Moody's on March 2 placed QEP Resources Inc.'s ratings under review for downgrade following the company's announcement that it plans to divest its Williston and Uinta basin assets and pursue a $1.25 billion share repurchase program.
The Denver-based crude oil and natural gas exploration and production company recently engaged financial advisers to help with the divestiture of its non-Permian assets. The company also plans to allocate about 65% of its $1.08 billion 2018 capital investment plan to Permian Basin development to accelerate its shift to a pure-play Permian Basin company.
The ratings placed under review for downgrade include the company's Ba3 corporate family rating, Ba3-PD probability of default rating and Ba3 (LGD4) senior unsecured notes. The review will be focused on the success of QEP's divestiture, and the company's use of proceeds.
In the event of a successful divestiture of most of the company's non-Permian assets, Moody's said it expects to downgrade the company's ratings to a B1 or B2 corporate family rating.
"If the assets sales are largely successful, the post-transformation company would have a reduced scale and a weaker business profile," said Arvinder Saluja, Moody's vice president and senior analyst.
The rating agency said the company stands to become a smaller and more concentrated company with a presence in a singular basin following the transactions. The rating agency added that QEP would lose a large part of its production and reserves scale, and would be forced to develop its Permian acreage faster, increasing execution risk.
The company also stands to face increasing competition from other upstream companies for resources, Moody's said.
