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Moody's Cuts Energen Senior Note Ratings

Zacks Equity Research

U.S. energy holding company, Energen Corporation’s (EGN) senior note rating has been downgraded by Moody's Investors Service – the rating unit of Moody's Corporation (MCO) – to Ba1 from Baa3. The rating agency has also assigned a Ba1 Corporate Family Rating with a negative outlook and a SGL-2 Speculative Grade Liquidity Rating to Energen. Moody’s downgraded the company’s rating following the recent announcement of its sale of Alabama Gas Corporation (Alagasco) to The Laclede Group, Inc. (LG). This transaction is subject to state and federal regulatory approval and is expected to close in 2014.

The Alagasco transaction, valued at $1.6 billion, comprises $1.28 billion in cash and approximately $320 million of debt. Energen’s after-tax proceeds are estimated at $1.1 billion, after considering accelerated intangible drilling costs. This divestment would allow Energen to become a pure exploration and production company.

Energen plans to use cash proceeds from the transaction to reduce short-term debt, and thereby enhance its financial capacity to accelerate the pace of drilling and development of its Permian Basin assets in 2015 and beyond.

Birmingham, AL-based Energen is an independent oil and gas exploration and production company engaged in the acquisition, exploration, and development of oil and gas in the U.S. The company also purchases, distributes and sells clean-burning, energy-efficient natural gas to commercial and residential customers. The company had approximately 3.3 billion barrels of oil-equivalent proved, probable and possible reserves and contingent resources at year-end 2013. These all-domestic reserves are located primarily in the Permian Basin of west Texas.

We believe that Energen will be able to generate sufficient cash flows for its shareholders in the coming years backed by strong operating performances and good management decisions. Higher production of natural gas and natural gas liquids had had benefited the company's 2013 earnings.

Energen currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months. Meanwhile, one can consider better-ranked players in the energy sector like Helmerich & Payne, Inc. (HP). The stock sports a Zacks Rank #1 (Strong Buy).

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