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U.S. Upstream Oil And Gas Rating Action Summary And Key Takeaways Following The March 2020 Hydrocarbon Price Deck Revision

Andrew Stafford contributed to this article.

With the collapse of oil and gas prices, there has been a significant amount of upstream oil and gas rating activity by S&P Global Ratings, particularly in the U.S., and there's no light at the end of the tunnel yet (see chart 1).

Here, we summarize the rating actions (see table 2) we've taken on U.S. upstream companies and discuss the key findings driving these actions following the most recent revision of our hydrocarbon price assumptions on March 19 (see "S&P Global Ratings Cuts WTI And Brent Crude Oil Price Assumptions Amid Continued Near-Term Pressure"). Given the heavy preponderance of ratings on companies with negative outlooks, we also address some of the issues we will focus on that could trigger additional rating negative actions.

Chart 1

image

What's Different About This Downcycle?

Two notable differences stand out when we compare this downcycle with the 2015-2016 downturn. First, the ability to raise capital is limited relative to the last downturn during 2015-2016. In the past, the markets were more welcoming and willing to accept deals involving asset sales or the raising of equity by investment-grade issuers. If issuers were planning to sell assets in the current environment, we have been much more skeptical as to the ability and timing of any such asset sale that could preserve credit quality. Also, there has been a sea change in investor sentiment versus the last down cycle--stockholders now demand that producers focus on living within cash flows and require improvement in returns and profitability, so the likelihood of any investment-grade company issuing equity is remote.

For speculative-grade issuers, there is virtually no ability to issue unsecured debt or equity because of the limited investor appetite and given the yield on bonds.

Secondly, issuers during the last cycle were very successful in achieving significant efficiencies and garnering price concessions from oil field service (OFS) companies that reduced cost profiles, enabling them to better withstand lower prices. Producers today don't have quite the same ability to generate anywhere near the cost savings achieved last time around.

Investment-Grade Issuers Grapple With Lower Prices

We began our review with investment-grade issuers, given the keen investor focus. For the most part, we lowered investment-grade ratings because a company's leverage was either too high for the rating, it lacked hedges, or had weak credit metrics before the downturn began. In those instances where we affirmed issuer credit ratings and/or only revised outlooks, companies tended to have healthier balance sheets, lower-cost operations, or good hedge positions. For example, Hess Corp. (ratings affirmed, outlook revised to negative from stable), Concho Resources Inc. (ratings affirmed, outlook revised to stable from positive), and Diamondback Energy Inc. (ratings affirmed, outlook revised to negative from stable) had a hedge book that supported their credit quality and metrics.

Of the more noteworthy actions, four companies were downgraded to speculative grade: Occidental Petroleum Corp., Apache Corp., Patterson-UTI Energy Inc. (UTI-Patterson), and Continental Resources Inc. Moreover, we now have eight exploration and production (E&P) issuers that are on the cusp (BBB-/Negative/--) of slipping into fallen angel category (see table 1).

Table 1

U.S. Upstream Oil And Gas Issuers On The Fallen Angel Cusp
Segment Current Rating Current outlook Previous rating Previous outlook

Marathon Oil Corp.

E&P BBB- Negative BBB Stable

National Fuel Gas Co.

E&P BBB- Negative BBB Stable

Noble Energy Inc.

E&P BBB- Negative BBB Stable

Ovintiv Inc.

E&P BBB- Negative BBB Stable

Cimarex Energy Co.

E&P BBB- Negative BBB- Stable

Devon Energy Corp.

E&P BBB- Negative BBB- Stable

Diamondback Energy Inc.

E&P BBB- Negative BBB- Stable

Hess Corp.

E&P BBB- Negative BBB- Stable
Note: Ratings are as of May 8, 2020. E&P--Exploration and production. Source: S&P Global Ratings.

Inevitably, the question many investors will ask is: What will it take for those issuers to become fallen angels? The main driver will be our reassessment of our hydrocarbon price deck. While we typically review our assumptions once per quarter, we've been steadfast in not reacting to short-term volatility like that which we've recently seen. Any revision of our price decks, if it were to occur, would likely take place in the third quarter, allowing us time to assess supply and demand fundamentals, OPEC's and other producers' production cuts, and how prices and futures curves look for the next couple of years. If, at that time, we materially lower next year's and/or the following years' price assumptions, some or all of these issuers could fall from investment-grade status.

