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S&P raises concerns over Shell review

Financial Times: S&P raises concerns over Shell review

“battered by a scandal”

By Ian Bickerton in Amsterdam

Jul 09, 2004

A leading credit ratings agency yesterday raised concerns over the transparency of an internal structural review being undertaken by Royal Dutch/Shell.

The move echoed the views of some of the oil group’s biggest institutional investors. Standard & Poor’s said it “remains concerned by, notably, a relative lack of transparency regarding the dual ownership review process and the scope of reforms to be implemented” by the Anglo-Dutch group.

It has been battered by a scandal that has forced it to cut proved reserves by 4.47bn barrels, or 23 per cent of proved reserves, in four separate revisions starting in January, and cost the jobs of several senior executives.

The ratings agency’s view mirrors that of some shareholders, which have requested that the group discloses proposals under consideration and accepts independent appointments to a working group that is conducting the internal review.

S&P’s comments came despite it welcoming “the actions Shell has already taken to address governance weaknesses”.

Under pressure from shareholders, Royal Dutch/ Shell last month named the members of the internal review group and pledged to abolish powerful priority shares held by its Dutch arm, which controls 60 per cent of the company.

Royal Dutch/Shell has cited the complexity of the governance review process as the reason why it is unlikely to divulge its plans for structural reform before November.

S&P did remove its long-term ratings on the group from creditwatch, where they had been placed on January 9 following the reserves announcement. It also affirmed its long and short-term ratings on the group and its entities, at AA+ and A-1+ respectively, with a negative outlook.

The agency said key weaknesses – notably exploration performance, related governance and internal control issues, increasing upstream investment and shareholder litigation risks – were counterbalanced by the expectation that it would maintain strengths in other areas.

Having downgraded its ratings on the group in April, it also said yesterday that it expected proved reserve bookings to “significantly exceed production during 2004-05”.

Jeroen van der Veer, chairman of Royal Dutch/Shell’s committee of managing directors, told Dutch shareholders last week, that “80 per cent” of the reserves de-booked since January would return as proved reserves over the next decade.

However, S&P warned: “The ratings could be lowered, should the group fail to effectively correct its weaknesses in corporate governance and internal controls and to raise proved reserve bookings significantly above full replacement during the next two years.”

© Copyright The Financial Times Ltd

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