TEXT-S&P puts Black Elk Energy Offshore rtgs on watch negative
Nov 21 - Overview -- U.S. oil and gas exploration and production (E&P) company Black Elk Energy Offshore LLC had an explosion and fire on one of its Gulf of Mexico oil platforms. -- We are placing our ratings on CreditWatch with negative implications, reflecting the potential for further weakening of the company's credit profile and liquidity. -- We will resolve the CreditWatch when we have a clearer understanding of the accident's impact on Black Elk's financial position. Rating Action On Nov. 21, 2012, Standard & Poor's Ratings Services placed its ratings, including its 'CCC+' long-term corporate credit ratings, on Houston-based Black Elk Offshore Operations LLC (Black Elk) on CreditWatch with negative implications. Rationale The CreditWatch follows an accident on one of Black Elk's oil production platforms in shallow Gulf of Mexico water that resulted in an explosion and fire. The accident injured several workers and caused one confirmed death. The financial effect of the accident on the company is not yet clear. While we do not expect it to materially affect oil and gas production or cash flow, Black Elk has very limited liquidity and we believe little capacity to absorb unexpected expenses or incurred liabilities. We expect to resolve the CreditWatch when we have more information about the potential costs and the company's ability to weather them. The ratings on Black Elk reflect our view of its "vulnerable" business risk and "highly-leveraged" financial risk, incorporating the company's small reserve and production base, high operating costs, and acquisitive growth strategy. The company is geographically concentrated in the Gulf of Mexico region, and operates in a highly cyclical, capital-intensive, and competitive industry. CreditWatch The CreditWatch reflects the potential for Black Elk's liquidity to deteriorate further. We would consider a negative rating action if the company faces additional weakening of its liquidity, which could result from costs related to remediation or penalties related to the platform accident. We would consider a positive rating action if the company is able to improve liquidity to about $40 million while maintaining production. Given its current low level, the company's leverage is not an impediment to positive rating actions. Related Criteria And Research -- Key Credit Factors: Global Criteria For Rating The Oil And Gas Exploration And Production Industry, Jan. 20, 2012 -- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- 2008 Corporate Criteria: Our Rating Process, April 15, 2008 Ratings List Placed On CreditWatch Negative To From Black Elk Energy Offshore Operations LLC Corporate Credit Rating CCC+/Watch Neg/-- CCC+/Negative/-- Black Elk Energy Finance Corp. Black Elk Energy Offshore Operations LLC Senior Secured B-/Watch Neg B- Recovery Rating 2 2 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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