Occidental Petroleum Corp., Apache Corp. and EOG Resources Inc. have strong debt capacity, according to credit-rating agency Standard & Poor's. The three U.S.-based producers are the strongest E&P companies among their peers that have outstanding public debt, in terms of credit rating. The strong debt capacity means lots of dry powder for M&A, and the ability to finance large capex budgets with cash. "Of all the factors coloring the U.S. oil and gas landscape recently, none has been more spectacular than the breathtaking pace of M&A activity," says John Thieroff, an energy credit analyst for S&P in New York. "Anadarko Petroleum Co.'s announcement on June 23 that it would buy Kerr-McGee Corp. and Western Gas Resources Inc. for $23 billion was stunning, but it was also just the latest in a procession of high-priced deals in a white-hot market." S&P has initiated a regular ranking of debtors in various industries in terms of credit quality, and its rankings in the upstream, midstream and downstream energy sectors are the first to be published. Privately held Hunt Oil Co., based in Dallas, ranks fourth in credit quality among U.S.-based producers that have outstanding public debt. Anadarko is in fifth place, and its acquisition targets, Kerr-McGee and Western Gas, will contribute additional strong credit quality from their balance sheets-they rank 10th and 11th, respectively. Better or worse credit quality isn't necessarily a reflection of how much debt each producer has on its books, though: virtually debt-free Cimarex Energy Co. ranks 19th in the survey, while debt-philic Chesapeake Energy Corp. ranks 14th. Which producers among those whose credit quality is reviewed by S&P are dangerously leveraged? Venoco Inc., Brigham Exploration Co., Delta Petroleum Corp., Belden & Blake Corp. and PetroQuest Energy Inc.

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