Apache Corp. (APA) Ratings Lowered to 'BBB+' by S&P; Sees High Ongoing Leverage

Standard & Poor's Ratings Services today lowered its corporate credit and senior unsecured debt ratings on Houston-based oil and gas exploration and production company Apache Corp. (NYSE: APA) to 'BBB+' from 'A-'. At the same time, we removed the ratings from CreditWatch, where we placed them with negative implications on Jan. 20, 2015. The outlook is stable. The 'A-2' short-term rating on Apache is unchanged.

"The downgrade reflects our estimate that Apache Corp.'s leverage will remain above levels we view as appropriate for the 'A-' rating over the next two years," said Standard & Poor's credit analyst Carin Dehne-Kiley. "Despite the company's planned reduction in 2015 capital spending, the sale of its liquefied natural gas businesses in Australia and Canada, and the recent announcement that it has agreed to sell non-LNG operations in Australia, we estimate the company's funds from operations to debt will remain below our prior downgrade trigger of 45%," she added.

Our ratings on Apache Corp. reflect our assessment of the company's "strong" business risk, "significant" financial risk, and "strong" liquidity.

The stable outlook reflects our view that Apache will maintain sufficient scale, scope, and diversification and profitability to keep our assessment of its "strong" business risk profile, while maintaining FFO to debt of about 30%.

We could lower the rating if we expected Apache's FFO to debt to fall below 30% for a sustained period, which would most likely occur if the company ramped up capital spending or made a large debt-financed acquisition that did not add to near-term cash flow.

We could raise the rating if we expected the company to bring and maintain FFO/debt above 45% for a sustained period.

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