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. The rating is supported by the Company’s strong business and financial risk profiles that are reflective of BP’s significant size and globally well diversified scale of integrated operations coupled with a highly liquid and well capitalized balance sheet. The Stable trend is reflective of DBRS’s expectation that BP is well positioned to manage through its aggressive capex program, rebalance its upstream portfolio to regions of high growth and improve its downstream operations while remaining well within DBRS’s requirements for an “A” rated entity.

BP’s strong business risk profile is underpinned by (1) its geographical dispersion and presence in approximately 80 countries, (2) more than 3.0 million barrels of oil equivalent production per day (including share of Rosneft), (3) an above-average reserve quality with long reserve life and one of the lowest cost bases among its global peers and (4) highly integrated upstream and downstream operations. Absent the overhang of highly uncertain future Macondo oil spill (the Spill) related liabilities, BP’s business risk profile would be supportive of a higher rating.

Company’s strong financial risk profile continues to be supportive of an “A” rated entity with (1) debt-to-capital of 27.0% (25% to 35% required for an “A” rating) and (2) EBIT interest coverage of 15.4 times (x) (10.0x to 20.0x required). Total debt-to-cash flow has weakened to 2.0x in 2013 from 1.35x in 2011 (1.0x to 1.5x required) given the reduction in production from asset divestitures (TNK-BP primarily in 2013) and a broad tightening in netbacks. DBRS expects BP’s financial profile to remain constrained in the near term as cash flow remains under pressure due to lingering weakness in the downstream sector and lower production from continued asset divestitures, with crude prices remaining range bound on the upside. However, DBRS expects cash flow to improve as several major projects come online and ramp up production over the near-to-medium term.

BP continues to maintain significant liquidity on its balance sheet while uncertainties around the final outcome of the Spill-related liabilities prevail. DBRS expects BP to maintain its capital discipline as it completes its 2014-2018 elevated capex program ($24 billion to $26 billion annually) where any free cash flow deficits are expected to be funded by cash on hand and proceeds from continued asset divestitures. If the pending Spill issues are resolved without significant increases in DBRS estimated amounts ($57 billion), it is possible 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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.