2008-09-29 23:39:03 -
- Fitch Ratings has affirmed the ratings of Apache Corporation (Apache). The Rating Outlook has been revised to Negative from Stable following Apache's issuance of $800 million in senior unsecured notes. Apache's debt ratings are as follows:
--Issuer Default Rating (IDR) 'A';
--Senior unsecured credit facility 'A';
--Senior unsecured notes 'A';
--Preferred 'A-';
--Short-term IDR
'F1'
--Commercial paper 'F1';
The Outlook revision follows the announcement that Apache has issued a total of $800 million in senior unsecured debt, comprised of $400 million of 5 year 6.00% notes and $400 million of 10 year 6.90% notes. Fitch has also assigned these notes an 'A' rating. The issuance will increase Apache's debt outstanding by approximately 20%, raising Apache's total debt to $4.85 billion from its previous level of $4.05 billion.
While the move to tap the bond markets is a defensive action meant to enhance liquidity given the recent uncertainties in the Commercial Paper (CP) market, the change in Outlook reflects Fitch's concern that the additional funds could be used for a leveraging transaction rather than simply to maintain additional liquidity on the balance sheet indefinitely. We would note that Apache's liquidity was strong before the new issuance. At June 30, 2008, the company had cash balances of just over $1 billion and no borrowings outstanding across its several revolvers, which provided a total of $2.3 billion in undrawn availability. In addition, volatile but still high crude oil prices continue to provide strong operating cash flows.
Apache's operational metrics remain solid. In 2007, all-in reserve replacement was 167%, while organic reserve replacement was a very respectable 132%. 2007 FD&A costs were on the low end of the peer group, averaging just $15.31/bbl and $13.42/barrel on a three-year basis, excluding capitalized interest and asset retirement costs. The company's reserves-to-production (R/P) ratio was 11.9 years, while proven developed reserves as a percentage of total reserves were just under 70%. 2007 production increased 12% year-over-year, while proven reserves increased by just under 6% to 2.446 billion boe. Core producing areas for Apache include the US, Canada, the North Sea, Australia, Egypt, and Argentina.
In June, the company experienced a fire and pipeline rupture at its Varanus Island gas processing facilities offshore Western Australia. Apache's net production impacted by the disruption was 37,900 boepd of oil and gas out of a total facility processing capacity of approximately 63,000 boepd. The processing plants are running at partial rates and are not expected to return to full status until year-end. As a result of this outage, as well as unanticipated pipeline shut-ins in the North Sea, Apache's 2008 production growth is expected to come in at the 2% range for the year, well below the 6% levels foreseen at the end of last year. Note that this does not take into account the recent impacts of hurricanes on Apache's Gulf of Mexico production.
Apache's ratings reflect the company's significant leverage to oil, superior operational metrics, diversified portfolio of properties, and strong organic reserve and production growth. Downsides include increased capital expenditures planned for 2008, and increased absolute debt levels, as the company has financed acquisition activity in 2006 and 2007 primarily with debt. Higher debt levels have eroded key debt metrics monitored by Fitch including debt/boe of proven reserves and debt/pdp. Note that with the recent increases in debt the company is at the low end of its rating category.
Apache is a large independent oil company engaged in the exploration and development of crude oil and natural gas. The company's core operations are conducted primarily in six regions of the globe--the lower 48 states (including shallow water Gulf of Mexico), Canada, Egypt, Australia, Argentina, and the North Sea.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Mark Sadeghian, CFA, 312-368-2090
Adam Miller, 312-368-3113 (Chicago)
Media Relations:
Cindy Stoller, 212-908-0526 (New York)