A few of the more notable downgrades in the OFS segment were Halliburton Co. (downgraded to 'BBB+') and Schlumberger Ltd. (downgraded to 'A'), with the notable fallen angel being UTI-Patterson (downgraded to 'BB+'). Going into this downturn, OFS issuers were already experiencing very difficult market conditions, and with North American E&P companies cutting capital spending budgets by an estimated 35% this year, the services segment has been decimated.

Speculative-Grade Issuers Struggle With Market Access

Most of our high yield, or speculative-grade, rating actions weren't related to high leverage or weak credit metrics but rather due to expected difficulties accessing the capital markets for maturing debt as well as a likely decline in revolving credit facility borrowing bases in the spring and upcoming fall redeterminations. Given what the yields are for many speculative-grade issuers, the likelihood and ability of many of them to access capital markets is minimal. We believe bank revolving credit facility borrowing bases will be down an average of 20%-25% during the spring redeterminations and that banks will be less willing and accommodating as they were during the last cycle, which will further limit liquidity and funding.

More Distressed Exchanges And Bankruptcies Are On The Way

Of note, is the high preponderance of issuers rated single 'B-' or below (see charts 1 and 2). There are 50 companies in this category, which represents 49% of the all rated oil and gas issuers. However, if you drill down deeper, we find that 37% of all oil and gas companies have ratings of 'CCC+' or below, which indicates a high degree of probable defaults and/or bankruptcies.

Chart 2

image

We expect the rate of distressed exchanges and bankruptcies to increase substantially over the next year. Since the beginning of 2015, there have been a total of 215 E&P companies and 196 OFS companies that have filed bankruptcy in North America, equating to almost $200 billion in debt.

Table 2

Oil And Gas Upstream Rating And Outlook Revisions Since March 2020
Issuer Rating action date To From Report
Antero Resources Corp. 3/27/2020 B-/Negative B+/Negative Antero Resources Corp. Downgraded To 'B-' On Difficult Market Conditions; Outlook Negative
Apache Corp. 3/26/2020 BB+/Negative BBB/Stable Apache Corp. Downgraded To 'BB+', Outlook Negative
Ascent Resources Utica Holdings LLC 3/30/2020 CCC+/Negative B/Negative Ascent Resources Utica Holdings LLC Downgraded To 'CCC+'; Outlook Negativeearch Updates
Baker Hughes Co. 3/25/2020 A-/Negative A-/Stable Baker Hughes Co. Outlook Revised To Negative From Stable On Difficult Market Conditions; 'A-' Ratings Affirmed
BEP Ulterra Holdings. Inc. 4/8/2020 B-/Negative B-/Stable BEP Ulterra Holdings Inc. Outlook Revised To Negative On Diminishing Exploration And Production Activity
Berry Petroleum Corp. 4/3/2020 B-/Negative B /Stable Berry Petroleum Corp. Rating Lowered To 'B-' On Lower Commodity Prices; Outlook Negative
Bruin E&P Partners LLC 4/13/2020 CCC-/Negative CCC+/Negative Bruin E&P Partners LLC Downgraded To 'CCC-' Following Advisor Hires, Curtailed Drilling; Outlook Negative
Callon Petroleum Co. 4/2/2020 B-/Negative B+/Stable Callon Petroleum Co. Downgraded To 'B-' On Weakening Financials; Outlook Negative
Centennial Resource Development, Inc. 3/27/2020 CCC+/Negative B+/Stable Centennial Resource Development Inc. Downgraded To 'CCC+' From 'B+' On Sharp Drop In Commodity Prices; Outlook Negative
Centennial Resource Development, Inc. 4/23/2020 CC/Negative CCC+/Negative Centennial Resource Development Inc. Downgraded To 'CC' From 'CCC+' On Distressed Exchange; Outlook Negative
Chaparral Energy Inc. 4/14/2020 CCC-/Negative CCC+/Negative Chaparral Energy Inc. Downgraded To 'CCC-' From 'CCC+' Following Revolver Drawdown; Outlook Negative
Chesapeake Energy Corp. 4/21/2020 CCC/Negative CCC/Negative Chesapeake Energy Corp. Cumulative Convertible Preferred Securities Rating Lowered To 'D' On Dividend Payment Suspension
Chesapeake Energy Corp. 5/1/2020 CC/Negative CCC/Negative Chesapeake Energy Corp. Issuer Credit Rating Lowered To 'CC' On Likely Default; Outlook Negative
Chevron Corp. 3/23/2020 AA/Negative AA/Stable Chevron Corp. Outlook Revised To Negative On Weaker-Than-Expected Financial Performance In 2020, Ratings Affirmed
Cimarex Energy Co. 3/26/2020 BBB-/Negative BBB-/Stable Cimarex Energy Co. Outlook Revised To Negative On Weaker Financial Measures; 'BBB-' Rating Affirmed
CNX Resources Corp. 4/8/2020 B+/Negative B+/Negative CNX Resources Corp. Ratings Affirmed On Favorable Hedges; Outlook Negative
Comstock Resources Inc. 3/23/2020

