PRESS RELEASE: S&P Lowers BP Ratings To 'A/A-1'; Still On Watch Neg

17th Jun 2010 20:43

The following is a press release from Standard & Poor's: -- Higher oil leak estimates resulting from the subsea explosion at BP's Macondo well in the Gulf of Mexico and questions raised during a U.S. Congressional hearing are, among other things, increasing our estimated short- and long-term potential liabilities for BP PLC. -- BP, a U.K.-headquartered oil major, is reportedly to contribute $20 billion of assets to a specially established claims fund, although these payments do not amount to a cap. -- We are lowering our long- and short-term corporate credit ratings on BP to 'A/A-1' from 'AA-/A-1+' and keeping them on CreditWatch negative. -- The ongoing CreditWatch placement reflects our view of the continued uncertainties affecting BP, rapid evolution of the situation, and our reassessment of the longer-term impact of the explosion and spill on BP's business. LONDON (Standard & Poor's) June 17, 2010--Standard & Poor's Ratings Services said today that it lowered its long- and short-term corporate credit ratings on U.K.-headquartered oil major BP PLC to 'A/A-1' from 'AA-/A-1+'. The ratings remain on CreditWatch, where they were placed with negative implications on June 4, 2010. "The downgrade reflects our opinion of the challenges and uncertainties that BP continues to face in the aftermath of the explosion on the Deepwater Horizon rig in the Gulf of Mexico on April 20, 2010, and the subsea Macondo well blowout," said Standard & Poor's credit analyst Simon Redmond. "These challenges and uncertainties include the difficulties BP is experiencing in containing the spill as well as the ultimate extent of the pollution, the consequences for BP of ongoing official investigations, and the implications of these investigations for the magnitude and timing of further cash payments by BP." BP is now subject to intense political pressure in the U.S., its largest market. We see these factors as fundamental issues differentiating BP from its peers. BP reported net debt of $25.2 billion as of March 31, 2010 ($45.2 billion pro forma when we include the $20 billion claims fund commitment announced on June 16, 2010). BP has reportedly agreed to make $20 billion of phased payments into a specially established claims fund over the next three-and-a-half years. At the same time, BP has reportedly agreed to increase its cash resources and to this end has agreed to suspend dividend payments ($10.5 billion in 2009), reduce capital investments ($20 billion projected for 2010), and accelerate asset disposals. On their own, we view these steps to increase cash resources as credit supportive although, in the circumstances, we are of the view that their benefit is less significant than the negative effect on credit that has arisen. As a consequence, we have revised our assessment of BP's business and financial risk profiles to "strong" and "modest," respectively, from "excellent" and "minimal." This reflects our view that the materiality of the uncertainties and challenges currently facing BP distinguish it from its peers, whose very significant underlying strengths--including huge global cash-generative upstream activities--it otherwise shares. Under our $70 per barrel near-term credit oil price assumption, we currently estimate BP's adjusted funds from operations (FFO) to debt to be well below 50% in 2010 and that BP's discretionary cash flow (after contributions to the claims fund and taking account of reduced dividends) will likely break even in 2010. We will review the CreditWatch placement after further discussion with BP's management. As part of the review, we will consider scenarios factoring in likely higher costs and possible future crystallization of settlement and other payments. Potential liabilities will continue to mount as long as the pollution flow continues. We will continue analyzing both BP's financial and business risk profiles, and refining BP's financial parameters for its ratings, in the context of its business risk. We believe certain near-term uncertainties have been addressed by the agreement with the U.S. government of June 16, 2010. However, because of the rapidly developing situation, forthcoming hurricane season, and general uncertainty about the situation, we cannot rule out further rating adjustments at this point. RELATED CRITERIA AND RESEARCH -- BP PLC Long-Term Rating Lowered To 'AA-' On Prolonged Oil Spill; Long- And Short-Term Ratings On CreditWatch Negative, June 4, 2010 -- Assumptions: Revised Oil And Natural Gas Price Assumptions For The Remainder Of 2010 And For 2011 And 2012, April 28, 2010 -- Key Credit Factors: Business And Financial Risks In The Oil And Gas Exploration And Production Industry, Nov. 10, 2008 Complete ratings information is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011. Primary Credit Analyst: Simon Redmond, London (44) 20-7176-3683; [email protected] Secondary Credit Analysts: Per Karlsson, Stockholm (46) 8-440-5927; [email protected] Trevor Pritchard, London (44) 20-7176-3737; [email protected] Additional Contact: Industrial Ratings Europe; [email protected] No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P. The Content shall not be used for any unlawful or unauthorized purposes. 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