Another energy company with big Oklahoma ties is facing its share of economic problems. Nabors Industries, Ltd., with offices in Oklahoma City and Woodward, is being downgraded by Fitch ratings on its Long-term Issuer Defaulting Rating from ‘BBB’ to ‘BBB-‘
The Rating outlook remains negative according to the announcement by Fitch which said it came as a result of its lower and longer onshore rig recovery profile. As a result of the lower profile, Fitch indicated there is a weaker than previously expected U.S. Lower 48 and international drilling activity outlook that increases the forecasted leverage profile above Fitch’s through-the-cycle levels for a ‘BBB’ credit.
“Fitch anticipates Nabors will continue to take steps to protect quality through-the-cycle that limits gross debt additions and preserves liquidity including manage operating costs, balance capital spending with operating cash flow, and curb incremental shareholder activities,” said the firm in the announcement. “However, the Negative Outlook considers the effect that persistently low oil and gas prices could have on U.S. and international exploration and production company capital budgets. This could result in a deeper and longer than forecast onshore drilling downcycle that causes the leverage profile to remain above our through-the-cycle levels for a ‘BBB-‘ credit.”
The downgrading in the Fitch ratings affects $3.7 billion in debt held by Nabors. The move is also based on fewer Nabors rigs in operation in the U.S. as its fleet is exposed to lower spot pricing. Nabors has indicated that 40 rigs will be under contract to start the year with 20 of those rig contracts expiring during the year. But Fitch is also concerned that the U.S. rig activity will continue to contract in2016 and it will affect Nabors’ pricing of its rigs.
“The downcycle hsa negatively influenced spot pricing for high speed rigs with spot dayrates estimated to be $16,500-$17,500 compared to daily cash costs of $12.500-$13,500. Further, Fitch continues to anticipate that the company’s legacy rig fleet will continue to experience pricing–estimated to be at or near breakeven levels.”
