BP’s debt position compared to its peers
In this part, we’ll discuss BP’s (BP) debt position. Let’s start by looking at BP’s debt position compared to its peers.
BP’s total debt-to-capital ratio was 39% in the fourth quarter—higher than the industry average of 36%. The industry average considers 13 integrated energy companies worldwide. Royal Dutch Shell (RDS.A), Total (TOT), and Suncor Energy’s (SU) ratios were 28%, 31%, and 28%, respectively.
Another parameter to compare the debt is the net debt-to-adjusted EBITDA ratio. BP’s net debt-to-adjusted EBITDA ratio was 1.3x in the fourth quarter—in line with the average industry ratio of 1.3x.
BP’s net debt-to-adjusted EBITDA trend
BP’s net debt-to-adjusted EBITDA ratio fell from 1.5x in the fourth quarter of 2017 to 1.3x in the fourth quarter. BP’s net debt increased 9.1% YoY to $43.3 billion in the fourth quarter. The net debt increased due to the rise in the total debt and the fall in cash and equivalents. From the fourth quarter of 2017 to the fourth quarter, BP’s adjusted trailing 12-month EBITDA rose.
The net debt-to-adjusted EBITDA ratio fell due to the rise in the EBITDA—partially offset by an increase in the net debt.
What does the debt analysis reveal?
BP’s net debt-to-adjusted EBITDA ratio was in line with the industry average. The fall in the net debt-to-adjusted EBITDA ratio is a positive sign. The fall shows that there’s an improvement in the company’s debt position. BP needs to cover more ground to reach a comfortable place.
BP’s total debt-to-capital ratio is still above the average. The company has higher debt in its capital structure compared to its peers. BP’s peers are relatively better placed to handle tough times. BP will have to focus on reducing its total debt level—a critical factor that investors will monitor closely.
Next, we’ll discuss BP’s cash flow position.