Black Elk Energy: Oil Rig Explodes After Ratings Agency Had Cited Production Problems In September
For the second time in less than three years, there has been an explosion on an oil rig off the Gulf Coast of the United States. The explosion was announced by U.S. Coast Guard officials, and has been subsequently confirmed by management at Black Elk Energy, which owns the rig located 25 miles southeast of Grand Isle, Louisiana. It appears two workers are missing, and four have been rushed to the hospital with burns.
Word of the explosion prompted immediate fears that the incident could mimic the 2010 Deepwater Horizon rig explosion and spill. That rig, leased by BP and owned and operated by Transocean, was the worst oil spill disaster in U.S. history. This rig, however, is not a drilling platform like Deepwater Horizon, but a production rig. Although it was not known if any oil had spilled from the platform, explosion is unlikely to produce the kind of massive environmental disaster that was caused by the April 2010 BP explosion. This latest incident comes one day after it was announced that BP had agreed to settle with the U.S. government for $4.5 billion, and plead guilty to 14 criminal counts. It was the largest criminal settlement in U.S. history. Two BP officials who supervised the Deepwater Horizon rig will face 23 criminal counts, including involuntary manslaughter. Eleven workers died in the explosion.
In September, Black Elk Energy had its credit rating cut to CCC+ — junk status — by Standard & Poor's. In justifying the downgrade, S&P noted,
"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."
Black Elk is an oil and gas company based in Houston, Texas. According to its website, the company has facilities off the coasts of Louisiana and Texas, including 854 wells on 155 platforms.
In October, the Houston Business Journal reported that Black Elk would commence drilling 23 wells in the Gulf of Mexico.
In its outlook, S&P noted a myriad of issues concerning Black Elk Energy, including production problems:
"The negative outlook 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 resulting from failure to curtail capital spending, operational problems that reduce production, or materially lower crude oil prices. 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."
PolicyMic will continue to monitor this developing story.