S&P: PDC Energy Inc. Outlook Revised To Positve On Acquisition; 'B+' Corporate Credit Rating Affirmed
At the same time, we placed the senior unsecured debt and issue-level ratings on CreditWatch with negative implications, reflecting the potential for increased unsecured and secured debt without an offsetting increase in PV-10 value at S&P Global's assumptions.
PDC Energy Inc. announced the acquisition of approximately 57,000 acres in the Delaware Basin from privately held companies managed by Kimmeridge Energy Management for approximately $1.5 billion. The transaction will give PDC presence in the Permian Basin a second core operating base and improve the company's scale, scope, and diversity relative to B-category peers.
As a result we have revised PDC's business risk assessment to weak from vulnerable based on the company's increased scale, scope, and diversity.
"The positive rating outlook on PDC Energy Inc. reflects the potential to upgrade the company over the next 12 months if it can successfully integrate the Permian assets and growth reserves and its proved developed reserve life to levels consistent with the BB-category," said S&P Global Ratings credit analyst David Lagasse. "In addition, an upgrade would require PDC to maintain a modest financial policy such that FFO to debt remained above 20%," he added.
We could revise the outlook to stable if the company is unable to increase production and reserves in line with our expectations, likely as a result of operational mishaps or lower-than-expected commodity prices. Additionally, we could return the outlook to stable if the company uses more debt than expected to finance its acquisition, or generates significant negative free cash flow and related debt as it develops its properties.
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