On Tuesday, BP shares were hit hard after S&P Global lowered its outlook for the British oil company. The reason given was worries that the company might not be able to pay off its debts with its plans to buy back shares.
S&P Global changed its outlook for BP from “positive” to “stable.” The ratings agency said that BP’s current plans to buy back shares make it unlikely that the oil giant will be able to lower its $24 billion debts, which is bad news for CEO Murray Auchincloss, who took over the company this year.
BP BP, -4.02% BP, -2.51% shares on the London Stock Exchange fell 3% on Tuesday. They have already lost 1% of their value this year.
The downgrade comes after BP promised in February to use 80% of its extra cash flow to buy back its own stock from shareholders, up from 60% before, and to also raise its dividend to 10%.
Auchincloss announced the plans soon after becoming CEO of BP in January. This is because the world’s biggest oil companies have increased their plans to buy back their own shares because of how well they’ve done since the war in Ukraine began.
On Monday, S&P Global said that BP’s plans will probably make it hard for the oil giant to pay down its debts, even though the market is currently in a good place.
S&P Global said, “We expect BP’s revised cash allocation strategy will not lead to meaningful further debt reduction.”
Chevron CVX, -1.65%, Shell SHEL, -2.86%, and Exxon Mobil XOM, -2.44%, all of which have much stronger balance sheets than FTSE-100 company BP, will fall even further behind. It was S&P Global.
The funds from operations (FFO) to debt ratio for BP was only 41.9% at the end of 2023, while it was over 75% for Chevron, Shell, and ExxonMobil.
S&P Global said, “The difference in balance sheet strength between BP and the other supermajors is not likely to close.”
S&P Global said that the gap between BP and its peers will continue to grow, even though the market is expected to be good in 2024 and BP will have a “solid performance” as it moves forward with plans to cut costs in its upstream division.
The top rating agency said, “We expect BP to keep its FFO to debt at around 50% on average in 2024–2026, even at our friendly oil price assumptions of $80/boe Brent and above-average refining margins.”
S&P Global also said it thinks BP’s hydrocarbon production will stay the same or even go up, even though the company has said it wants to cut oil and gas production in the long term to meet its climate goals.
BP refused to say anything.
