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

DBRS Limited (DBRS) has today confirmed the Issuer Rating of BP p.l.c. (BP or the Company) at “A” with a Stable trend. DBRS believes BP is in a good position to ride the challenging commodity price environment among oil and gas producers, in large part due to the Company’s strong business risk profile, significant liquidity and continued focus on both operating and capital efficiency. With its diverse asset base, the Company has the flexibility to deploy capital investments (capex) on areas that provide superior long-term netback potential. Furthermore, the Company’s downstream operations act as a natural hedge in periods of low commodity prices. DBRS acknowledges that approximately one-third of upstream production comes from Production Sharing Agreements and a growing portfolio of domestic gas projects, both of which are less sensitive to oil price fluctuations. The rating confirmation incorporates DBRS’s expectation that key credit metrics will weaken materially in 2015, predominantly driven by weak commodity prices. However, a negative rating action could be triggered if key financial metrics deteriorate beyond the rating range on a sustained basis.

DBRS expects BP to manage the continued challenging operating environment with the uncertainty about the timing of oil price recovery by (1) preserving liquidity, (2) focusing on both operating and capital efficiency and (3) maintaining reasonable capex flexibility. BP has reset its 2015 capex to around $20 billion, well below its previous guidance of $24 billion to $26 billion. DBRS expects BP to continue to adjust its capex plan according to commodity market conditions. Free cash flow deficits are expected to be largely funded by cash on hand and proceeds from continued asset divestitures; thus, leverage is not expected to rise materially on a gross basis. In 2014, the Company achieved operating cost savings of over $1 billion relative to 2013, and has implemented new measures to deliver further efficiencies in 2015. BP’s financial metrics are expected to improve gradually from 2016 as the Company progresses in ramping up production in higher-margin areas and focusing on efficiency, assuming commodity prices remain at the current level. BP’s available liquidity should be sufficient to fund cash flow deficits over the next several years under a prolonged weak commodity price scenario.

As noted in the commentary dated September 5, 2014, related to the gross negligence ruling against BP in the 2010 Deepwater Horizon litigation (the Spill) by the U.S. District Court – Eastern District of Louisiana, a gross negligent outcome scenario alone would not affect the current rating. With sufficient cash flow generation ability, available liquidity and balance sheet capacity, DBRS expects the Company to absorb the estimated payout impact of the Spill under a gross negligent outcome scenario while retaining its “A” rating.

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 and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on our website under Methodologies.

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