Investing.com -- S&P Global Ratings has revised its outlook for Oklahoma-based crude oil and natural gas company, Vital Energy Inc (NYSE: VTLE )., from positive to stable. The ’B’ issuer credit rating and ’B’ issue-level rating on its senior unsecured debt have been affirmed. The ’4’ recovery rating on the senior unsecured debt remains unchanged.

The revision in outlook is due to the anticipation of slower improvement in Vital Energy’s credit measures than previously forecasted, attributed to lower commodity prices and slower than expected debt reduction. Despite weaker commodity prices, S&P expects Vital Energy to maintain appropriate credit measures for the current rating, including funds from operations (FFO) to debt of 40%-45%.

S&P Global Ratings announced these rating actions on May 14, 2025. The company is expected to generate positive free operating cash flow (FOCF), which it will primarily use to repay borrowings on its credit facility.

The outlook revision also reflects S&P’s expectation that Vital Energy’s FFO to debt will average less than 45% in 2025 and 2026, a decrease from the previous estimate of about 55% over the same two-year period. Lower price assumptions for West Texas Intermediate (WTI) crude oil, including $60 per barrel in 2025 and $65 per barrel in 2026, have led to this downward revision.

As of March 31, 2025, Vital Energy had $735 million drawn on its reserve-based lending (RBL) credit facility, primarily from financing its 80% interest acquisition in Point Energy Partners in September 2024. The company paid about $815 million cash at the close of the deal, primarily using borrowings under its RBL.

S&P anticipates that Vital Energy will generate about $510 million of positive FOCF in 2025 and 2026 combined, which will be used to reduce its outstanding RBL borrowings. This expectation is based on production averaging about 137,000 barrels of oil equivalent per day in 2025 and 2026 and annual capital expenditure of $875 million-$900 million per year.

Vital Energy’s ’B’ issuer credit rating is supported by its increased scale following recent transactions, including the acquisition of a three-asset package completed in November 2023, which added about 35,000 barrels of oil equivalent per day of production in the Delaware and Midland basins. The company now holds more than 80,000 net acres in the Delaware Basin and over 200,000 net acres in the Midland Basin, providing about 11 years of drilling inventory at the company’s current drilling pace.

The stable outlook on Vital reflects S&P’s view that it will maintain appropriate credit measures for the rating for at least the next 12 months. This includes generating positive FOCF and allocating the majority of this to reduce the borrowings on its credit facility, supporting its credit measures.

S&P could lower its rating on Vital if its credit measures weaken such that its FFO to debt falls below 30% for a sustained period. This could occur if commodity prices decline well below current expectations and the company does not reduce its capex or completes a debt-financed acquisition that doesn’t add near-term cash flow.

Conversely, S&P could raise the rating on Vital if its credit measures strengthen, forecasting its FFO to debt will remain comfortably above 45% on a sustained basis, and it reduces the outstanding borrowings on its credit facility using its FOCF. The rating could also be raised if the company improves the scale of its production and proved developed reserves to be more in line with those of its higher-rated peers, while maintaining FFO to debt of about 45%.

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