Fitch Affirms Burlington Resources at 'BBB+'; Outlook Stable

Business Wire, Dec 13, 2004

CHICAGO -- Fitch Ratings has affirmed Burlington Resources Inc. (Burlington) as follows:

-- Senior unsecured debt 'BBB ';

-- Commercial paper 'F2'.

The Rating Outlook remains Stable.

The rating reflects the size and quality of Burlington's North American reserve base, its strong operations, and its healthy credit profile.

Burlington's asset base (1.958 billion barrels of oil equivalent of reserves) is dominated by North American natural gas properties. Currently, 64% of its reserves are located in the U.S. (primarily in the San Juan Basin, Wind River Basin, and Barnett Shale). Approximately 24% of its reserves are located in Canada (Western Canadian Sedimentary Basin and Deep Basin). The remaining 11% of its reserves are located internationally in Algeria, China, and in the East Irish Sea. Approximately 86% of its reserves are natural gas and 14% liquids. Burlington's proved developed reserves constitute 74% of the company's total, the highest among its peers.

The focus of onshore North American natural gas properties has led to Burlington's reserve profile becoming less risky and having a longer reserve/production ratio. Currently, the company's reserve life exceeds 12 years. Additionally, Burlington's finding, development, and acquisition costs have averaged about $7.30 per boe ($1.22 per mcfe) over the past three years, below that of many of its peers. It has added reserves in lower risk regions such as the Barnett Shale and extended reserves in familiar areas such as New Mexico's San Juan Basin and Western Canada's Deep Basin. Furthermore, the company's average reserve replacement ratio exceeds 180% over the past three years, also among the best in its peer group.

Year to date, Burlington has produced 2,808 million cubic feet equivalent per day (mmcfe/d), more than 11% greater than the same time period in 2003. Key contributing regions to the growth in the U.S. were the Williston Basin, the Madden Field, and southern Louisiana. International regions that contributed to the significant growth were Algeria (Ourhoud and MLN fields), the Pearl River Mouth area of the South China Sea, and CLAM in the Dutch offshore sector. Management believes it has the projects in place to reach annual growth targets of 3%-8% for the next several years.

The previously mentioned increased production, along with robust commodity prices and a stable cost structure, have contributed to Burlington's healthy credit profile. In the latest 12 months (LTM), EBITDAX was $3.7 billion, providing adjusted interest coverage of 11.6 times (x) and adjusted debt/EBITDAX of 1.1x. Healthy cash from operations and a disciplined capital budget led to free cash flow (EBITDAX less cash interest, cash taxes, capital expenditures, and changes in working capital) in excess of $700 million in LTM. In that same time period, Burlington did repurchase $456 million of stock, but Fitch does not view the action as being overly aggressive. Debt at Sept. 30, 2004 was $3.9 billion, a conservative amount considering its reserve profile. Debt per boe of $2.00 ($0.33/mcfe) and a debt per proved developed boe of $2.69 ($0.45/mcfe) are well within its current rating category. The company's liquidity situation remains quite strong with $1.8 billion of cash on hand and a fully available $1.5 billion credit facility.

Offsetting items include the company's share repurchase activity, its sensitivity to natural gas prices, and the long-term challenge of replacing reserves at economic costs in maturing hydrocarbon basins.

Burlington Resources ranks among the world's largest independent oil and gas companies and holds one of the industry's leading positions in North American natural gas reserves and production. The company conducts exploration, production and development operations in the U.S., Canada, the United Kingdom, Africa, China, and South America.