Moody's upgraded ConocoPhillips' senior unsecured and other long-term debt ratings to Baa1 from Baa2 and revised its outlook to stable from positive.
The upgrade reflects the company's large scale and resource base, globally diversified reserves and production and durable cash flow platform underpinned by relatively low-decline conventional oil and natural gas assets and very long-life oil-linked LNG assets, according to an Aug 3. news release.
Moody's revised outlook reflects the company's commitment to live within cash flow and utilize a portion of its cash cushion to pay down debt.
The rating agency also affirmed the Prime-2 short-term commercial paper ratings of ConocoPhillips and ConocoPhillips Qatar Funding Ltd, as well as the short-term ratings of guaranteed industrial revenue bonds, reflecting the company's excellent liquidity position.
"The upgrade recognizes [ConocoPhillips'] significant debt reduction and our expectation that the company will continue to manage its capital expenditures and dividends within operating cash flow," said Moody's senior analyst Sajjad Alam. "[ConocoPhillips] has achieved $6 billion of debt reduction so far in 2017 with a goal to eliminate $7 billion of balance sheet debt by year end and an additional $5 billion by 2019. By lowering its debt load and divesting lower margin assets, COP will retain greater financial flexibility in navigating the low commodity price environment."
Moody's noted that despite credit enhancing measures such as reducing exposure to low margin Canadian oil sands and North American natural gas, ConocoPhillips' leverage will remain high relative to most of its E&P peers as the planned deleveraging materializes over time. Coupled with the weak showing of the company's capital productivity and reserve replacement since 2014, further ratings increases are unlikely without material and sustainable improvements on these fronts.
The company's ratings could be upgraded if the retained cash flow/debt ratio can be sustained above 40% and the leveraged full-cycle ratio can be maintained comfortably above 1.5x, Moody's said.
ConocoPhillips remains the largest E&P company in Moody's rated universe with almost 1.2 million barrels of oil equivalent of daily production.