TEXT-S&P puts Black Elk Energy Offshore rtgs on watch negative

Wed Nov 21, 2012 1:23pm EST

Related Topics

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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