CCC+/Stable

B/Negative Comstock Resources Inc. Downgraded To 'CCC+'; Outlook Stable
Concho Resources Inc. 3/26/2020 BBB-/Stable BBB-/Positive Concho Resources Inc. Outlook Revised To Stable From Positive On Weaker Commodity Prices; Ratings Affirmed
ConocoPhillips 3/26/2020 A/Negative A/Stable ConocoPhillips 'A' Ratings Affirmed; Outlook Revised To Negative On Lower Oil Price Assumptions
Continental Resources Inc. 3/27/2020 BB+/Negative BBB-/Stable Continental Resources Inc. Lowered To 'BB+' From 'BBB-' On Weaker Credit Measures, Refinancing Risk; Outlook Negative
CrownRock L.P. 4/2/2020 B+/Stable B+/Stable CrownRock L.P. Ratings Affirmed On Solid Commodity Price Hedges And Expectation Of Free Cash Flow; Outlook Stable
Devon Energy Corp. 3/27/2020 BBB-/Negative BBB-/Stable Devon Energy Corp. Outlook Revised To Negative On Weaker Credit Measures; 'BBB-' Ratings Affirmed
Diamond Offshore Drilling Inc. 4/16/2020 CC/Negative CCC+/Stable Diamond Offshore Drilling Inc. Downgraded To 'CC' From 'CCC+' On Missed Interest Payment; Outlook Negative
Diamond Offshore Drilling Inc. 4/24/2020 D/-- CC/Negative Diamond Offshore Drilling Inc. Downgraded To 'D' On Weakening Market Conditions And Missed Interest Payment
Diamondback Energy Inc. 3/25/2020 BBB-/Negative BBB-/Stable Diamondback Energy Inc. Outlook Revised To Negative On Weaker Credit Metrics; 'BBB-' Rating Affirmed
Encino Acquisition Partners LLC 3/26/2020 B-/Negative B+/Negative Encino Acquisition Partners LLC Downgraded To 'B-'; Outlook Remains Negative
Endeavor Energy Resources L.P. 4/2/2020 BB-/Negative BB-/Stable Endeavor Energy Resources L.P. Outlook Revised To Negative On Weaker Leverage Metrics And Expected Cash OutflowsS&P Global Ratings > Research Updates
EnVen Energy Corp. 4/8/2020 B-/Negative B/Negative EnVen Energy Corp. Downgraded To 'B-' On Weaker Credit Metrics; Outlook Negative
EOG Resources Inc. 3/18/2020 A-/Negative A-/Stable EOG Resources Inc. Outlook Revised To Negative On Weaker Credit Metrics; 'A-' Rating Affirmed
EQT Corp. 4/1/2020 BB-/negative BB+/Negative EQT Corp. Downgraded To 'BB-' On Difficult Market Conditions; Outlook Negative
Extraction Oil & Gas Inc. 4/3/2020 CCC+/Negative B-/Negative Extraction Oil & Gas Inc. Rating Lowered To 'CCC+' From 'B-' On Lower Price Assumptions; Outlook Negative
Exxon Mobil Corp. 3/16/2020 AA/Negative AA+/Negative Exxon Mobil Corp. Downgraded To 'AA' As Lower Oil Price Assumption Weakens Cash Flow/Leverage Metrics; Outlook Negative
Fieldwood Energy LLC 4/8/2020 CCC/Negative B-/Stable Fieldwood Energy LLC Downgraded To 'CCC' On Weakening Financial Measures, Liquidity Concerns; Outlook Negative
Forum Energy Technologies Inc. 4/3/2020 CCC/Negative B-/Negative Forum Energy Technologies Inc. Downgraded To 'CCC' On Unsustainable Leverage, Refinancing Risk; Outlook Negative
Forum Energy Technologies Inc. 4/15/2020 CC/Negative CCC/Negative Forum Energy Technologies Inc. Downgraded To 'CC' On Distressed Tender Offer; Outlook Negative
