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
