Apache Corp. Downgraded To 'BB+', Outlook Negative

  • We expect U.S.-based exploration and production company Apache Corp.'s credit measures to be below our expectations for the rating over the next two years under our oil and gas price assumptions.
  • We lowered our issuer credit rating on Apache to 'BB+' from 'BBB'. The outlook is negative.
  • Our negative outlook reflects forecast credit measures that will be at the low end of our expectations for the rating, with funds from operations (FFO) to debt below 12% and debt to EBITDA to above 5x in 2020 before improving in 2021 under our price assumptions.
NEW YORK (S&P Global Ratings) March 26, 2020—S&P Global Ratings today took the rating actions listed above. The recent collapse in oil prices will negatively affect Apache's profitability and cash flows. We forecast that Apache's credit measures will be weak for our expectations for the rating, with FFO to debt and debt to EBITDA of below 12% and above 5x, in 2020 based on our revised oil and natural gas price deck assumptions (see "Unrestrained Supply Swamps Oil Outlook: S&P Global Ratings Revises Oil & Gas Assumptions," published March 9, 2020).
The negative outlook reflects S&P Global Ratings' expectations that Apache's credit measures will be weak for the rating this year. We forecast FFO to debt below 12% and adjusted debt to EBITDA above 5x this year, before improving in 2021. The recent reduction in capital spending and dividends, coupled with our higher commodity price assumptions, will result in improving credit measures.
We could lower the rating if we project leverage to weaken beyond our current projections, such that FFO to debt remains below 12% and debt to EBITDA remains above 5x on a sustained basis, likely as a result of drilling or project costs exceeding expectations, larger-than-expected production declines on U.S. properties, or weaker-than-expected commodity prices.
We could revise the outlook to stable if the company's credit measures improve such that FFO to debt is above 12% and debt to EBITDA is below 5x. This scenario is likely if the company executes its capital plan cost effectively, production declines in the U.S. are within our expectations and commodity prices conform to our price assumptions.
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