Analyst's Notes. Argus Recommendations

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1 Report created Nov 22, 2017 Page 1 OF 5 Based in London, BP is one of the world's five super majors. BP's operations are fully integrated, consisting of upstream, transportation, trading, refining, petrochemicals, marketing and renewable energy. BP owns a 19.75% stake in Russia's largest oil company, Rosneft. Analyst's Notes Analysis by Bill Selesky, November 22, 2017 ARGUS RATING: BUY Strong 3Q results; boosting target by $4 to $45 BP shares appear attractively valued at recent prices near $39. The stock is trading toward the low end of its five-year historical average range for P/E, price/cash flow, enterprise value/ebitda, and enterprise value/total proven reserves. It is also trading at a discount to peers based on these metrics. We are raising our 2017 EPS estimate to $1.85 from $1.78 to reflect the company's 3Q results, which topped our estimate by $0.07. We look for higher crude oil and natural gas prices, along with further cost cutting, in the fourth quarter. The 2017 consensus is $1.78. We are maintaining our 2018 estimate of $2.50, which assumes modestly higher pricing and continued cost reductions next year. The 2018 consensus estimate is $2.34. We believe that management is committed to maintaining the current annualized dividend of $2.40, which yields an above-peer-average 6.1%. INVESTMENT THESIS We are reaffirming our BUY rating on BP plc (NYSE:BP) and raising our target price to $45 from $41. Our BUY rating is based on three factors. First, BP has settled all claims related to the 2010 Deepwater Horizon oil spill; the $18.7 billion settlement will be paid out over an 18-year period, thus reducing its present value. Second, we believe that management is committed to maintaining the current annualized dividend of $2.40, which yields about 6.1% - above the average of 5.7% for other 'supermajors' in our coverage group. Finally, we believe that BP's cost-cutting and restructuring efforts are helping to offset the impact of low oil prices and positioning the company for higher earnings as prices recover. RECENT DEVELOPMENTS BP shares have risen 4.3% year-to-date, while the S&P 500 Energy index has dropped 10.7%. The shares have also outperformed over the past year, increasing 13.4% while the Energy index has decreased 3.0%. On October 31, BP reported a 3Q17 underlying replacement cost profit of $1.865 billion or $0.57 per share, up from $933 million or $0.30 per share in the prior-year Data Pricing reflects previous trading week's closing price. 200-Day Moving Average Price ($) 45 Rating EPS ($) Target Price: $ Week High: $ Week Low: $38.51 Closed at $39.09 on 11/ Quarterly Annual ( Estimate) 2.50 ( Estimate) Revenue ($ in Bil.) Quarterly Annual ( Estimate) ( Estimate) FY ends Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Dec BUY HOLD SELL Argus Recommendations Twelve Month Rating SELL HOLD BUY Five Year Rating SELL HOLD BUY Rating Weight Under Over Weight Weight Argus assigns a 12-month BUY, HOLD, or SELL rating to each stock under coverage. BUY-rated stocks are expected to outperform the market (the benchmark S&P 500 Index) on a risk-adjusted basis over the next year. HOLD-rated stocks are expected to perform in line with the market. SELL-rated stocks are expected to underperform the market on a risk-adjusted basis. The distribution of ratings across Argus' entire company universe is: 50% Buy, 45% Hold, 6% Sell. Key Statistics Key Statistics pricing data reflects previous trading day's closing price. Other applicable data are trailing 12-months unless otherwise specified Overview Price $39.13 Target Price $ Week Price Range $33.10 to $41.55 Shares Outstanding 3.30 Billion Dividend $2.40 Overview Energy Rating MARKET WEIGHT Total % of S&P 500 Cap. 5.00% Financial Strength Financial Strength Rating MEDIUM Debt/Capital Ratio 37.6% Return on Equity -- Net Margin 1.7% Payout Ratio 1.30 Current Ratio 1.16 Revenue $ Billion After-Tax Income $3.86 Billion Valuation Current FY P/E Prior FY P/E Price/Sales 0.58 Price/Book -- Book Value/Share -- Capitalization $ Billion Forecasted Growth 1 Year EPS Growth Forecast % 5 Year EPS Growth Forecast 5.00% 1 Year Dividend Growth Forecast 0% Risk Beta 0.98 Institutional Ownership 35.90%