FTS International Inc. 4/20/2020 CCC-/Negative CCC+/Negative FTS International Inc. Downgraded To 'CCC-' On Weak Drilling Activity, Heightened Restructuring Risk; Outlook Negative
Gavilan Resources LLC 4/1/2020 CCC-/Negative CCC+/Negative Gavilan Resources LLC Downgraded To 'CCC-' On Likely Borrowing Base Deficiency; Outlook Negative
Gavilan Resources LLC 4/7/2020 D/-- CCC-/Negative Gavilan Resources LLC Ratings Lowered To 'D' On Missed Interest Payment
Great Western Petroleum LLC 3/31/2020 CCC+/Negative B-/Stable Great Western Petroleum LLC Rating Lowered To 'CCC+' On Refinancing Risk; Outlook Negative
Gulfport Energy Corp. 3/20/2020 CCC+/Negative B/Negative Gulfport Energy Corp. Downgraded To 'CCC+' On Weakening Financials; Outlook Negative
Halliburton Co. 3/26/2020 BBB+/Negative A-/Negative Halliburton Co. Rating Lowered To 'BBB+' On Expected Weaker Credit Measures Due To Lower Prices; Outlook Negative
Helmerich & Payne Inc. 3/26/2020 BBB+/Negative BBB+/Stable Outlook On Helmerich & Payne Inc. Revised To Negative On Weaker Credit Metrics; 'BBB+' Rating Affirmed
Hess Corp. 3/27/2020 BBB-/Negative BBB-/Stable Hess Corp. 'BBB-' Rating Affirmed, Outlook Negative
HGIM Corp. 4/13/2020 CCC+/Negative B-/Stable HGIM Corp. Downgraded To 'CCC+' On Unsustainable Leverage, Weak Market Conditions; Outlook Negative
HighPoint Resources Corp. 3/27/2020 CCC+/Negative B/Stable HighPoint Resources Corp. Downgraded To 'CCC+' On Liquidity Risks; Outlook Negative
Hilcorp Energy I L.P. 4/7/2020 BB-/Watch Neg BB+/Watch Neg Hilcorp Downgraded To 'BB-' On Weak Credit Metrics, Ratings Remain On CreditWatch Negative On Proposed BP Acquisition
Hornbeck Offshore Services Inc. 4/2/2020 D/-- SD/-- Hornbeck Offshore Services Inc. Downgraded To 'D' From 'SD' On Expected Chapter 11 Filing
KLX Energy Services Holding Inc. 3/27/2020 CCC+/Stable B-/Stable KLX Energy Services Holdings Inc. Downgraded To 'CCC+' As Sector Demand Deteriorates; Outlook Stable
Kosmos Energy Ltd. 4/7/2020 B/Negative B+/Stable Kosmos Energy Ltd. Downgraded To 'B' On Weaker Measures From Steep Decline In Commodity Prices; Outlook Negative
Laredo Petroleum Inc. 4/2/2020 B-/Negative B+/Negative Laredo Petroleum Inc. Downgraded To 'B-' From 'B+' On Expected Weaker Credit Metrics; Outlook Negative
Lonestar Resources U.S. Inc. 3/18/2020 CCC+/Negative B-/Stable Lonestar Resources U.S. Inc. Downgraded To 'CCC+' On Tightening Liquidity; Outlook Negative
Lonestar Resources U.S. Inc. 4/20/2020 CCC-/Negative CCC+/Negative Lonestar Resources U.S. Inc. Downgraded To 'CCC-' On Liquidity Risks; Outlook Negative
Magnolia Oil & Gas Corp. 4/7/2020 B+/Negative B+/Negative Magnolia Oil & Gas Corp. Outlook Revised To Negative On Weaker Credit Measures In 2020; Ratings Affirmed
Marathon Oil Corp. 3/26/2020 BBB-/Negative BBB/Stable Marathon Oil Corp. Downgraded To 'BBB-' On Weak Market Conditions; Outlook Negative
Matador Resources Co. 3/27/2020 B-/Negative B+/Stable Moss Creek Resources Holdings Inc. Downgraded To 'CCC+' After Steep Drop In Commodity Prices; Outlook Negative
