BP Plc’s rating outlook was downgraded by Fitch Ratings because it expects lower crude prices and fines related to the Macondo oil spill to cut cash flows and drive up debt.
The outlook on BP’s long-term issuer default rating was cut to negative from stable, Fitch said in a statement on Monday. The rating was maintained at A, the third-highest level, it said.
“BP’s flexibility in responding to low oil prices is constrained by already high leverage and a need to preserve cash” following liabilities after the 2010 spill at the Macondo well in the Gulf of Mexico, Fitch said.
While BP has set aside $3.5 billion to cover an impending ruling relating to the spill under the U.S. Clean Water Act, Fitch considered the maximum possible payout of $13.7 billion when downgrading its outlook. Combined with a lower oil price, the payments are likely to drive BP’s adjusted net debt to a level above the company’s guidance for the four years starting 2016, Fitch said.
Eleven men died in the blowout of the Macondo well and destruction of the Deepwater Horizon rig, which led to the biggest offshore spill in U.S. history. BP has been forced to sell a third of its assets as it battles lawsuits and claims, cutting the company’s oil and gas production.
BP has paid out more than $28 billion for the disaster and set aside total provisions of $43.8 billion relating to the spill.
Crude’s 44 percent drop in the past year is also cutting cash flow and profit at the world’s biggest oil companies. BP’s cash from operations fell 78 percent to $1.9 billion in the first quarter of this year, according to data compiled by Bloomberg.
Moody’s Investor Service and Standard & Poor’s both have negative outlook on BP’s rating.