Standard & Poor's Ratings Services (S&P) lowered its outlook on Noble Corp. to "negative" from "stable" and affirmed its "A-" long-term corporate credit rating on the drilling company. The ratings agency expressed concern for weakening credit metrics due to delays in permitting wells in the U.S. Gulf of Mexico (GOM).

"The negative outlook reflects our concern that the company's credit metrics will remain weak because of a combination of delays in permitting in the U.S. GOM, weaker dayrates and our expectation of negative free cash flow due to a heavy capital expenditure program," said S&P credit analyst Aniki Saha-Yannopoulos.

The Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM) has only permitted one new well in water depth above 500 feet since Oct. 12, when the drilling moratorium was lifted, S&P said. Since May most of Noble's assets in the GOM have been on standby rates.

In addition, Noble Energy Inc. has stated that it does not intend to enter a new contract on the Noble Clyde Boudreaux rig while Marathon Oil Corp. is attempting to reject the Noble Jim Day contract, which is currently in the process of acceptance testing in the GOM, S&P noted.

"Given the lack of visibility as to when the BOEM will start issuing new deepwater drilling permits in the U.S. GOM and the company's current debt load following the Frontier acquisition in July 2010, we expect credit measures to remain weak. Also, the company's significant capital spending for 2011 will limit free cash flow generation and potential for meaningful debt reduction over the next 12 to 18 months," S&P said. "These factors suggest that the company's credit protection measures are unlikely to return to appropriate levels...before year-end 2011."

Recently oil and gas producers got a break when President Obama signed a stopgap funding measure that excludes a provision that would have extended the federal review period of new offshore drilling plans to 90 days from 30 days (see Daily GPI, Dec. 23). Guidance issued recently by BOEM is intended to clear a path for resumption of work in the deepwater GOM (see Daily GPI, Dec. 15).

Despite the downgrade of outlook, S&P said the affirmed ratings on Baar, Switzerland-based Noble reflect "its strong competitive position in the offshore petroleum contract drilling industry. This results from its fleet of premium, internationally deployed rigs, solid operating performance and sound cash flow performance due to its strong backlog."

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