MD America Energy LLC 4/14/2020 CCC/Negative B-/Stable MD America Energy LLC Downgraded To 'CCC' On Default Risk, Then Withdrawn At Issuer Request
Moss Creek Resources Holdings Inc. 4/3/2020 CCC+/Negative B/Stable Moss Creek Resources Holdings Inc. Downgraded To 'CCC+' After Steep Drop In Commodity Prices; Outlook Negative
Murphy Oil Corp. 3/31/2020 BB/Negative BB+/Stable Murphy Oil Corp. Downgraded To 'BB' On Weaker Credit Metrics And Difficult Market Conditions; Outlook Negative
Nabors Industries Ltd. 4/1/2020 B-/Negative BB-/Negative Nabors Industries Ltd. Downgraded To 'B-' From 'BB-' On Weak Market Conditions; Outlook Negative
National Fuel Gas Co. 3/27/2020 BBB-/Negative BBB/Stable National Fuel Gas Co. Downgraded To 'BBB-' As Lower Price Assumptions Weaken Credit Metrics; Outlook Negative
National Oilwell Varco Inc. 3/26/2020 BBB+/Negative BBB+/Stable National Oilwell Varco Inc. Outlook Revised To Negative On Weaker Market Conditions; Ratings Affirmed
NexTier Oilfield Solutions Inc. 4/3/2020 B/Negative B+/Stable NexTier Oilfield Solutions Inc. Downgraded To 'B' As Oilfield Services Demand Collapses; Outlook Negative
Nine Energy Service Inc. 3/20/2020 CCC+/Stable B-/Stable Nine Energy Service Inc. Downgraded To 'CCC+'; Outlook Stable
Noble Corp.n PLC 4/17/2020 CCC-/Negative CCC+/Stable Noble Corp. PLC Downgraded To 'CCC-' On Likelihood Of Distressed Exchange Or Restructuring; Outlook Negative
Noble Energy Inc. 3/27/2020 BBB-/Negative BBB/Stable Noble Energy Inc. Lowered to 'BBB-'; Outlook Negative
Northern Oil & Gas Inc. 4/3/2020 CCC+/Negative B-/Stable Northern Oil and Gas Inc. Downgraded To ‘CCC+’ From ‘B-’ On Lower Commodity Prices; Outlook Negative
Oasis Petroleum Inc. 3/26/2020 CCC+/Negative B+/Stable Oasis Petroleum Inc. Downgraded To 'CCC+' On Weaker Credit Metrics, Refinancing Risk; Outlook Negative
Occidental Petroleum Corp. 3/25/2020 BB+/Watch Neg BBB/Stable Occidental Petroleum Corp. Ratings Lowered To 'BB+' From 'BBB' On Expected Weaker Credit Measures; On Watch Negative
Oceaneering International Inc. 4/6/2020 B+/Negative BB/Negative Oceaneering International Inc. Ratings Lowered To 'B+' On Weaker Credit Metrics; Outlook Negative
Ovintiv Inc. 3/26/2020 BBB-/Negative BBB/Stable Ovintiv Inc. Downgraded To 'BBB-' On Lower Oil And Natural Gas Price Assumptions; Outlook Negative
Pacific Drilling S.A. 4/17/2020 CCC-/Negative CCC+/Negative Pacific Drilling S.A. Downgraded To 'CCC-' On Weak Sector Conditions, Risk Of Distressed Exchange; Outlook Negative
Parsley Energy LLC. 4/1/2020 BB/Stable BB /Stable Parsley Energy LLC 'BB' Ratings Affirmed; Outlook Stable
Patterson-UTI Energy Inc. 3/26/2020 BB+/Negative BBB/Negative Patterson-UTI Energy Inc. Downgraded To 'BB+' As Capital Expenditure Cuts Weaken Credit Metrics; Outlook Negative
PDC Energy, Inc. 4/3/2020 BB/Negative BB/Stable PDC Energy Inc. 'BB' Rating Affirmed; Outlook Negative Due To Weaker Commodity Prices
Pioneer Natural Resources Co. 4/1/2020 BBB/Stable BBB/Stable Pioneer Natural Resources Co. Ratings Affirmed, Outlook Stable, On Strong Balance Sheet, Hedging, And Spending Cuts
