London, 01 March 2022 -- Moody's Investors Service (Moody's) has today affirmed BP
p.l.c.'s (BP) issuer rating of A2 and the ratings
of its guaranteed subsidiaries as well as of wholly-owned subsidiary
BP Corporation North America, Inc. The outlook remains stable.
A full list of affected ratings can be found at the end of this Press
Release.
"BP's decision to exit its PJSC Oil Company Rosneft (Rosneft)
shareholding is negative for its financial profile given the currently
high uncertainty regarding the value it may recover. Nevertheless,
the affirmation reflects Moody's expectation that BP will be able
to maintain credit metrics in line with the A2 rating. Currently
high oil prices help mitigate the impact on BP's credit profile."
says Tobias Wagner, a Vice President -- Senior Credit Officer
at Moody's.
RATINGS RATIONALE
As a result of BP's decision to exit its 19.75% shareholding
in PJSC Oil Company Rosneft (Rosneft, Baa3 stable) and other businesses
with Rosneft within Russia the company will likely incur a significant
non-cash impairment charge in the first quarter of 2021,
although the actual amount will depend on the fair market value of the
Rosneft stake at the time. The decision also means that BP will
no longer include the proportionate Rosneft income in its profits nor
add proportionate production and reserves to its statistics. Once
exited BP will no longer receive dividends from Rosneft, which were
$640 million in 2021. It is not clear at this stage what
value BP can recover from these investments and in which timeframe.
Rosneft accounted for around 44% and 17% of BP's 2021 liquids
and natural gas production, respectively. It also accounted
for around 47% of BP's P1 reserves at year-end 2020 and
Rosneft's assets have low production costs. The potential
non-cash impairment charge for BP will be $11 billlion accumulated
foreign exchanges losses previously reported in equity rather than the
income statement plus the difference between the carrying value of the
stake in Rosneft and its fair value at the time of the next reporting
date. The carrying value as of year-end 2021 was $14
billion, excluding a further $1.4 billion for three
additional joint ventures with Rosneft in Russia which may add to impairments.
While the $11 billion charge will not impact equity, the
total potential impact of the other impairments on BP's equity is
likely to be significant given BP's shareholders' equity of $75.5
billion as of year-end 2021. However, Moody's
notes that Rosneft's contribution to BP's profits and cash
flows is more moderate. In 2021, Rosneft accounted for $2.7
billion of BP's $22.3 billion underlying replacement
cost profit before interest and taxes and $640 million of dividends
received compare to $23.6 billion reported operating cash
flow. BP also left its financial framework and capital allocation
policies unchanged. Accordingly, credit metrics excluding
the Rosneft stake are still in line with Moody's expectations even
before taking into account that oil prices are currently well above our
baseline assumption of $65 per Brent barrel for 2022. For
2021, Moody's estimates Moody's-adjusted RCF/net
debt at around 25% including the Rosneft stake and 24% without
it, further rising towards the higher end of the 20-30%
range for the rating in 2022. The market environment of currently
high oil prices further helps absorb the impact on BP's credit profile.
Moody's understands there is no implication regarding the company's
financial debt arrangements from these developments.
Rating outlook
The stable outlook reflects the company's improved resilience due to the
efficiency and cash flow protection measures taken in 2020 and its stated
commitment to maintain strong financial credit metrics. The outlook
also reflects Moody's expectations that BP's credit metrics
will remain well in line with the requirements for the A2 rating and Moody's
assessment that at this point the company's strategy sufficiently
mitigates the increasing challenge to its profitability and cash flow
generation from the energy transition.
ESG Considerations
BP's ESG Credit Impact Score is moderately negative (CIS-3).
This reflects Moody's assessment that ESG attributes are overall
considered to have a limited impact on the current rating, with
greater potential for future negative impact over time. BP has
high environmental risk exposure and very high social risk exposure partially
mitigated by positive governance practices.
The decision to exit its Rosneft stake further clarifies BP's energy transition
strategy because the Rosneft stake was not included in its strategy and
emission reduction targets.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure would build should BP make progress towards successfully
establishing a large-scale and profitable low carbon business,
improve its cash flow generation and reduce debt, with RCF/net debt
solidly positioned above 30%. A deterioration of BP's
financial profile, with RCF/net debt remaining sustainably below
20% as a result of a combination of lower oil prices, high
shareholder remuneration or a failure to maintain or increasing net debt
level, could exert negative pressure on BP's rating. The
rating could also come under negative pressure should the material capital
investments into the expansion of low carbon operations over the next
decade, not result in meaningful profit and cash flow generation
growth of BP's convenience & mobility and low carbon electricity
and energy segments.