2 Report created Nov 22, 2017 Page 2 OF 5 period. EPS beat both our estimate of $0.50 and the consensus estimate of $0.48. The higher earnings reflected higher natural gas and NGL prices, increased production, and the startup of major projects. BP also realized lower exploration write-offs during the quarter. Total company sales rose 28% to $ billion. In the Upstream business, production of million barrels of oil equivalent per day (mmboe/d) increased 16% year-over-year, driven largely by new projects. The company has seven projects planned for The average realized price for liquids was $47.45 per barrel in 3Q17, up from $40.99 in the prior-year period. The average realized natural gas price was $2.89 per mcf, up from $2.77 in 3Q16. After adjusting for non-operating items and fair value accounting effects, the underlying replacement cost profit before interest and tax in the Upstream segment was $1.562 billion, up from a loss of $224 million in the year-earlier quarter. In the Downstream business, earnings jumped to $2.338 billion from $1.431 billion in 3Q16. The refining margin also moved higher, from $11.60 in 3Q16 to $ Total refinery throughput climbed to 1,745 thousand barrels per day (mb/d) from 1,650 mb/d in the year-earlier period. Refining capacity utilization was 95.3%, down slightly from 95.4% a year earlier. Third-quarter earnings from the company's stake in Rosneft came to $137 million, up from $120 million in 3Q16, driven by higher oil prices. In July 2017, BP received a dividend of $190 million from Rosneft. In July 2015, BP agreed to settle all outstanding federal and state claims, as well as claims made by more than 400 local government entities, arising from the Deepwater Horizon spill. The $18.7 billion settlement will be spread out over 18 years. Nearly two-thirds of the settlement will also be taken pretax, thus reducing the effective payout. The settlement covers most of BP's remaining liabilities from the accident, and brings the company's total pretax spill-related charges to $ billion. We view the settlement as a positive for BP as it reduces uncertainty about the ultimate financial impact of the spill. Gulf of Mexico oil spill payments were $0.6 billion in 3Q17. EARNINGS & GROWTH ANALYSIS BP management reaffirmed its 2017 outlook, which calls for 2017 production to increase from last year's million barrels of oil equivalent per day. It projects capital expenditures of $16.0-$17.0 billion, up from $16.0 billion in 2016 but down from $19.5 billion in It also projects $4.5-$5.5 billion of asset divestitures this year. We are raising our 2017 EPS estimate to $1.85 from $1.78 to reflect the 3Q results, which topped our estimate by $0.07. We look for gradually higher crude oil and natural gas prices, along with further cost cutting, in the fourth quarter. The 2017 consensus forecast is $1.78. We are maintaining our 2018 estimate of $2.50, which assumes Growth & Valuation Analysis GROWTH ANALYSIS ($ in Millions, except per share data) Revenue 388, , , , ,606 COGS 327, , , , ,296 Gross Profit 61,132 70,339 49,396 24,152 25,310 SG&A 13,357 13,070 12,696 11,553 10,495 R&D Operating Income 19,733 31,310 5,982-7,918-2,094 Interest Expense 1,125 1,324 1, Pretax Income 18,809 30,221 4,950-9,571-2,295 Income Taxes 6,993 6, ,171-2,467 Tax Rate (%) Net Income 11,582 23,451 3,780-6, Diluted Shares Outstanding 3,193 3,174 3,083 3,054 3,143 EPS Dividend GROWTH RATES (%) Revenue Operating Income Net Income EPS Dividend Sustainable Growth Rate VALUATION ANALYSIS Price: High $48.34 $48.65 $53.48 $43.85 $37.67 Price: Low $36.25 $39.99 $34.88 $29.35 $27.01 Price/Sales: High-Low P/E: High-Low , Price/Cash Flow: High-Low Financial & Risk Analysis FINANCIAL STRENGTH Cash ($ in Millions) 29,763 26,389 23,484 Working Capital ($ in Millions) 23,647 15,878 9,459 Current Ratio LT Debt/Equity Ratio (%) Total Debt/Equity Ratio (%) RATIOS (%) Gross Profit Margin Operating Margin Net Margin Return On Assets Return On Equity RISK ANALYSIS Cash Cycle (days) Cash Flow/Cap Ex Oper. Income/Int. Exp. (ratio) Payout Ratio The data contained on this page of this report has been provided by Morningstar, Inc. ( 2017 Morningstar, Inc. All Rights Reserved). This data (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. This data is set forth herein for historical reference only and is not necessarily used in Argus analysis of the stock set forth on this page of this report or any other stock or other security. All earnings figures are in GAAP.

