Divergent ratings for Shell and BP
By Carola Hoyos in London
Published: September 2 2008 03:00 | Last updated: September 2 2008 03:00
Standard & Poor’s, the credit rating agency, yesterday downgraded its long-term rating for BP, the UK oil and gas company, while it upgraded the one for BP’s closest rival, Royal Dutch Shell, illustrating the widening perception of the two companies’ circumstances.
S&P noted Shell’s success in reserve replacement and said current projects should sustain its production at a relatively steady rate in the next decade.
The company’s conservative financial profile also contributed to S&P’s decision to raise its long-term issuer credit rating to double A+ from double A.
In contrast, S&P lowered its corporate credit ratings on BP to double A from double A+ plus. S&P argued that BP’s refining and marketing was weaker than its peers and “bridging part of the profitability gap with peers will require a prolonged effort, and the other part of the gap is structural”. BP’s clash with its Russian partners over TNK-BP, the venture that provides for 25 per cent of BP’s production, also influenced the decision, the rating agency said. BP is being less conservative than its peers in distributing its gains to shareholders, having lifted its annual common dividends by 30 per cent to more than $10bn this year.
“While remaining very strong, BP’s financial profile is now significantly less conservative than peers’ and is becoming more in line with a double A rating,” S&P said in a statement.
Neither BP nor Shell lack money, as the industry has amassed large cash piles thanks to high oil prices.
Their shares were down yesterday, largely because oil prices fell $4 a barrel to about $110 a barrel.
Copyright The Financial Times Limited 2008
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