S&P Global Ratings on Aug. 23 lowered its ratings on Appalachian shale driller Antero Resources Corp. by one notch after it dropped its price assumptions for natural gas and NGL prices in the years ahead. Antero's outlook was changed to negative from stable.
The rating agency downgraded Antero's issuer credit and senior unsecured ratings to BB from BB+, saying the lower prices will likely result in weaker credit measures. S&P cut the price outlook it uses for oil and gas credit assessments on July 29 and warned that shale gas producers, in particular, could expect downgrades.
For Antero, S&P said the reduction in its Henry Hub natural gas price assumptions through 2021 were a reason for the downgrade. The rating agency now uses average expected prices of $2.25/MMBtu, $2.50/MMBtu and $2.75/MMBtu for 2019, 2020 and 2021, respectively, when examining credit, 25 cents/MMBtu less than its previous natural gas price baseline. S&P also anticipates NGL prices to be weak over the period.
S&P placed the negative outlook on Antero due to the challenging business conditions, even though the company holds a favorable natural gas hedge position. "We also forecast that the company will outspend internally generated cash flow over the next two years," S&P credit analyst Ben Tsocanos wrote in a note. "We expect [funds from operations] to debt to remain in the 25%-30% range over that period."
S&P said it could consider lifting Antero's credit rating if funds from operations to total debt surpasses 30% and debt to EBITDA falls closer to 2x on a sustained basis.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.
