Last checked at 
(Alliance News) -- Moody's Investors Service on Friday downgraded the corporate family debt rating of Nostrum Oil & Gas PLC to Caa2 from B3, citing the continuing decline in Nostrum's production.
Moody's also lowered Nostrum's credit rating outlook to negative from stable.
Moody's said declining hydrocarbon production will hurt Nostrum's cash flow and therefore significantly increase the refinancing risk for its USD725 million in notes maturing in July 2022.
The credit ratings agency noted that Nostrum's output has been declining since 2017, when it lost two wells due to uncontrollable water influx.
On Tuesday, the pre-Caspian Basin focused energy firm confirmed it recorded sales volumes of 27,515 barrels of oil equivalent per day in the first nine months of the year, down 9.9% from 30,523 barrels a year before. It already had reported this at the end of October.
The fall in production was due to quicker-than-expected field declines, which led to a reduction in 2019 output guidance from Nostrum at the end of October.
"The first nine months of 2019 have been very challenging. We have seen quicker than expected decline in our core producing reservoirs resulting in a reduction in our sales guidance for 2019 by 1,000 barrels per day," said Nostrum Chief Executive Kai-Uwe Kessel.
The company in June began a strategic review, which could include a sale of the firm.
Moody's noted that Nostrum had a cash balance of USD91 million on September 30 and has enough operating cash flow to cover planned capital spending. However, that cash flow won't be sufficient to allow the company to accumulate cash to repay the 2022 notes.
"Refinancing the notes will be challenging for the company if its production remains low as Moody's expects, significantly increasing the probability of default," the credit ratings firm said.
Nostrum shares were down 3.5% in London on Friday afternoon at 23.62 pence.
By Tom Waite; thomaslwaite@alliancenews.com
Copyright 2019 Alliance News Limited. All Rights Reserved.