3 Report created Nov 22, 2017 Page 3 OF 5 modestly higher pricing and continued cost reductions next year. The 2018 consensus estimate is $2.34. FINANCIAL STRENGTH & DIVIDEND We rate BP's financial strength as Medium, the midpoint on our five-point scale. Standard & Poor's rating is A-/stable, while Moody's rating is A1/positive and Fitch's rating is A/stable. At the end of 3Q17, BP's total debt/capitalization ratio was 39.7%, up from 38.9% a year earlier and in line with the peer average. Over the past five years, the average debt/cap ratio has been 33.1%. Total outstanding debt was $ billion at the end of 3Q17, up from $ billion at the end of 3Q16. We believe that BP has the ability to access the debt markets for additional liquidity if needed. BP had cash and cash equivalents of $25.8 billion at the end of 3Q17, compared to $25.5 billion at the end of 3Q16. Cash from operating activities at the end of 3Q17 was $6.024 billion, compared to $2.508 billion a year earlier. BP pays a quarterly dividend of $0.60 per ADS. The annualized dividend of $2.40 yields about 6.1%. Our dividend estimates are $2.40 for both 2017 and We believe that management is committed to paying the dividend, and that the company will be able to cover the dividend, if necessary, through additional asset sales or debt issuance. MANAGEMENT & RISKS Bob Dudley became CEO on October 1, One of Mr. Dudley's first acts was to create a new safety division to oversee and audit BP's worldwide operations. The Safety & Operational Risk function has the authority to intervene in all aspects of BP's technical activities. It also has its own expert staff embedded in BP's operating units. BP operates in some countries with a history of official corruption and in others that are prone to political upheavals. At the same time, its broad presence reduces the impact of each individual risk. Like its peers, BP operates in a commodity business in which it has little control over the price of the products it sells. Relative to peers, BP has substantially more exposure to Russia through its 19.75% stake in Rosneft. BP's stake in Rosneft could be a risk if political tensions with Russia escalate. COMPANY DESCRIPTION Based in London, BP is one of the world's five super majors. BP's operations are fully integrated, consisting of upstream, transportation, trading, refining, petrochemicals, marketing and renewable energy. BP owns a 19.75% stake in Russia's largest oil company, Rosneft. VALUATION BP shares appear attractively valued at recent prices near $39, above the midpoint of their 52-week range of $33.10-$ The stock is trading near the low end of its five-year historical average range for P/E, price/cash flow, enterprise value/ebitda, and Peer & Industry Analysis The graphics in this section are designed to allow investors to compare BP versus its industry peers, the broader sector, and the market as a whole, as defined by the Argus Universe of Coverage. The scatterplot shows how BP stacks up versus its peers on two key characteristics: long-term growth and value. In general, companies in the lower left-hand corner are more value-oriented, while those in the upper right-hand corner are more growth-oriented. The table builds on the scatterplot by displaying more financial information. The bar charts on the right take the analysis two steps further, by broadening the comparison groups into the sector level and the market as a whole. This tool is designed to help investors understand how BP might fit into or modify a diversified portfolio. P/E Value CVX BP 5-yr Growth Rate(%) XOM RDS/A Growth 5-yr Net 1-yr EPS Cap Growth Current Margin Growth Argus Ticker Company ($ in Millions) Rate (%) FY P/E (%) (%) Rating XOM Exxon Mobil Corp 342, BUY CVX Chevron Corporation 218, BUY RDS/A Royal Dutch Shell PLC 139, BUY BP 129, BUY Peer Average 207, P/E Price/Sales Price/Book PEG 5 Year Growth Debt/Capital

4 Report created Nov 22, 2017 Page 4 OF 5 enterprise value/total proven reserves. It is also trading at a discount to peers based on these metrics. Our DCF model points to a fair value of $47 per share. On a blended basis, we arrive at a revised target price of $45. The dividend yield of about 6.1%, above the peer average of 5.7%, adds to the total potential return. On November 22 at midday, BUY-rated BP traded at $39.62, up $0.49.

