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Investing.com -- Fitch Ratings has confirmed BP plc (LON:BP)’s Long-Term Issuer Default Rating (IDR) at ’A+’ and maintained a Stable Outlook on Friday. The rating is based on BP (NYSE:BP)’s commitment to reduce its net debt to between $14 billion and $18 billion by 2027, and the expectation that the company will decrease its EBITDA net leverage to 1.1x-1.2x by 2027 from a high of 1.5x anticipated for the end of 2025.
The Stable Outlook reflects Fitch’s confidence that BP will meet or exceed its revised rating case. The rating also acknowledges BP’s large scale, worldwide operations, and its broad, integrated, and diversified business model. Despite higher leverage compared to similarly rated peers during a period of weaker hydrocarbon markets, BP is aiming to enhance returns by allocating more capital to upstream oil and gas production, optimizing its portfolio, and reducing costs.
BP plans to dispose of $20 billion of assets between 2025 and 2027 to strengthen its balance sheet and partially fund shareholder distributions. The company’s latest strategy update aims to maintain oil and gas production at 2.3 million-2.5 million barrels of oil equivalent per day (mmboepd) until 2030, with an annual capex of $10.5 billion for the next three years. BP is also planning to focus on its downstream assets where they have a competitive advantage and are integrated with the rest of the group, by allocating $3 billion capex a year over 2025-2027.
BP’s business profile is supported by large upstream production, vast oil and gas reserves, international asset diversification, and a competitive cost position in upstream oil and gas production. The group benefits from integration into midstream, downstream, trading and marketing. It also aims to capitalize on its reach by expanding its LNG franchise and increasing the value-added content of its hydrocarbon sales.
In terms of peer analysis, BP is among the top integrated oil and gas producers with diversified assets in the upstream and downstream segments. Despite robust earnings in upstream oil and gas production, returns from gas trading as well as refining and trading in the products business have declined over the last 15 months. BP’s financial leverage is the highest in its peer group, with EBITDA net leverage expected to rise to 1.5x by the end of 2025.
Fitch’s key assumptions include oil and gas prices for 2025-2027 in line with their assumptions, production for 2025-2027 in line with management guidance, Macondo-related payments of $1.2 billion a year over 2025-2027, and capex of $14.5 billion in 2025 and $14 billion a year in 2026 and 2027.
Factors that could lead to a negative rating action or downgrade include EBITDA net leverage above 1.5x and EBITDA gross leverage well above 1.7x on a sustained basis, financial policy not adequately mitigating structural changes in the sector, and their impact on BP’s business risk profile. On the other hand, Fitch does not expect an upgrade at least in the medium term due to the long-term challenges posed by the energy transition.
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