TEXT-S&P raises Forbes Energy Services Ltd rating

Overview
-- U.S.-based Forbes Energy's financial performance continues to benefit
from strong drilling activity in South Texas.
-- We are raising the corporate credit and issue-level ratings on Forbes
to 'B' from 'B-'.
-- The stable outlook reflects our expectation that near-term market
conditions will not significantly weaken and that liquidity will remain
adequate over 12 to 18 months.

Rating Action

On March 30, 2012, Standard & Poor's Ratings Services raised its corporate
credit rating on Alice, Texas-based Forbes Energy Services Ltd. to 'B' from
'B-'. The outlook is stable.

At the same time, we raised our issue rating on Forbes' $280 million senior
unsecured notes to 'B' (same as the corporate credit rating) from 'B-'. The
recovery rating on the notes is '4', indicating our expectation for average
(30% to 50%) recovery in the event of a default.

Rationale
The upgrade reflects our expectations that Forbes will maintain its improved
financial performance because of continued strong liquids-focused drilling
levels in the U.S. We also expect liquidity to remain adequate should market
conditions weaken from current levels. In particular, improved cash flows
should enable Forbes to invest in and grow its fluid handing business, which
benefits from its niche position in the eagle Ford shale. Offsetting these
positives is Forbes' limited scale of operations and market diversification
relative to peers, given its focus on the South and West Texas regions.

We view Forbes' financial risk as "aggressive". Our base case projections
assume that the pace of price and cost escalations eases during 2012 due to
new market entrants and equipment following a two year period of tight supply
and demand.

Key assumptions in our forecast include:

-- Revenue remains flat with Sept. 2011 levels, pro forma for the sale of
Forbes' Mexican operations.
-- Gross margins will decline 10% in 2012.
-- Cash from operations will total approximately $50 million.
-- Capital spending will be $90 million in 2012.
-- Outspend of cash flows and asset disposals of approximately $30
million.

Based on these assumptions, we assume revenue would be about $400 million,
with operating margins of about 22%. Given this backdrop we forecast EBITDA in
2012 to be about $70 million. We also project negative cash flow of about $30
million, which assumes $90 million of capital expenditures and after tax
proceeds from the sale of Forbes' Mexican operations between $15 million and
$20 million.

Based on these projections adjusted debt leverage could be a somewhat
aggressive 4.5x and adjusted EBITDA coverage of interest expense to be about
2.5x.

We view Forbes' business risk as "vulnerable". Forbes is a small oilfield
services company focused on the South and West Texas markets, especially the
Eagle Ford Shale, providing well-servicing, fluid-handling, and, to a much
lesser extent, tube testing. The company's limited scale and market diversity
exposes it to a regional downturn in the South Texas market and/or increased
competition from larger and better-capitalized competitors such as Key Energy
Services or Nabors Industries Inc.

In addition, demand for oilfield services is highly correlated to volatile
hydrocarbon prices, and can lead to rapid demand erosion. For example from
2008 to 2009, utilization plummeted and EBITDA decreased about 85%. However,
Forbes benefits from the young age of its fleet and North America's high
demand for equipment across all liquid-rich basins. As a result, although
market conditions could weaken somewhat, operating performance should be
healthy over the next 12 months thanks to strong oil-focused drilling levels
combined with the limited availability of competing equipment.

Liquidity
We assess Forbes' liquidity to be adequate, as our criteria define the term.
Over the next 12 months we expect sources of cash covering uses by 1.2x or
greater. Our assumptions include:
-- Sufficient availability from its $75 million credit facility due 2016.
-- Softer market conditions as per our financial assumptions.
-- Negative cash flow of about $30 million based on our assumptions.

Forbes must maintain fixed-charge coverage of 1.1x if availability on the
credit facility falls below $11.3 million, or 15% of the maximum borrowing
capacity for 60 consecutive days.

Recovery analysis
For the complete recovery analysis, see Standard & Poor's recovery report on
Forbes to be published on RatingsDirect following the release of this report.

Outlook
The stable outlook reflects our expectation that near-term market conditions
will not significantly weaken and that liquidity will remain adequate over the
next 12 to 18 months. As a result, debt leverage should remain below 5x and
interest coverage should not fall below 2x.

We could downgrade Forbes if adjusted debt leverage exceeds 6x, which could
occur if revenues fall by more than 20% and gross margin falls below 20% of
revenues for an extended period.

An upgrade is unlikely over the next 12 months due to business risk
considerations particularly Forbes lack of market diversity and limited scale
of operations.

Ratings List
Upgraded; Outlook Stable
To From
Forbes Energy Services Ltd.
Corporate Credit Rating B/Stable/-- B-/Positive/--
Senior Unsecured B B-
Recovery Rating 4 4