DBRS Confirms BP p.l.c. at “A”, Stable Trend

DBRS has today confirmed the Issuer Rating of BP p.l.c. (BP or the Company) at “A” with a Stable trend based on the Company’s significant size and scale, integrated operations and reasonable financial profile. BP’s business risk profile, excluding future Macondo oil spill (the Spill) related liabilities, would be indicative of a AA-rated entity.

BP’s financial profile weakened in 2012 as higher operating costs and decreased volume significantly impacted cash flow and earnings. As a result, all key credit metrics weakened materially in 2012 but are still indicative of a strong investment-grade entity. In addition, BP’s net debt-to-capital ratio remained within its 10% to 20% target as of year-end 2012. In 2013, BP’s financial profile will remain under pressure as cash flow weakness continues, and capex needs will likely remain large. However, DBRS expects BP’s credit metrics to remain in the strong “A” rating category.

In 2012, BP sold its investment in TNK-BP to Rosneft for $12.3 billion net in cash and an approximate 18.5% stake in Rosneft. BP intends to buy back approximately $8 billion of its shares and reduce its debt outstanding (approximately $4 billion) with the cash proceeds. This TNK-BP investment represented a significant portion of BP’s total production (40% of liquids production) and will impact future production and cash flow; however, the reduction in production is partially mitigated by the 18.5% interest in Rosneft received. The divestiture will strengthen BP’s liquidity position and should better help the Company deal with final Spill-related costs and negative free cash flow in 2013. Overall, DBRS views this asset divestiture as credit neutral as the reduction in production is offset by increased liquidity and means to divest the remaining position.

Over the medium term, BP’s rating remains constrained by its ongoing exposure to Spill-related liabilities. The future liabilities associated with the Spill have yet to be determined. There is still uncertainty surrounding the federal negligence case under the U.S. Clean Water Act, which could result in penalties as high as $17 billion (DBRS estimate). In 2012, BP fully funded its $20 billion Deepwater Horizon Oil Spill Trust fund (the Trust). Claims and costs related to the Spill are paid from the Trust and any amounts in excess of the Trust balance will be paid by BP directly.

If resolution of the Spill is concluded without significant increases in liabilities beyond current estimated total amounts ($57 billion), it is likely that DBRS will take positive credit action.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Oil and Gas Industry, which can be found on our website under Methodologies.