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Standard & Poor's Ratings Services on Monday said it revised the outlook on Halliburton Co.'s debt ratings to "Negative" from "Stable," citing concerns over how much exposure to liability the oil services company has from the Gulf of Mexico spill last spring.
S&P affirmed Halliburton's debt ratings: its long-term debt and senior unsecured debt were kept at "A," while its short-term corporate credit and commercial paper ratings were kept at "A-1." All are investment grade.
However, the ratings agency said it was revising the outlook because of the potential for costly legal actions related to the April 20 spill. "Halliburton could ultimately suffer significant financial consequences because of court judgments and/or legal settlements," said Standard & Poor's credit analyst Scott Sprinzen.
Halliburton was a contractor for BP PLC on the Deepwater Horizon drilling rig/ Macondo Well whose explosion killed 11 workers and led to a spill of more than 170 million gallons (643.5 million liters) of crude in the Gulf.
Halliburton's cementing work on the well has been a focus of investigations into the explosion. On Thursday, the president's oil spill commission said tests performed before the blowout should have raised doubts about the cement used to seal the well.
S&P noted that Halliburton has "vehemently objected" to some of the commission statements and repeated that it believes it is indemnified through its contracts with respect to claims. It also has a $600 million general liability insurance program.
However, Sprinzen said he thinks "claims under these arrangements could possibly be contested," and noted the Houston-based company has been named in more than 300 class-action complaints involving related pollution damage claims and 27 suits involving wrongful death and personal injury allegations -- numbers that grew in the third quarter from the second.
"We believe that if pending investigations and litigation are left to run their course, it could take a number of years for the extent of Halliburton's financial exposure to the Macondo well incident to be fully known," he said. "However, we see a risk that over a shorter time horizon, whatever Halliburton's own views about the merits of its legal defenses, the company could still seek to resolve this matter through negotiated settlements -- settlements that could be sizable."
In afternoon trading, Halliburton shares slipped 40 cents to $31.45 in heavy trading. The stock has changed hands between $21.10 and $35.89 in the past 52 weeks.