METHODOLOGY
The principal methodology used in these ratings was Integrated Oil and
Gas Methodology published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1172345.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
BP is one of the largest public integrated oil and gas companies globally.
The company is vertically integrated along the hydrocarbon value chain,
with large upstream operations balanced by a sizeable downstream presence.
BP's activities span across North America, Europe, Asia and
parts of Africa (Angola and Egypt).
LIST OF AFFECTED RATINGS
Affirmations:
..Issuer: Atlantic Richfield Company
....BACKED Long-Term Senior Unsecured
Regular Bond/Debenture, Affirmed A2 (assumed by BP Company North
America Inc.)
..Issuer: BP Capital Markets America Inc
....BACKED Long-Term Senior Unsecured
Regular Bond/Debenture, Affirmed A2
....BACKED Long-Term Senior Unsecured
Shelf, Affirmed (P)A2
..Issuer: BP Capital Markets B.V.
....BACKED Long-Term Senior Unsecured
Medium-Term Note Program, Affirmed (P)A2
....BACKED Long-Term Senior Unsecured
Regular Bond/Debenture, Affirmed A2
..Issuer: BP Capital Markets p.l.c.
....BACKED Long-Term Junior Subordinated
Regular Bond/Debenture, Affirmed Baa1
....BACKED Long-Term Senior Unsecured
Regular Bond/Debenture, Affirmed A2
....BACKED Long-Term Senior Unsecured
Medium-Term Note Program, Affirmed (P)A2
....BACKED Other Short-Term Senior
Unsecured Medium-Term Note Program, Affirmed (P)P-1
....BACKED Long-Term Senior Unsecured
Shelf, Affirmed (P)A2
....BACKED Short-Term Senior Unsecured
Commercial Paper, Affirmed P-1
..Issuer: BP Corporation North America, Inc.
....Long-Term Issuer Rating,
Affirmed A3
....BACKED Commercial Paper, Affirmed
P-1
..Issuer: BP p.l.c.
....Long-Term Issuer Rating,
Affirmed A2
..Issuer: Calhoun (County of) TX, Nav.
Ind. Dev. Auth.
....BACKED Long-Term Senior Unsecured
Revenue Bonds, Affirmed A2
....BACKED Other Short-Term Senior
Unsecured Revenue Bonds, Affirmed VMIG 1
..Issuer: California Pollution Control Financing Auth.
....BACKED Long-Term Senior Unsecured
Revenue Bonds, Affirmed A2
....BACKED Other Short-Term Senior
Unsecured Revenue Bonds, Affirmed P-1
..Issuer: Delaware County Industrial Dev. Auth.,
PA
....BACKED Long-Term Senior Unsecured
Revenue Bonds, Affirmed A2
....BACKED Other Short-Term Senior
Unsecured Revenue Bonds, Affirmed P-1
..Issuer: Mississippi Business Finance Corporation
....BACKED Long-Term Senior Unsecured
Revenue Bonds, Affirmed A2
....BACKED Other Short-Term Senior
Unsecured Revenue Bonds, Affirmed P-1
..Issuer: OHIO (STATE OF)
....BACKED Long-Term Senior Unsecured
Revenue Bonds, Affirmed A2
....BACKED Other Short-Term Senior
Unsecured Revenue Bonds, Affirmed VMIG 1
..Issuer: Port of Bellingham Industrial Dev.
Corp., WA
....BACKED Long-Term Senior Unsecured
Revenue Bonds, Affirmed A2
....BACKED Other Short-Term Senior
Unsecured Revenue Bonds, Affirmed P-1
..Issuer: Standard Oil Company
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A2
..Issuer: Whiting (City of) IN
....BACKED Long-Term Senior Unsecured
Revenue Bonds, Affirmed A2
....BACKED Other Short-Term Senior
Unsecured Revenue Bonds, Affirmed P-1
....BACKED Other Short-Term Senior
Unsecured Revenue Bonds, Affirmed VMIG 1
Outlook Actions:
..Issuer: Atlantic Richfield Company
....Outlook, Remains Stable
..Issuer: BP Capital Markets America Inc
....Outlook, Remains Stable
..Issuer: BP Capital Markets B.V.
....Outlook, Remains Stable
..Issuer: BP Capital Markets p.l.c.
....Outlook, Remains Stable
..Issuer: BP Corporation North America, Inc.
....Outlook, Remains Stable
..Issuer: BP p.l.c.
....Outlook, Remains Stable
..Issuer: Standard Oil Company
....Outlook, Remains Stable
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Tobias Wagner, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Mario Santangelo
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
