BAKU, Azerbaijan, April 1
By Leman Zeynalova - Trend:
BP's operating performance to suffer from severe decline of oil prices, Trend reports citing 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.
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 program.
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 percent in 2020 under a $40/bbl WTI ($43/bbl Brent) oil price scenario. The metric is likely to fall under 10 percent 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 percent.
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.
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