terms Heighten Subordination Risk)

https://www.fitchratings.com/site/re/885817

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160922005804/en/

Fitch Ratings
Mark C. Sadeghian, CFA
Senior Director
Corporates
Fitch Ratings
+1 312 368-2090
70 West Madison Street
Chicago, IL
or
Dino Kritikos
Director
Corporate Finance
+1 312 368-3150
or
Kellie Geressy-Nilsen
Senior Analyst
Fitch Wire
+1 212 908-9123
33 Whitehall Street
New York, NY
or
Media Relations
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Slate Grocery REIT Provides Capital Allocation Update in Connection with Ongoing Strategic Review Process
• Best Altcoin to Buy in 2026: Apeing Stage 5 is Now Live at $0.0005!
• Sustaining Its Role as a Driver of the People's Economy, BRI Posts IDR 31.2 Trillion Net Profit in Q2 2026