DBRS Morningstar Confirms BP p.l.c.’s Issuer Rating at "A", Stable Trend

DBRS Ratings Limited (DBRS Morningstar) confirmed the Issuer Rating on BP p.l.c. (BP or the Company) at "A". The trend remains Stable. The rating confirmation reflects the Company's strong business profile underpinned by (1) a global presence with well-diversified, vertically integrated operations; (2) a large size and scale with a significant production base of 2,213 thousand barrels of oil equivalent per day (mboe/d) of upstream production); (3) a low-cost structure compared with peers (USD 6.8 boe); and (4) a strong liquidity position, enabling it to withstand market volatility. The Stable trend underscores DBRS Morningstar's expectation that the Company's key credit metrics will remain stable through 2023 to support the rating.

Following Russia's invasion of Ukraine in February 2022, BP announced the divestment of its 19.75% shareholding of the Russian government-controlled oil producer, Rosneft. The divestment resulted in significant noncash charges of approximately USD 25 billion (USD 14 billion as Rosneft's estimated carrying value and USD 11 billion in foreign-exchange losses accumulated since 2013). Consequently, for the financial period ending Q1 2022, BP reported a loss of USD 20.4 billion compared with the USD 4.7 billion profit for the same period last year.

DBRS Morningstar expects the Company to generate adequate free cash flow (FCF) to cover its organic capital expenditure and cash dividends based on DBRS Morningstar's Brent oil base-case price assumptions of USD 78/barrel (bbl) in 2022 and USD 63/bbl in 2023. As part of its balance sheet-strengthening strategy, BP continued its plan to allocate 40% of its FCF toward deleveraging and 60% of its FCF toward share buybacks. In Q1 2022, BP reached its net debt target of USD 35 billion. DBRS Morningstar also notes that the Company delivered on its target to reduce cash costs by USD 2.5 billion relative to 2019 on a run-rate basis. DBRS Morningstar expects BP’s key credit metrics to continue improving and supporting the current rating.

BP made progress in its transformation to a more integrated energy company while also continuing to maintain sustained oil and gas (O&G) production. In 2021, BP delivered on its 2016 target of adding 900 mboe/d of new production from new higher-margin projects. BP also invested in improving efficiency and carbon dioxide emissions at its Cherry Point refinery and acquired a portfolio of 6 gigawatts (GW) of solar projects across 12 U.S. states as part of its overall decarbonisation plan, aiming to reach 20 GW of renewable energy by 2025 and 50 GW by 2030. At Q1 2022, BP's renewable pipeline increased by 1.8G W. For the full-year 2022, BP expects to invest USD 5 billion to USD 7 billion in low carbon and convenience and mobility businesses as well as USD 9 billion to USD 10 billion in resilient hydrocarbons (upstream O&G, refining, and bioenergy businesses).

RATING DRIVERS
DBRS Morningstar expects the Company’s key credit metrics to remain stable or slightly improve over the next 12 months due to continued high oil prices; however, DBRS Morningstar is unlikely to trigger a positive rating action as a result. DBRS Morningstar may take a negative rating action if BP's credit metrics drop below its base-case expectations and/or if BP's business transition faces a high level of execution risk associated with its net-zero carbon strategy, which may have a material impact on the resilience of the business.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental Factors
DBRS Morningstar considered carbon and greenhouse gas (GHG) costs as a relevant environmental factor for BP. This factor is relevant because of the legislative environmental regulations in the UK targeting the reduction of GHG emissions, which limit the growth potential and add costs for all O&G companies in UK.

BP is in a stronger position to face the challenges associated with reducing GHG emissions, given that it has already taken steps to invest in low-carbon business like renewables and bioenergy. In addition to its target to deleverage and strengthen the balance sheet, BP has very strong liquidity to support its energy transition path.

There were no Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

The principal methodology is the Rating Companies in the Oil and Gas and Oilfield Services Industries (16 August 2021), https://www.dbrsmorningstar.com/research/383104/rating-companies-in-the-oil-and-gas-and-oilfield-services-industries, which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (21 October 2021), https://www.dbrsmorningstar.com/research/386355/dbrs-morningstar-criteria-preferred-share-and-hybrid-security-criteria-for-corporate-issuers and DBRS Morningstar Criteria Approach to Environmental Social and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

The primary sources of information used for this rating include publicly available information, namely annual reports & Form 20-F, quarterly performance reports, and other publicly available management presentations. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: NO
With Access to Internal Documents: NO
With Access to Management: NO

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/398884

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

Lead Analyst: Rana Toukan, Vice President
Rating Committee Chair: Victor Vallance, Senior Vice President
Initial Rating Date: 30 April 2001
Last Rating Date: 28 June 2021

DBRS Ratings Limited
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London EC3M 3BY United Kingdom
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

--- Rating Companies in the Oil and Gas and Oilfield Services Industries (16 August 2021), https://www.dbrsmorningstar.com/research/383104/rating-companies-in-the-oil-and-gas-and-oilfield-services-industries.
--- DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (21 October 2021), https://www.dbrsmorningstar.com/research/386355/dbrs-morningstar-criteria-preferred-share-and-hybrid-security-criteria-for-corporate-issuers.
--- DBRS Morningstar Criteria Approach to Environmental Social and Governance Risk Factors in Credit Ratings (17 May 2022), https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.