Apache Corporation has said it will post letters of credit (L/Cs) aggregating approximately US$650 million to guarantee it meets its asset retirement obligations in the UK's North Sea oil fields.

The Houston-based oil company said this is one of several actions it had taken to protect its balance sheet in response to the coronavirus pandemic and a price war between Russia and Saudi Arabia that have caused oil prices to plummet by about two-thirds this year.

Ratings downgrade

The immediate cause of Apache's new L/C arrangement was ratings agency Standard & Poor's decision to reduce Apache's credit rating from BBB to BB+.

The company says it does not expect this ratings change will have any material impact on its financial position, liquidity or business strategy.

Financial protection

As well as posting the L/Cs, Apache has taken several other actions to protect its balance sheet and cash flows.

The company has decreased planned 2020 upstream capital investment by approximately US$1.3 billion, or 54 per cent compared with the previous year, reduced its annual dividend by US$340 million, and targeted more than US$150 million of cost savings.

US$2 billion L/C sublimit

Apache says it has a US$4 billion credit facility with commitments from 18 banks, 17 of which are rated A or better.

The commitments include a US$2 billion committed sublimit for L/Cs, which will easily accommodate the North Sea asset retirement obligation postings.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.