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Mounting debt leads to Shell rate cut

upstreamonline.com

Thursday, 03 September 2009: 20.50 GMT

Wire reports

Supermajor Shell long-term credit rating was cut to AA from AA+ by Standard & Poor’s Ratings Services, which cited the prospect of rising debt.

S&P also affirmed its rating on Eni and Total, while revising its outlook on both to negative from stable.

It affirmed its AA rating on BP with stable outlook.

“Capital expenditure- and dividend-driven pressures on free-cash flow contributed to all the rating decisions,” S&P said in a Bloomberg report.

“For Shell in particular, we expect these pressures to lead to sizable further rises in debt in 2009 and 2010, albeit from a very low initial level.”

In the case of Shell and Total, “their slightly less conservative leverage policies, including shareholder distributions, coupled with our expectation of a prolonged refining downturn, also contributed to the downgrade and outlook revision respectively,” S&P said.

The AA rating is the third notch on S&P’s 10-level ranking of investment-grade debt.

S&P said Shell’s debt net of all reported cash could exceed $35 billion by the end of next year, up from $19.5 billion in June this year and compared with a low of $8 billion at the end of last year.

S&P also cited Shell’s “weaker-than-expected upstream production growth overall since 2003, including in first half 2009” as contributing to its downgrade.

New Shell boss Peter Voser took the helm of Europe’s largest oil company on 1 July, replacing Jeroen van der Veer and initiating a reorganisation that is cutting costs and jobs.

The company has announced plans to merge the exploration and production, gas and power, and oil sands units along geographical lines.


Thursday, 03 September, 2009, 19:43 GMT

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