(The following statement was released by the rating agency)
Approximately $150 million of debt securities affected
Jan 14 - Moody's Investors Service downgraded Delta Petroleum
Corporation's (DPTR.O) (Delta) senior unsecured notes due 2015 to Caa3 (LGD 5,
76%) from Caa2 (LGD 4, 69%). Moody's also downgraded Delta's Corporate Family
Rating (CFR) to Caa2 from Caa1, its Probability of Default Rating (PDR) to Caa2
from Caa1, and its Speculative Grade Liquidity (SGL) rating to SGL-4 from
SGL-3. The ratings have been placed on review for further possible downgrade.
The downgrade primarily reflects the lack of liquidity. Presently, Delta has
approximately $46 million available under its $295 million borrowing base
facility. While this $46 million could be available to be drawn, Moody's
believes it is likely this facility will be reduced. Current market conditions,
including weaker oil and natural gas prices and the risk adverse capital
markets, will affect the company's next borrowing base re-determination, which
is expected to conclude in April 2009. As a result, this facility probably will
be reduced and Delta will be forced to sell assets to repay debt diverting cash
from reserves monetization.
Additionally, the downgrade reflects continued high and unsustainable costs and
leverage. Specifically, Moody's estimates Delta's three year average all
sources finding and development costs at $16.03, its leveraged full cycle costs
estimated at $57.07/boe, and its Debt/PD boe reserves at $30.90. Concurrently,
Delta's reserves have a high concentration risk, a continued reliance on an
aggressive drilling program for growth that includes some very expensive and
higher risk/higher reward wells which may continue to drive inconsistent
results, even if successful. Finally, with only 32% of reserves proved
developed, Moody's estimates that Delta will continue to need significant
resources to develop its reserves potential.
The review for further downgrade will assess: i) Delta's 2008 year-end reserves
and financial position in light of the company's 2008 drilling, land, and
acquisition spending of $657 million; ii) Delta's ability to raise new equity
or equivalent funding in the current market, in light of an upcoming borrowing
base revolver re-determination date; and iii) how Mr. Kirk Kerkorian's
approximate 35% ownership in Delta may affect the company's future.
The SGL-4 reflects Moody's expectation that the company possesses weak
liquidity. Delta relies on external sources of financing in a difficult market
environment. Also, the SGL-4 considers the company's $295 million borrowing
base revolver which as of the fourth quarter 2008 had less than $46 million of
availability. While currently in compliance with its financial covenants,
Moody's believes covenant compliance could be breached, at best tight, in 2009
given effect to market conditions. Consequently, Delta would require external
financing through asset monetization.
The last rating action on Delta was on April 1, 2008, at which time the
Corporate Family Rating and Senior Unsecured Rating were affirmed and the
rating outlook was changed to positive from stable.
The principal methodology used in rating Delta is the Global Independent
Exploration and Production Industry Rating Methodology, which can be found at
www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory.
Delta Petroleum Corporation, headquartered in Denver, CO, is small US
independent exploration and production company with a focus on the Gulf Coast,
Columbia River Basin, and Rocky Mountain regions. At the end of calendar year
2007, total reserves approached 62.6 mmboe, of which 32% is PD reserves.
Approximately 82% of the company's reserves are natural gas.
(New York Ratings Team)
