S&P Global Ratings on Aug. 26 lowered its ratings on another Appalachian shale driller by one notch, continuing a string of downgrades the rating agency expected for shale gas producers.
After the rating agency lowered its outlook for gas prices in the coming years, it first dropped Gulfport Energy Corp.'s rating to B+ from BB-, and soon after downgraded Antero Resources Corp.'s issuer credit and senior unsecured ratings to BB from BB+.
Most recently, the rating agency downgraded Range Resources Corp.'s issuer credit, senior unsecured and subordinated ratings to BB from BB+, while revising the shale driller's outlook to negative from stable. The move came after Ratings cut its price assumptions for natural gas and NGL prices in the years ahead.
Ratings attributed the rating cut to the reduction in its Henry Hub natural gas price assumptions through 2021. 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 — 25 cents/MMBtu less than its previous natural gas price baseline. S&P also expects NGL prices to be weak over the period.
"Furthermore, [Range] has moderate hedges in place covering about 45% of its expected gas production in 2020 and no hedges for 2021, leaving it exposed to market prices," credit analyst Matthew Terral said in a note. "We project that Range will have modest production growth of around 5% over the next few years and that it will be free cash flow neutral in 2020 and free cash flow positive thereafter, which we view favorably."
Ratings changed Range's outlook to negative as it expects the driller's credit metrics to be weak until 2020 due to low gas and NGL prices. "We project [funds from operations] to debt near 20%, and debt to EBITDA in the 3.5-4x range," Terral wrote in the note.
While Ratings said it was "unlikely" that it would upgrade Range over the next year, the agency said it may consider lifting the company's credit rating if funds from operations to total debt near 30% and debt to EBITDA drops closer to 3x 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.
