S&P reviews oilfield services, drilling industry

Standard & Poor's said it has taken additional rating actions on companies in the oilfield services and drilling industry, completing its review of U.S.-based companies operating in these sectors.

The agency said the rating actions reflect the significant deterioration it expects in these companies' financial performance and credit, particularly for those issuers exposed to land and shallow-water drilling activity. The expected deterioration in the sector stems from the meaningful reductions announced in North American exploration and production capital spending in 2009 and possibly 2010.

In addition, some issuers may bump up against covenants under their revolving credit facilities, which could restrict liquidity, S&P said.

The agency took the following actions

• Helix Energy Solutions Group Inc. was lowered to B+/negative from BB-/stable, reflecting S&P's view that Helix's credit measures could continue to weaken over the near term if current industry conditions persist and debt reduction is not achieved through additional asset sales;

• Stallion Oilfield Services Ltd. was lowered to B-/negative from B/negative, reflecting the uncertainties about the company's high leverage, limited liquidity and possible covenant violations;

• Key Energy Services Inc.'s (BB) outlook was revised to negative from stable, reflecting S&P's expectation that rapidly deteriorating North American oilfield service markets could lead to cash flow and credit measure underperformance in 2009, which could pressure the BB corporate credit rating;

• Basic Energy Services Inc.'s (BB-) outlook was changed to negative from stable, reflecting S&P's view that rapidly deteriorating U.S. oilfield service markets could lead to cash flow and credit measure underperformance, which could pressure the current rating in 2009;

• Complete Production Services' (BB) outlook was changed to negative from stable, reflecting S&P's expectation for a considerable decline in Complete's financial performance because of conditions in the North American oil and gas industry;

• Hudson Products Holdings Inc.'s (B) outlook was revised to negative from stable, reflecting Hudson's exposure to refinery expansion and oil sands processing capital expenditures, which S&P said are likely to be delayed or cancelled given current conditions in the oil and gas industry;

• Titan Specialties Ltd.'s (B-) outlook was changed to negative from stable, reflecting S&P's expectation that, despite Titan's record year in 2008 in terms of reported revenue and EBITDA, a significant decline in drilling activity will pressure margins and financial performance;

• Total Safety U.S. Inc.'s (B) outlook was revised to negative from stable, reflecting S&P's expectation that the company's financial performance will weaken given the current industry downturn, which could result in the company bumping up against covenants that begin to step down on March 31;

• Forbes Energy Services LLC's (B) ratings were removed from CreditWatch negative, and the outlook is negative, following Forbes' completion of consent solicitation with its noteholders.

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