London, 01 April 2020 -- Moody's Investors Service, ("Moody's") has
affirmed the A1 the issuer rating of oil and gas company BP p.l.c.
(BP) and the long term debt ratings of its guaranteed subsidiaries.
At the same time, Moody's affirmed the A2 issuer rating of BP's
wholly-owned subsidiary, BP Corporation North America,
Inc. (BPCNAI). Concurrently, Moody's affirmed the
Prime-1 commercial paper ratings of BP Capital Markets plc and
BP Corporation North America, Inc. The outlook on all ratings
was changed to negative from stable.
"Changing the outlook on BP's ratings to negative reflects the material
impact that the collapsing oil and gas prices will have on the company's
financial profile in 2020. While we expect that BP's strong
liquidity and financial flexibility as well as a normalisation of oil
and gas prices will support a recovery of its credit metrics in 2021-22,
we consider it less certain whether our requirements for an A1 rating
will be met over the next 12-18 months." says Sven
Reinke, a Moody's Senior Vice President.
A full list of affected ratings can be found at the end of this Press
Release.
RATINGS RATIONALE
Today's outlook change reflects Moody's expectation that BP's operating
performance will suffer materially from the severe decline of oil prices
and the already weak gas prices prior to the current crisis. This
will be partially offset by measures Moody's expects the company
to employ in order to protect earnings and cash flow generation such a
material cut to previously guided capital expenditures for 2020 and a
reduction of operating cost. Moody's also expects BP to continue
to pursue its asset divestment programme.
Moody's forecasts that these potential measures will improve the
resilience of BP in a low oil price environment and could enable the company's
to regain the financial strength the rating agency requires for an A1
rating. Nevertheless, Moody's expect that BP's
Moody's adjusted retained cash flow (RCF) to net debt metric will
fall below 15% in 2020 under a $40/bbl WTI ($43/bbl
Brent) oil price scenario. The metric is likely to fall under 10%
in 2020 under a more severe $30/bbl WTI ($30/bbl Brent)
oil price scenario. However, based on the rating agencies
assumption of gradually rising oil and gas prices in 2021-22,
BP's credit profile should recover with the RCF to net debt metric
rising towards 25%.
At this point Moody's is less certain whether BP will be able to
regain sufficient financial strength to justify the current A1 rating
bearing in mind the relatively high Moody's adjusted debt level
of $97 billion at the end of 2019 -- around $20 billion
higher than before the last industry downturn in 2014-15.
Going forward BP will have to balance different priorities including restoring
its strong financial profile, continued shareholder remuneration,
ongoing investments into its core oil and gas operations and rising investment
need to achieve its energy transition targets of becoming net carbon neutral
by 2050 or earlier. Moody's will monitor closely whether
BP will sufficiently prioritise restoring its financial profile in order
to maintain the current rating.
BP's A1 rating remains supported by its large and diversified reserves
and production base, boosted by the 19.75% investment
in PJSC Oil Company Rosneft (Baa3 stable) and the benefits of its integrated
business model with large and more resilient downstream operations.
BP's business profile compares well on scale, diversification and
reserve provisions with the business profile assessments of its higher
rates peers.
ESG CONSIDERATIONS
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines creating a severe and extensive credit shock across many sectors,
regions and markets. The combined credit effects of these developments
are unprecedented. The oil and gas sector could be significantly
affected. More specifically, BP's credit profile is
vulnerable to shifts in market sentiment in these unprecedented operating
conditions and the company is vulnerable to the outbreak continuing to
spread. Moody's regards the coronavirus outbreak as a social
risk under its ESG framework, given the substantial implications
for public health and safety. Moody's considers the company's
approach to liquidity management as a governance factor under its ESG
framework.
LIQUIDITY
BP has a strong liquidity position, supported by a large,
although volatile, base of internally generated cash flow,
sizeable cash balances and committed borrowing facilities. The
company had $20.8 billion in cash and cash equivalents as
of the end of December 2019[1] and we understand that the cash balance
has increased in recent weeks largely driven by working capital release
owing to falling oil and gas prices.
