On Tuesday, RBC Capital issued a downgrade for Aker BP (NYSE:BP) stock from Sector Perform to Underperform, adjusting the price target to NOK220 from the previous NOK330. The revision reflects concerns over the Norwegian oil company's future production and capital expenditure outlook.
The downgrade is based on a combination of factors, including a lower forecast for commodity prices and the expectation of a high capital expenditure. Aker BP is also facing a decline in production while aiming to maintain its dividend ambitions. Analysts at RBC Capital believe that these challenges will lead the market to seek a higher yield from the company until it can demonstrate progress on its upcoming projects at Skarv, Valhall, and Yggdrasil.
A significant point of concern for Aker BP is the Johan Sverdrup field, which is expected to come off its peak plateau performance in the first quarter of 2025. Although there is no formal guidance on the potential year-over-year production impact, RBC Capital estimates an initial decline of at least 10%. This projection is based on historical data from other large fields in Norway.
Despite the anticipated decline at the Sverdrup field, which accounts for approximately 55% of Aker BP's FY24 production, the company's overall production for FY25 is expected to decrease by about 6% year-over-year. This is partly due to the lower decline rates across the company's base portfolio and new production from the Hanz and Tyrving fields, which could partially offset the decline from Sverdrup.
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