S&P rates Strathcona B+, notes BB-

S&P said it assigned a B+ rating to Strathcona Resources Ltd. and BB- and 2 recovery ratings to its planned $500 million of senior unsecured notes.

“Strathcona has a high proved reserves base and a long reserve life, but its relatively higher cost structure constrains potential upside to our business risk assessment. Strathcona has relatively good scale of production (about 80,000 boe per day expected in 2021), operating in key Canadian plays, such as the Cold Lake region, Montney, and Cactus Lake. While 55% to 60% of the average daily production is from heavy oil, the company also produces natural gas (25%) and condensate (about 15%) at its Montney assets, which provide a natural hedge as these are used in the bitumen production process,” S&P said in a press release.

Strathcona plans to use the proceeds to repay C$100 million on its term loan with the balance toward paying down its revolving credit facility, resulting in a leverage neutral transaction, the agency noted.

The outlook is stable, reflecting the view that adjusted funds from operations (FFO) to debt will average about 30% over the next two years and management will adhere to conservative financial policies, S&P said.

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