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 January 15, 2016 - 5:29 PM EST
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Fitch Downgrades Pacific Exploration and Production's Ratings to 'C'

Fitch Ratings has downgraded Pacific Exploration and Production Corp. (Pacific) foreign and local long-term Issuer Default Ratings (IDRs) to 'C' from 'CCC'. Fitch has also downgraded to 'C/RR4' from 'CCC/RR4' its long-term rating on Pacific's outstanding senior unsecured debt issuances totaling approximately USD4 billion with final maturities in 2019 through and 2025.

KEY RATING DRIVERS

Interest Payment Postponement

The downgrade reflects Pacific's announcement on Jan. 14, 2016 that the company has elected to not make its scheduled interest payments on its 5.625% notes due Jan. 19, 2025 and its 5.375% notes due Jan. 26, 2019. The company intends to utilize its 30 day grace period pursuant to the indentures governing its respective notes. Should the company not make interest payments following the 30 day grace period, Fitch will downgrade the company's IDRs to Restricted Default (RD).

Severely Pressured Capital Structure and Liquidity

The rating action is consistent with Fitch's expectations that the company's capital structure would weaken to an unsustainable level over the near term as a result of the current decline of global oil prices to the USD30/bbl level. The company's ratings also incorporates the company's delay in the sale of assets to bolster liquidity as well as delays in reaching an agreement with the company's syndicate of lenders under its USD1 billion revolving credit facility and other bank loans. Towards the end of December 2015, the company received a 61 day waiver, which expires on Feb. 26, 2016, for some maintenance covenants included in these facilities. This waiver is concurrent to a previous 90 day waiver.

Pacific's credit metrics have been materially affected by the sharp decline in oil prices, as well as the company's debt increase during 2015. Total and net debt/EBITDA for the latest 12 months (LTM) ended September 2015 have increased to 4.3x and 3.9x, from 1.9x and 1.8x, as of year-end 2014. This was mostly due to due to the decline in global oil prices as well as Pacific's debt increase of more than USD600 million during first-half 2015. Positively, Pacific reported zero short-term debt as of September 2015.

RATING SENSITIVITIES

A negative rating action would be triggered by the company not making its interest payments following the expiration of the 30 day grace period for its 5.625% notes due Jan. 19, 2025 and its 5.375% notes due Jan. 26, 2019.

A positive rating action is unlikely in the medium term.

LIQUIDITY AND DEBT STRUCTURE

Weak Liquidity Position: The company's liquidity position versus debt amortizations as of Sept. 30, 2015 was adequate, with Pacific reporting $489 million of cash on hand and zero short-term debt. The company's debt amortization schedule is spread between 2017 and 2025 with an average of $1 billion coming due every two years. Fitch estimates that Pacific's half-cycle costs (i.e., the cost to maintain current liquids production and cover interest expense) is approximately $32/bbl. At current $30/bbl global prices, the company would not manage to cover its production and interest payment costs in the short to medium term. The company's liquidity could improve if the company succeeds at selling some none-core assets and if global oil prices rebound significantly from current levels.

Fitch has downgraded the following ratings:

Pacific Exploration and Production Corp.

--Foreign and local currency IDRs to 'C' from 'CCC';

--International senior unsecured bond ratings to 'C/RR4' from ' CCC/RR4'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997982

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997982

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Fitch Ratings
Primary Analyst
Lucas Aristizabal
Senior Director
+1-312-368-3260
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Secondary Analyst
Xavier Olave
Associate Director
+1-212-612-7895
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations:
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com


Source: Business Wire (January 15, 2016 - 5:29 PM EST)

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