Profrac Services LLC 4/3/2020 CCC/Negative B-/Negative ProFrac Services LLC Downgraded To 'CCC' On Tightening Liquidity, Outlook Negative
QEP Resources Inc. 4/1/2020 B/Negative B+/Negative QEP Resources Inc. Downgraded To 'B' On Weaker Credit Measures After Sharp Decline In Commodity Prices; Outlook Negative
Range Resources Corp. 3/31/2020 B/Negative BB-/Negative Range Resources Corp. Downgraded To 'B' On Lower Commodity Prices; Outlook Negative
Sable Permian Resources Finance LLC 4/8/2020 D/-- CCC+/Negative Sable Permian Resources Finance LLC Downgraded To 'D' On Missed Interest Payment
Schlumberger Ltd. 3/26/2020 A/Negative A+/Negative Schlumberger Ltd. Downgraded To 'A' On Expected Drop In OFS Demand; Outlook Negative
SM Energy Co. 4/1/2020 B-/Negative BB-/Stable SM Energy Co. Downgraded To 'B-' On Increased Refinancing Risk After Steep Drop In Commodity Prices; Outlook Negative
SM Energy Co. 4/30/2020 CC/Negative B-/Negative SM Energy Co. Downgraded To 'CC' On Distressed Exchange; Outlook Negative
Southwestern Energy Co. 4/7/2020 BB-/Negative BB/Negative Southwestern Energy Co. Downgraded To 'BB-' From 'BB' On Weaker Cash Flow And Leverage Metrics; Outlook Negative
TechnipFMC plc 4/3/2020 BBB+/Negative BBB+/Watch Neg TechnipFMC PLC 'BBB+' Ratings Affirmed And Removed From CreditWatch; Outlook Negative
Transocean Ltd. 4/20/2020 CCC/Negative CCC+/Negative Transocean Ltd. Downgraded To 'CCC' On Deteriorating Industry Conditions, Potential Debt Exchange; Outlook Negative
Ultra Petroleum Corp. 4/17/2020 D/-- CCC-/Negative Ultra Petroleum Corp. Downgraded To 'D' From 'CCC-' Following Missed Interest Payment On Unsecured Notes
Valaris PLC 4/20/2020 CCC-/Negative CCC+/Negative Valaris PLC Downgraded To 'CCC-'; Outlook Negative
Vantage Drilling International 4/20/2020 CCC/Negative CCC+/Stable Vantage Drilling International Downgraded To 'CCC' On Risk Of Distressed Debt Exchange; Outlook Negative
W&T Offshore Inc. 4/8/2020 CCC+/Negative B-/Stable W&T Offshore Inc. Downgraded To 'CCC+' From 'B-' On Weak Financial Measures, Market Conditions; Outlook Negative
Weatherford International plc 4/2/2020 CCC+/Negative B-/Negative Weatherford International plc Downgraded To 'CCC+' On Weak Market Conditions; Outlook Negative
Weatherford International plc 4/15/2020 CCC/Negative CCC+/Negative Weatherford International PLC Downgraded To 'CCC' As It Seeks Debt Reduction; Outlook Negative
Whiting Petroleum Corp. 4/1/2020 D/-- CCC+/Negative Whiting Petroleum Corp. Downgraded To 'D' From 'CCC+' On Announced Commencement Of Chapter 11 Bankruptcy Proceedings
WPX Energy Inc. 3/23/2020 BB-/Stable BB-/Watch Pos WPX Energy Inc. 'BB-' Ratings Affirmed And Removed From CreditWatch On Close Of Felix Energy Acquisition; Outlook Stable
Note: Ratings are of May 8, 2020. Source: S&P Global Ratings.

This report does not constitute a rating action.

Primary Credit Analyst:Thomas A Watters, New York (1) 212-438-7818;
thomas.watters@spglobal.com

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