Fitch Ratings on Aug. 6 downgraded Marathon Oil Corp.'s long-term issuer default and senior unsecured debt ratings to BBB- from BBB.
Fitch also downgraded the oil producer's short-term issuer default ratings and commercial paper ratings to F3 from F2, and revised the rating outlook from negative to stable.
"The main drivers of the downgrade are Fitch's expectations for lower company production over the next few years given the combination of weak realized prices and an expected emphasis on [free cash flow] over growth in the current downturn," Fitch said. The rating agency anticipates Marathon's strategy will lead "the company's leverage metrics [to] remain elevated longer and [to] be more consistent with a 'BBB-' on a midcycle basis."
Marathon reduced its 2020 capital budget ceiling from $1.3 billion to $1.2 billion, and Marathon Chairman, President and CEO Lee Tillman reiterated that the company had "hit the pause button" on its operations in Oklahoma and the Delaware Basin in favor of redirecting most of its capital to the Bakken and Eagle Ford shales.
However, Fitch said Marathon's "operational and financial profile will continue to be reasonably resilient in the lower price environment and remain within the investment-grade threshold."
In addition, Fitch assigned a BBB- rating to Marathon's $400 million in senior unsecured tax-exempt revenue refunding bonds, which are part of the $1 billion St. John the Baptist, La., series 2017 revenue refunding bond issued Dec. 18, 2017. Marathon had redeemed the bonds in 2017 and held them in treasury but remarketed $600 million of them to third-party investors in October 2019. Marathon has an option to convert and remarket the remaining $400 million in bonds to investors until their 2037 maturity date. Fitch expects that transaction will be leverage neutral.