S&P rates Sitio, notes B

S&P said it assigned B ratings to Sitio Royalties Corp. and planned $500 million of senior unsecured notes. Subsidiaries Sitio Royalties Operating Partnership LP and Sitio Finance Corp. will co-issue the notes. The 3 recovery rating on the notes indicates meaningful (50%-70%; rounded estimate: 55%) recovery in default.

“Our B issuer credit rating reflects Sitio Royalties Corp.'s small scale, lack of operational control of its assets, and relatively low return on capital, offset by broad operator diversification, good product diversification, and strong per-unit cash flow generation.

“Sitio is an oil and gas mineral and royalty interest company with over 275,000 net royalty acres (NRAs), primarily in the Permian Basin. Although its net proved reserves and production put it at the low end of our rated exploration and production (E&P) universe, the company has broad operator diversification with over 240 operators, and a balanced mix of production between oil, natural gas, and natural gas liquids (NGLs),” S&P said in a press release.

Sitio plans to use proceeds to repay its senior notes due 2026 with $416 million outstanding as of June 30.

The outlook is stable.

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