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Reuters: TEXT-S&P release on Royal Dutch Shell Plc, Shell Canada Ltd

Mon Oct 8, 2007 1:18pm BST
(The following statement was released by the ratings agency)

Oct 8 – Standard & Poor’s Ratings Services said today that it revised its outlook on international oil and gas integrated company Royal Dutch Shell PLC (RDSa.L: Quote, Profile, Research) and its Canadian subsidiary Shell Canada Ltd. to positive from stable.

At the same time, the ‘AA/A-1+’ long- and short-term corporate credit ratings on both entities were affirmed.

“The outlook revision follows Shell’s consolidation of its excellent business profile over the past two years, by continually improving upstream operating performance and maintaining solid downstream performance,” said Standard & Poor’s credit analyst Emmanuel Dubois-Pelerin.

The ratings on Shell reflect its very strong business portfolio in both upstream and downstream activities, its position as one of the three largest global private integrated oil companies in the world, and its very conservative financial profile and policies.

We continue to equalize the ratings on Shell Canada with those on Shell.

The positive outlook reflects Shell’s ongoing improvements in its upstream track record of reserve replacement, production growth, project execution, and capital cost containment.

“We expect these improvements at Shell to continue and will consider a one-notch upgrade following steady progress over several quarters, as long as Shell does not encounter significant hitches on its very large upstream projects and even if debt increases slightly,” said Mr. Dubois-Pelerin.

We anticipate that Shell will maintain a very conservative financial profile and policies, along with strong downstream performance. Under our conservative pricing scenario (including $40/barrel West Texas Intermediate and $5/thousand cubic feet Henry Hub prices starting in 2010), we expect FFO at close to $ 25 billion assuming that the funding of pension and retiree medical obligations does not deteriorate (overfunded at 106% at year-end 2006).

At either ‘AA’ or ‘AA+’ rating levels, we expect adjusted FFO to cover debt at approximately 70% or more, offset by slightly negative free cash flow after capital expenditures and dividends.

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