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Rating Action:

Moody's upgrades BP's rating to A1; outlook is positive

08 Jun 2017

London, 08 June 2017 -- Moody's Investors Service has upgraded to A1 from A2 the issuer rating of oil and gas company BP p.l.c. (BP) and the long term debt ratings of its guaranteed subsidiaries. Concurrently, Moody's affirmed its Prime-1 commercial paper ratings of BP Capital Markets plc and BP Corporation North America, Inc. The outlook on all ratings is positive.

"Our decision to upgrade BP to A1 factors in the increased clarity around the size and timing of remaining cash payments linked to the Deep Water Horizon incident, as well as expected improvements to BP's credit metrics and its strong operating performance despite high oil price volatility," said Elena Nadtotchi, Vice President and Senior Credit Officer at Moody's.

At the same time, Moody's upgraded to A2 from A3 the issuer rating of BP's wholly-owned subsidiary, BP Corporation North America, Inc. (BPCNAI).

A full list of affected ratings can be found at the end of this Press Release.

RATINGS RATIONALE

The upgrade of the ratings to A1 from A2 recognises the reduced uncertainty about the size and future cash flow impact of the remaining liabilities related to the Deep Water Horizon (DWH) accident, providing greater clarity and focus on BP's improving fundamental performance.

We expect that the company's credit metrics will improve in 2017 with net adjusted debt/EBITDA close to 2.3x and RCF/net debt trending towards 30%, but will remain moderately behind expected performance of the peers, because of the "overhang" of about $16.5 billion in liabilities related to the DWH accident that added about 12% to 2016 debt, as adjusted by Moody's. BP aims to deliver $4.5 billion - $5.5 billion in divestments in 2017 and $2 billion - $3 billion in divestments in 2018 to match expected cash payments under the DWH liabilities in the next 12-18 months. This will reduce the remaining DWH liabilities by about 45% to around $9 billion and should help close the gap in credit metrics with the peers.

BP demonstrated strong operating performance amid high volatility in oil prices. In 2014-16, the company cut production costs by over 40% to around $10/boe in line with the performance of its Aa rated peers, including Total S.A. (Aa3 stable) and Chevron Corporation (Aa2 stable). BP's earnings are largely driven by the performance of the upstream operations. Higher production volumes and improving margins in the upstream are driving the recovery in BP's adjusted FFO generation that the rating agency expects will increase by about 20% to $25 billion in 2017. Factoring reduced level of capex and scrip dividend, the rating agency expects that BP will generate a negative adjusted FCF in the range of $2-3 billion and move to FCF neutrality after the scrip dividend and before the payments under DWH liabilities next year.

BP's A1/P-1 ratings are underpinned by its large and diversified reserves and production base, boosted by the 19.75% investment in PJSC Oil Company Rosneft (Ba1 stable); "value over volume" growth strategy in its dominant upstream operations; as well as the benefits of its integrated business model, with profitable downstream operations. BP's business profile compares well on scale, diversification and reserve provisions with the business profile assessments of its Aa-rated peers.

RATIONALE FOR MAINTAINING POSITIVE OUTLOOK

The positive outlook recognises that BP's strong business profile may sustain a higher rating and anticipates that the company will continue to deliver strong operating performance in 2017-19, supported by growth and improving profitability of the upstream, and rising contribution from the downstream. The positive outlook also factors in Moody's expectation that timely divestments in 2017 and 2018 will help BP to fund cash payments under the DWH liabilities and accelerate the ongoing improvement in BP's credit metrics closer in line with the financial performance of the Aa-rated peers.

WHAT COULD LEAD TO AN UPGRADE/DOWNGRADE

The upgrade of A1 ratings would require a sustained improvement in cash flow generation that would allow BP to maintain FCF neutrality after capital investment and scrip dividends. The upgrade of the ratings would require a significant reduction in the remaining DWH liabilities and lower leverage, with RCF/net debt solidly positioned above 30%.

While not anticipated at this stage, a re-leveraging of the balance sheet and/or delayed recovery in the financial metrics, with RCF/net debt falling sustainably to mid-20s level could lead to the downgrade of the outlook and/or A1 rating.

LIST OF AFFECTED RATINGS

Upgrades:

..Issuer: BP p.l.c.

....LT Issuer Rating, Upgraded to A1 from A2

....Backed Senior Unsecured Revenue Bonds supported by BP p.l.c., Upgraded to A1 from A2

..Issuer: Atlantic Richfield Company

....Senior Unsecured Regular Bond/Debenture, Upgraded to A1 from A2

....Backed Senior Unsecured Revenue Bonds supported by Atlantic Richfield Company, Upgraded to A1 from A2

....Backed Revenue Bonds supported by Atlantic Richfield Company, Upgraded to A1 from A2

..Issuer: BP AMI Leasing, Inc.

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to A1 from A2

..Issuer: BP Capital Markets America Inc

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to A1 from A2

..Issuer: BP Capital Markets plc

....Backed Senior Unsecured Medium-Term Note Program, Upgraded to (P)A1 from (P)A2

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to A1 from A2

....Backed Senior Unsecured Shelf, Upgraded to (P)A1 from (P)A2

..Issuer: BP Corporation North America, Inc.

....LT Issuer Rating, Upgraded to A2 from A3

....Backed Senior Unsecured Revenue Bonds supported by BP Corporation North America, Inc., Upgraded to A1 from A2

..Issuer: Standard Oil Company

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to A1 from A2

Affirmations:

..Issuer: BP p.l.c.

....Backed Senior Unsecured Revenue Bonds supported by BP p.l.c., Affirmed VMIG 1

....Backed Senior Unsecured Revenue Bonds supported by BP p.l.c., Affirmed P-1

..Issuer: Atlantic Richfield Company

....Backed Senior Unsecured Revenue Bonds supported by Atlantic Richfield Company, Affirmed P-1

..Issuer: BP Capital Markets plc

....Backed Commercial Paper, Affirmed P-1

....Backed Other Short Term, Affirmed (P)P-1

..Issuer: BP Corporation North America, Inc.

....Backed Commercial Paper, Affirmed P-1

....Backed Senior Unsecured Revenue Bonds supported by BP Corporation North America, Inc., Affirmed P-1

Outlook Actions:

..Issuer: BP p.l.c.

....Outlook, Remains Positive

..Issuer: Atlantic Richfield Company

....Outlook, Remains Positive

..Issuer: BP AMI Leasing, Inc.

....Outlook, Remains Positive

..Issuer: BP Capital Markets America Inc

....Outlook, Remains Positive

..Issuer: BP Capital Markets plc

....Outlook, Remains Positive

..Issuer: BP Corporation North America, Inc.

....Outlook, Remains Positive

..Issuer: Standard Oil Company

....Outlook, Remains Positive

The principal methodology used in these ratings was Global Integrated Oil & Gas Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

BP p.l.c. (BP) ranks as one of the largest public integrated oil and gas companies globally, with annual revenues of $183 billion and $223 billion in 2016 and 2015, respectively. It is an upstream-focused vertically integrated group with a sizable downstream presence. BP's main operations are located in North America, Europe, Asia and parts of Africa (Angola, Egypt). It also holds a large investment in Russia through its 19.75% stake in PJSC Oil Company Rosneft (Ba1, stable).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Elena Nadtotchi
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

Anke N Richter, CFA
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

No Related Data.
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