BP also holds $7.6 billion of committed and currently undrawn
bank credit facilities available through H1 2022 and has recently secured
an additional $10 billion committed credit facility which is also
currently undrawn and matures in March 2022[2]. While BP currently
has a very high liquidity position, it also faces substantial debt
maturities in the next couple of years with finance debt of $8.3
billion maturing in Q1 -- Q3 2020 and $6.7 billion
in 2021. BP targets substantial disposal proceeds in 2020-21
which would further enhance the company's liquidity position but
Moody's notes that executing disposals is very uncertain in the
current economic environment.
RATIONALE FOR NEGATIVE OUTLOOK
Despite the company's proven resilience during previous downturns and
its stated commitment to maintain strong financial credit metrics,
the negative outlook reflects the current uncertainty of the timing of
the recovery of BP's operating performance and whether BP will give
sufficient priority to restoring its credit profile over the next 1 --
2 years. The negative outlook also reflects the emerging threat
to oil and gas companies' profitability and cash flow from growing efforts
by many nations to mitigate the impacts of climate change through tax
and regulatory policies that are intended to shift global demand towards
other sources of energy or conservation. The outlook could be stabilised
if BP's introduces measures to safeguard its financial strength
and if such measures will be executed successfully. A stabilisation
of the outlook would also require that improving financial flexibility
as a result of recovering oil prices will be used to restore previously
strong credit metrics.
Factors that would lead to an upgrade or downgrade of the ratings:
BP's rating is unlikely to be upgraded in the medium term,
taking into account the current market environment. However,
positive rating pressure could develop over time if BP achieves sustained
improvements in earnings and cash flow generation and if it lowers its
liabilities, with RCF/net debt solidly positioned above 30%.
A more prolonged industry downturn leading to a severe and longer lasting
deterioration of the financial profile, with RCF/net debt not recovering
to 25% could put negative pressure on the A1 ratings of BP.
PRINCIPAL 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.
LIST OF AFFECTED RATINGS:
..Issuer: Atlantic Richfield Company
Affirmations:
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed A1
Outlook Actions:
....Outlook, Changed To Negative From
Stable
..Issuer: BP Capital Markets America Inc
Affirmations:
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed A1
....Backed Senior Unsecured Shelf, Affirmed
(P)A1
Outlook Actions:
....Outlook, Changed To Negative From
Stable
..Issuer: BP Capital Markets plc
Affirmations:
....Backed Senior Unsecured Conv./Exch.
Bond/Debenture, Affirmed A1
....Backed Senior Unsecured Commercial Paper,
Affirmed P-1
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)A1
....Backed Other Short Term, Affirmed
(P)P-1
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed A1
....Backed Senior Unsecured Shelf, Affirmed
(P)A1
Outlook Actions:
....Outlook, Changed To Negative From
Stable
..Issuer: BP Corporation North America, Inc.
Affirmations:
.... Issuer Rating, Affirmed A2
....Backed Senior Unsecured Commercial Paper,
Affirmed P-1
Outlook Actions:
....Outlook, Changed To Negative From
Stable
..Issuer: BP p.l.c.
Affirmations:
.... Issuer Rating, Affirmed A1
Outlook Actions:
....Outlook, Changed To Negative From
Stable
..Issuer: Standard Oil Company
Affirmations:
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed A1
Outlook Actions:
....Outlook, Changed To Negative From
Stable
..Issuer: Delaware County Industrial Dev. Auth.,
PA
Affirmations:
....Backed Senior Unsecured Revenue Bonds,
Affirmed A1
....Backed Senior Unsecured Revenue Bonds,
Affirmed P-1
..Issuer: Mississippi Business Finance Corporation
Affirmations:
....Backed Senior Unsecured Revenue Bonds,
Affirmed A1
....Backed Senior Unsecured Revenue Bonds,
Affirmed P-1
..Issuer: OHIO (STATE OF)
....Backed Senior Unsecured Revenue Bonds,
Affirmed A1
....Backed Senior Unsecured Revenue Bonds,
Affirmed VMIG 1
..Issuer: Whiting (City of) IN
....Backed Senior Unsecured Revenue Bonds,
Affirmed A1
....Backed Senior Unsecured Revenue Bonds,
Affirmed P-1
....Backed Senior Unsecured Revenue Bonds,
Affirmed VMIG 1
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating outcome
announced and described above.
REFERENCES/CITATIONS
[1] Public Audited Financial Statements 31-Mar-2020
[2] Company Annual Report 31-Mar-2020
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.
Sven Reinke
Senior Vice President
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
Peter Firth
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