5 METHODOLOGY & DISCLAIMERS Report created Nov 22, 2017 Page 5 OF 5 About Argus Argus Research, founded by Economist Harold Dorsey in 1934, has built a top-down, fundamental system that is used by Argus analysts. This six-point system includes Industry Analysis, Growth Analysis, Financial Strength Analysis, Management Assessment, Risk Analysis and Valuation Analysis. Utilizing forecasts from Argus Economist, the Industry Analysis identifies industries expected to perform well over the next one-to-two years. The Growth Analysis generates proprietary estimates for companies under coverage. In the Financial Strength Analysis, analysts study ratios to understand profitability, liquidity and capital structure. During the Management Assessment, analysts meet with and familiarize themselves with the processes of corporate management teams. Quantitative trends and qualitative threats are assessed under the Risk Analysis. And finally, Argus Valuation Analysis model integrates a historical ratio matrix, discounted cash flow modeling, and peer comparison. THE ARGUS RESEARCH RATING SYSTEM Argus uses three ratings for stocks: BUY, HOLD, and SELL. Stocks are rated relative to a benchmark, the S&P 500. A BUY-rated stock is expected to outperform the S&P 500 on a risk-adjusted basis over a 12-month period. To make this determination, Argus Analysts set target prices, use beta as the measure of risk, and compare expected risk-adjusted stock returns to the S&P 500 forecasts set by the Argus Strategist. A HOLD-rated stock is expected to perform in line with the S&P 500. A SELL-rated stock is expected to underperform the S&P 500. Argus Research Disclaimer Argus Research is an independent investment research provider and is not a member of the FINRA or the SIPC. Argus Research is not a registered broker dealer and does not have investment banking operations. The Argus trademark, service mark and logo are the intellectual property of Argus Group Inc. The information contained in this research report is produced and copyrighted by Argus, and any unauthorized use, duplication, redistribution or disclosure is prohibited by law and can result in prosecution. The content of this report may be derived from Argus research reports, notes, or analyses. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Argus makes no representation as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. This report is not an offer to sell or a solicitation of an offer to buy any security. The information and material presented in this report are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person who may receive this report. Investing in any security or investment strategies discussed may not be suitable for you and it is recommended that you consult an independent investment advisor. Nothing in this report constitutes individual investment, legal or tax advice. Argus may issue or may have issued other reports that are inconsistent with or may reach different conclusions than those represented in this report, and all opinions are reflective of judgments made on the original date of publication. Argus is under no obligation to ensure that other reports are brought to the attention of any recipient of this report. Argus shall accept no liability for any loss arising from the use of this report, nor shall Argus treat all recipients of this report as customers simply by virtue of their receipt of this material. Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance. Argus has provided independent research since Argus officers, employees, agents and/or affiliates may have positions in stocks discussed in this report. No Argus officers, employees, agents and/or affiliates may serve as officers or directors of covered companies, or may own more than one percent of a covered company s stock. Morningstar Disclaimer 2017 Morningstar, Inc. All Rights Reserved. Certain financial information included in this report: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.