Fitch Raises Debt Ratings of Apache Corporation.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 10, 2004

Fitch Ratings has raised the senior unsecured debt rating of Apache Corporation (Apache) to 'A' from 'A-', the preferred stock rating to 'A-' from 'BBB' and the short-term rating to 'F1' from 'F2'. The Rating Outlook is Stable.

The rating action reflects Fitch's expectation that Apache will continue to generate strong results throughout the industry cycle in each of the metrics Fitch uses to evaluate upstream oil companies. The company's balanced asset mix across its five core regions provides an overall reserve life of more than 10 years, with 71% of the reserves developed at year-end 2003. Apache has a healthy portfolio of growth and profitability projects that range from the very successful exploration and development program in the Western Desert of Egypt to the high decline but highly profitable shallow water Gulf of Mexico natural gas plays and an active drilling program in the Forties field assets acquired in early 2003.

Although Apache has shown an ability to add reserves at economic costs, the company faces the challenge of continuing to replace reserves at these costs particularly given the volatile nature of the industry and Fitch's expectations of a return to more mid-cycle prices. Apache's three year organic reserve replacement has averaged 134% annually at a cost of only $6.62 per barrel of oil equivalent (boe). The company has also made several significant acquisitions over the three year period at very favorable prices with total reserve replacement averaging 266% at a cost of only $6.16. Apache continues to have success negotiating acquisitions at modest prices including the recently announced ExxonMobil transaction in North America which should fuel further organic growth for the company.

While acquisition risk remains a key concern with Apache, the upgrade reflects Fitch's expectation that management will maintain a capital structure reflective of the 'A' rating. Fitch recognizes that with a debt to capitalization ratio of less than 25% at March 31, 2004 Apache is currently underleveraged and that further acquisitions would likely include a higher percentage of cash and debt. Fitch has incorporated these expectations into the current rating. While the company has significant capacity for additional leverage, Fitch also believes that the financing of any sizable acquisition would likely include a significant equity component as well. Apache has a long track record of consistently financing acquisitions through a conservative mix of debt and equity. Balance sheet debt totaled $2.2 billion at March 31, 2004 with interest coverage of 18.4 times (x) for the last 12 months and leverage as measured by debt-to-EBITDA of 0.7x.

Of concern also is the high level of anticipated abandonment costs for Apache. Primarily through the acquisition of the Forties assets, Apache increased its asset retirement obligation in 2003 to approximately $740 million at year-end from $368 million at the end of 2002. While significant, Fitch views these future costs as manageable with expectations that they will likely be spread over several years well into the future. In addition, under the current United Kingdom tax regime, Apache would benefit from a Petroleum Revenue Tax (PRT) deduction for the Forties field abandonment costs.

Apache is a large independent oil company engaged in the exploration and development of natural gas and crude oil. The company's core operations are conducted primarily in five regions of the globe -- the lower 48 states (including shallow water Gulf of Mexico), Canada, Egypt, Australia and the North Sea. Proved reserves at the end of 2003 totaled 1.66 billion barrels of oil equivalent, roughly balanced between oil and gas.