BP plc's operating performance remains "satisfactory overall," which merits a revised outlook to "stable" from "negative," Standard & Poor's Ratings Services (S&P) said Wednesday.
S&P, which had downgraded BP's outlook following last year's Macondo well blowout in the Gulf of Mexico (GOM), also affirmed the producer's "A/A-1" long- and short-term corporate credit ratings. BP is the largest operator in the GOM and one of the largest natural gas producers in North America.
"The stable outlook primarily reflects our view of reduced downside risk to the group's credit quality and little evidence of further erosion of BP's business standing," said credit analyst Simon Redmond and his colleagues. "The outlook revision reflects our view of reduced downside risk to BP's credit quality, mainly due to supportive oil prices and refining margins in recent quarters."
Redmond noted that BP's average realized oil price was 19.2% higher in the first three months of this year compared to the final quarter of 2010 and it was up almost 31% year/year.
"Furthermore, we understand that BP has received cash for more than one-half of up to $30 billion planned asset disposals by year-end 2011," he said. "These factors lead us to believe that BP is better positioned to fund its uncertain Gulf of Mexico-related commitments than we previously anticipated."
S&P's ratings "reflect the uncertainties surrounding continuing investigations and litigation relating to the oil spill...which resulted in material cash outflows. While we note the financial settlements reached with Mitsui & Co. Ltd. and Weatherford International Ltd., we will monitor the outcomes of continuing investigations and proceedings in the U.S. and assess their potential rating implications."
A Mitsui subsidiary, which was a 10% stakeholder in the Macondo well, agreed in May to pay BP nearly $1.07 billion for Macondo-related damages (see Daily GPI, May 23). Weatherford, which provided casing components for the Deepwater Horizon rig, last month agreed to pay BP $75 million in exchange for indemnity against compensatory claims in multidistrict litigation (see Daily GPI, June 23).
The S&P analysts said BP "is well positioned" to meet potentially substantial additional fines and other payments related to the GOM disaster.
To determine its ratings the S&P analysts assumed that all GOM-related payments, including the $20.7 billion paid up until March 31, would be spread over several years and total less than $55 billion.
"A sustained decline in oil prices below our long-term price assumption of $70/bbl, alongside underlying operating cash flow of less than $25 billion, could put downward pressure on the ratings," Redmond said of BP. "In addition, rating downside could occur in the event of delays in the completion of BP's planned disposals. We consider that upside rating potential is limited until we have more clarity on the likely penalties that BP could face in the U.S. for the Gulf of Mexico oil spill."
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