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Rating Action:

Moody's rates new Apache senior notes A3

03 Apr 2012

Proposed offering of senior notes due 2017, 2022 and 2043

New York, April 03, 2012 -- Moody's Investors Service assigned an A3 rating to the senior notes being offered by Apache Corporation (Apache). The proceeds from the notes offering will be used to fund the cash portion of the purchase price for Cordillera Energy Partners III LLC (Cordillera) and to refinance $400 million of senior notes maturing on April 15, 2012. The outlook is stable.

RATINGS RATIONALE

Apache's A3 senior unsecured and Prime-2 commercial paper ratings reflect its very large proved reserves and production scale and the company's global diversification, balanced overall exposure to oil and natural gas, strong capital discipline and solid production trend over time. The company has a long track record of conservative financial policies, including maintaining ample liquidity and using substantial equity in major acquisitions, and the successful execution of its acquisition and exploitation strategy. The company's high proportion of oil in its production has strengthened its cash margins and enabled Apache to fund large capital investments and acquisitions while maintaining relatively low financial leverage. These strong cash margins mitigate the company's relatively high finding and development (F&D) costs compared to similarly rated peers.

The Cordillera acquisition meaningfully increases Apache's leverage metrics. However, Apache's A3 rating and stable outlook are supported by its still robust cash flow coverage of interest costs and debt following the acquisition. The company's production mix will remain around 50% liquids with oil being over 40% of total production. In addition, a sizable share of Apache's natural gas production is sold in international markets at much higher prices than in North America. These factors will continue to provide Apache with strong cash margins on production. We expect the company's leverage metrics to improve over the course of 2012 as Apache grows its production and PD reserves through internally funded capital expenditures.

As demonstrated by the Cordillera purchase, Apache is an acquisitions-oriented company prone to large scale opportunistic acquisitions. In order to be considered for a ratings upgrade, Apache needs to reduce its F&D costs and generate returns more competitive with its peer group while reducing its leverage metrics. With oil prices above $80/boe, a leverage full-cycle ratio in the range of 2.3 to 2.5x with Debt/Average Daily Production nearing $9,000/boe and Debt/PD nearing $3/boe on a sustained basis could result in an upgrade to A2.

If Apache pursues additional debt funded acquisitions that significantly increase its leverage metrics or experiences a prolonged disruption in its Egyptian operations then the ratings could be downgraded. Debt/Average Daily Production above $13,000/boe or Debt/PD above $5/boe on a sustained basis could result in a downgrade of the ratings.

Moody's current ratings on Apache Corporation are:

Senior Unsecured (domestic currency) ratings of A3

Senior Unsecured Shelf (domestic currency) ratings of (P)A3

Subordinate Shelf (domestic currency) ratings of (P)Baa1

Preferred Shelf (domestic currency) ratings of (P)Baa2

Commercial Paper (domestic currency) ratings of P-2

Apache Finance Canada Corporation

BACKED Senior Unsecured (foreign currency) ratings of A3

Apache Finance Canada II Corporation

Senior Unsecured Shelf (foreign currency) ratings of (P)A3

Subordinate Shelf (foreign currency) ratings of (P)Baa1

The principal methodology used in rating Apache Corporation was the Global Independent Exploration and Production Industry Methodology published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Apache Corporation is one of the largest independent exploration and production companies and its based in Houston, Texas.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, and public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Peter Speer
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates new Apache senior notes A3
No Related Data.
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