Fitch Upgrades Devon Energy Corporation to 'BBB+'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has upgraded Devon Energy Corporation's (Devon) Issuer Default Rating (IDR) to 'BBB+' from 'BBB'. The rating upgrade reflects the robust credit profile of the company and the anticipated debt reduction to occur in 2008.

In addition, Fitch has upgraded Devon's ratings as follows:

Devon Energy Corporation:

--Long-term Issuer Default Rating (IDR) to 'BBB+' from 'BBB';

--Senior unsecured notes to 'BBB+' from 'BBB';

--Preferred stock to 'BBB-' from 'BB+';

--Short-term IDR at 'F2';

--Commercial paper (CP) remains at 'F2'.

Devon Financing Corporation U.L.C.:

--Senior unsecured notes to 'BBB+' from 'BBB'.

PennzEnergy Company:

--Senior unsecured notes to 'BBB+' from 'BBB'.

Ocean Energy:

--Senior unsecured notes to 'BBB' from 'BBB-'.

The Rating Outlook has been revised to Stable.

The senior unsecured notes assumed in the Ocean Energy acquisition have note been explicitly guaranteed by Devon and is the primary driver for the one notch differential in the ratings.

Devon's ratings are supported by the company's sizable reserve base and production profile, the significant cash generation coming from the company's midstream operations, strong one- and three-year organic reserve replacement rates at very competitive F&D cost and the company's continued efforts to reduce debt. Additionally, Devon continues to have a strong portfolio of upstream projects which are expected to enable the company to continue to increase reserves and production. These opportunities include lower risk reserves associated with the company's onshore U.S. and Canada properties balanced against the longer-term opportunities associated with the company's Gulf of Mexico (GOM) and remaining international opportunities.

Offsetting concerns focus on the potential for the company to pursue further acquisitions, increased shareholder friendly activities and expectations of sizable capital expenditures to support long lead-time projects which increase the company's exposure to near-term commodity price falls. Mitigating factors to these concerns stem from the strong performance of the company's existing asset base which is expected to reduce the near-term need to pursue acquisitions. Additionally, strong stock performance combined with the excess cash flows being generated in the current robust commodity price environment reduce concerns related to shareholder friendly activities.

Devon is one of the largest independent oil and gas producers in North America with an estimated 2.5 billion barrels of oil equivalent (boe) of proven reserves at year-end 2007. Devon also gathers, processes, and markets its own and third party oil and gas production (including the extraction of natural gas liquids from the gas production) through its midstream business segment. In 2007, the midstream segment generated a robust $509 million in EBITDA for Devon. Of note is that Fitch assigns $750 million of debt to Devon's midstream business and given the strong performance of the segment, this remains conservative. Credit metrics have remained strong with EBITDAX-to-interest coverage of 15.2 times (x) for the 12 months ending December 31, 2007 and leverage as measured by debt-to-EBITDAX of 1.0x. Fitch estimates Devon's debt to boe of proven reserves totaled $2.68/boe and debt to proven developed reserves was $3.57/boe at year-end 2007. Both of these leverage metrics include an equity credit for the DECS and allocation of debt to midstream operations.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.