Antero Resources Corp. Downgraded To 'B-' On Difficult Market Conditions; Outlook Negative

  • We expect U.S.-based exploration and production company Antero Resources Corp.'s credit measures to be below our expectations for the rating over the next two years under our revised oil and gas price assumptions.
  • While the company benefits from favorably priced hedges, we view its debt maturity schedule over the next three years as very challenging given current market conditions.
  • We lowered our issuer credit rating on Antero to 'B-' from 'B+'. We also lowered our issue-level ratings on the company's unsecured debt to 'B' from 'BB-' (recovery rating: '2').
  • The negative outlook reflects the likelihood of a downgrade if Antero does not address its upcoming debt maturities this year.
NEW YORK (S&P Global Ratings) March 27, 2020-- S&P Global Ratings today took the rating actions listed above.
Antero faces a significant challenge in addressing its upcoming debt maturities.  The company has $953 million due in November 2021, $923 million due in December 2022, and $750 million due in June 2023, and we view unsecured debt markets as unavailable based on the current trading prices of its securities. Antero plans to use proceeds from asset sales to address a portion of these obligations. In our estimation, the timing and amounts of these sales is uncertain given market conditions.
Antero is investing to increase production to meet unused firm transportation (FT) commitments.   We view Antero Resources Corp.'s pipeline transportation access a competitive advantage under most market conditions, because it provides it with access to favorable domestic natural gas and international natural gas liquids (NGL) markets. However, the cost of unused capacity will be a drag on profitability until the volumes are filled. We forecast that Antero is outspending internally generated cash, excluding one-time items and midstream distributions, to increase production by 8%-10% per year in order to fully utilize its transportation commitments by 2022.
The negative outlook reflects the refinancing risk Antero faces as it confronts large debt maturities beginning in 2021. This risk is particularly acute given the depressed commodity price environment.
We could lower the rating if Antero does not execute its plans this year to address upcoming debt maturities, including through proposed asset sales. We could also lower the rating if Antero's liquidity becomes constrained or credit measures weaken to the point that we view the capital structure as unsustainable. Such a scenario could occur if commodity prices, in particular prices for NGLs, weaken further, or if the gap between capital spending and internal cash flow widens.
We could revise the outlook to stable if Antero addresses its upcoming debt maturities. This would most likely occur if the company executes its asset sale plans. Improving credit measures, such as FFO to debt above 20%, would also support a stable outlook. This could occur if commodity prices, in particular prices for NGLs, strengthen, or if gains in capital efficiency narrow the gap between spending and internal cash flow.
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