BP dividend at risk as oil prices weaken, Goldman downgrades to 'sell'

Goldman Sachs has cut its stance on the integrated oil sector from 'neutral' to 'cautious' and lowered UK major BP specifically from 'neutral' to 'sell', after reducing its crude price forecasts.

"With shale break-evens falling US$20/bl in a year, and deflation taking hold of the industry, we lower our Brent oil price estimate to c.US$65/bl in the near term [from $70], falling to US$55/bl by 2020," the US bank said.

"This change is likely to put severe pressure on the integrated oils, leaving them too high on the cost curve."

As such, Goldman reckons that dividends are likely to come under "severe pressure". It predicted that none of the companies under its coverage will be able to sustainably maintain their existing payouts to 2020 whilst keeping cash flows neutral.

"On our estimates, ENI and Total should be able to maintain the highest yields, with BP, Statoil and OMV likely to see the largest cuts," it said.

At BP, where Goldman sees 20% downside given its target price of 364p, the bank said the company is likely to experience limited growth in the upstream business. Meanwhile, given BP's recent multibillion-dollar non-core asset sell-off, it has fewer options left for disposals.

The ongoing fallout of the Macondo well oil spill in 2010 will also continue represent an "overhang" for the business, Goldman said.

BP's shares were up 0.25% at 453.51p by 11:10, as the price of Brent rose 0.45% to $67.11 a barrel.