Standard & Poor's Places Ratings on Oryx Energy Co. and Kerr-McGee Corp. on CreditWatch

Strategic Insights -

Standard & Poor's has placed its ratings on Oryx Energy Co. and Kerr-McGee Corp. on CreditWatch, a move that follows the companies' announcement of a merger that will form the fourth-largest independent exploration company in the United States. The merged company, Kerr-McGee Corp., will be 55%-owned by Kerr-McGee's shareholders and will have a significant impact on the company's debt leverage, with total debt to total capital rising to approximately 56% and total debt to trailing 12-month discretionary cash flow increasing to 2.2 times from less than 2.0x.

Key Takeaways:

  • Standard & Poor's has placed its ratings on Oryx Energy Co. and Kerr-McGee Corp. on CreditWatch with positive and negative implications, respectively, following the announcement of a merger between the two companies.
  • The merged company, Kerr-McGee Corp., will be the fourth-largest independent exploration company in the United States, with a 55% ownership by Kerr-McGee's shareholders.
  • The merger will significantly increase Kerr-McGee's debt leverage, with total debt to total capital rising to approximately 56% and total debt to trailing 12-month discretionary cash flow increasing to 2.2 times from less than 2.0x.
  • Cash flow measures may further deteriorate in the short term due to falling hydrocarbon prices, but the merger will strengthen Kerr-McGee's business position by adding mass in the Gulf of Mexico and North Sea, providing opportunities for more than $100 million of annual cost savings.
  • Standard & Poor's expects to meet with Kerr-McGee's management to discuss the timing and nature of anticipated cost savings and the company's financial policies.
  • The merger will increase the risk profile of the company's exploration program due to its increased weighting toward the volatile oil and gas exploration and production industry.

Statistics:

  • Total debt to total capital: approximately 56%
  • Total debt to trailing 12-month discretionary cash flow: 2.2 times
  • Annual cost savings: more than $100 million
  • CreditWatch listing implications: positive and negative for Oryx Energy Co. and Kerr-McGee Corp., respectively

Sources:

  • Standard & Poor's press release: "Standard & Poor's Places Ratings on Oryx Energy Co. and Kerr-McGee Corp. on CreditWatch"
  • CreditWire: "Standard & Poor's Places Kerr-McGee Corp. and Oryx Energy Co. Ratings on CreditWatch"