How Can ConocoPhillips Reach Its Target Debt Level by 2019?



ConocoPhillips’s debt reduction plans

On September 30, 2016, ConocoPhillips (COP) had ~$27.4 billion in long-term debt outstanding, with $1.1 billion due in 2017. Under its debt reduction plan, as shown in the below chart, ConocoPhillips plans to retire outstanding bonds as they mature. ConocoPhillips will retire $1.1 billion of bonds in 2017, $1.9 billion of bonds in 2018, and $2.3 billion of bonds in 2017.

ConocoPhillips (COP) also has a term loan that is due in 2019. The company chose to take a term loan rather than issue bonds because it wanted the flexibility to efficiently retire debt early if it had the opportunity.

If the proceeds from its asset sales are realized earlier than anticipated, COP could retire its debt earlier than shown in its maturity schedules. By the end of 2019, COP expects to achieve its debt-reduction goal, with its balance sheet debt falling by $7 billion to $20 billion.

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ConocoPhillips’s credit ratings

Due to a prolonged downturn in crude oil and natural gas prices, credit rating agencies reviewed many upstream companies earlier this year, including ConocoPhillips. In 1H16, ConocoPhillips’s corporate credit rating was downgraded by all three credit ratings agencies as follows:

  • Standard & Poor’s Ratings Services downgraded COP’s credit rating to “A-” from “A,” with a negative outlook.
  • Fitch Ratings downgraded COP’s credit rating to “A-” from “A,” with a negative outlook.
  • Moody’s Investor Services downgraded COP’s credit rating to “A2” from “A1,” with a stable outlook.

Although these are all investment-grade credit ratings, ConocoPhillips plan to return to a solid “A” credit rating across the board within the next three years.

Other upstream companies

In 2016, the credit ratings of S&P 500 (SPY) companies such as Chesapeake Energy (CHK), Southwestern Energy (SWN), and Devon Energy (DVN) have also been downgraded.

The SPDR S&P Oil and Gas Exploration & Production ETF (XOP) generally invests at least 80% of its total assets in oil and gas exploration companies.


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