The Rating Outlook remains Positive.
KEY RATINGS DRIVERS
The upgrade results from the debt reduction and capital structure simplification that has occurred over the last few months. Notably, the company has spun-off its oil services division that resulted in debt reduction of over
The Positive Outlook is driven by Chesapeake management's intention to further de-lever and simplify its capital structure and expectations of significantly reduced free cash flow deficits in the future.
Chesapeake's ratings reflect the company's large asset base, operating profile and levered capital structure. As of year-end 2013, the company had almost 2.7 billion in proved reserves with nearly 70% of those being proved developed. Chesapeake has large attractive asset positions in the Marcellus and Utica Shales, the
Liquidity is primarily provided by the company's
CREDIT METRICS & EXPECTATIONS
Currently, Chesapeake has adjusted debt/EBITDA of approximately 3x per Fitch calculations. Remaining asset sales in 2014 are anticipated to be another
Operationally, Chesapeake is forecasting that its production for 2014 will average between 685,000 - 705,000 boe per day, which is an absolute increase over 2013's level of 668,483 boe per day. This continues a trend of annual production increases from Chesapeake going back years. Currently, a little over half of Chesapeake's production comes from the Marcellus North, the Mid-Continent region and the
Positive: Future developments that may, individually or collectively lead to positive rating action include:
Reducing adjusted debt/EBITDA to approximately 2.5X or below on a sustained basis;
Continued progress in deleveraging its capital structure relative to reserves and production;
Cash flow generation leading to consistent and, at least, neutral free cash flow generation after capex, capitalized interest, dividends and distributions.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
Mid-cycle adjusted debt/EBITDA or 3.5 or greater on a sustained basis;
Negative free cash flow after capex, capitalized interest, dividends and distributions leading to rising adjusted debt levels relative to reserves and production;
Marked decrease in production levels or proved developed reserves relative to adjusted debt.
Fitch has taken the following ratings actions on Chesapeake:
--IDR upgraded to 'BB' from 'BB-';
--Senior unsecured notes upgraded to 'BB' from 'BB-';
--Senior secured revolving credit facility affirmed at 'BBB-';
--Convertible preferred stock upgraded to 'B+' from 'B'.
The Rating Outlook remains Positive.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology Including Short-Term Ratings and Parent and Subsidiary Linkage' (
--'Updating Fitch's Oil & Gas Price Deck' (
--'Full Cycle Costs for North American E&P' (
--'North American Energy Outlook and LNG' (
--'North American Exploration and Production Handbook' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Updating Fitch's Oil & Gas Price Deck
Full Cycle Costs for North America E&P (Production Costs Moderate in 2013)
North American Energy Outlook and LNG
North American Exploration and Production Handbook
Source: Fitch Ratings
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