Standard & Poor's Ratings Services has placed its BBB long-term corporate credit and senior unsecured debt ratings on Petro-Canada, Calgary, (NYSE: PCZ; Toronto: PCA) on CreditWatch with positive implications following its planned merger with Suncor Energy Inc., Calgary, (NYSE; Toronto: SU).

S&P also placed the BBB senior unsecured debt rating on Petro-Canada’s subsidiary PC Financial Partnership on CreditWatch with positive implications.

S&P credit analyst Jamie Koutsoukis says, “The CreditWatch placement reflects our expectation that the combined companies' business risk profile will strengthen meaningfully as a result of the increased diversification and possible operating efficiencies. Furthermore, as the transaction will be completed through a common share exchange, we expect the pro forma financial risk profile to represent the sum of each company's existing financial positions, which we believe are solidly within the BBB rating category.”

Pro forma, the combined company would have more than 3.83 billion barrels of proven reserves; an expected average daily production of more than 680,000 barrels of oil equivalent per day (78% oil); and a combined reserve life index of more than 15 years. Both companies bring sizable proved developed reserves, and the combination of Petro-Canada's relatively larger production with Suncor's larger proven reserve base will likely strengthen the merged company's credit profile. Furthermore, Petro-Canada's large downstream operations and greater geographic diversification when compared with Suncor, further improves the merged entity's business risk profile.

S&P expects the pro forma financial risk profile to represent the sum of each company's existing conservative financial policies. As such, leverage should remain below 40% and cash flow protection measures should remain at levels commensurate with at least the BBB rating category. In addition, given the increased scale of the merged entity, Koutsoukis believes it will have greater capacity both operationally and financially to execute large-scale projects, without stressing its existing credit profile.

The CreditWatch placement is expected to be resolved after the transaction's details are finalized.