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Did shocking Ormen Lange gas field news damage Shell’s credit rating?

By John Donovan

According to reports published over the last 24 hours by Norwegian business daily Dagens Naeringsli, upstreamonline.com and offshore247.com, the Ormen Lange gas field project has been badly hit by disappointing drilling results that have a significant negative impact, including on the project operator, Royal Dutch Shell.

This could partly explain yesterdays decision by Standard & Poor’s to cut Shell’s credit rating from AA+ to AA. The main reasons for the cut were concerns over Shell’s rising debt combined with weaker-than-anticipated upstream production growth since 2003.

In January 2004, when Standard & Poor’s threatened to cut Shell’s then triple A long-term rating in response to the Shell reserves fraud, Ivor Pether of Royal London Asset Management said of the threat: It’s a disaster for their reputation.” In April 2004, following the publication of an internal inquiry into the fraud which involved Shell executive directors, Standard & Poor’s stripped Shell of the AAA credit rating it had maintained for 14 years.

Now the rating is cut even further, perhaps once again taking into account a significant shortfall in anticipated reserves.

Under the headline “Shell shock at Ormen Lange” Upstreamonline.com says:

Norway’s Ormen Lange gas field could be as much as one-quarter smaller than previously expected.

The possible lower volumes mean operator Shell and partners StatoilHydro, Petoro, Dong and ExxonMobil are potentially facing a shorter lifespan and reduced profits from the $11 billion development.

Dagens Naeringsli reported that disappointing drilling results in the north of the field made it possible that official reserve estimates of 382 billion cubic meters of recoverable gas could be 100 billion cubic meters too high.

Shell spokesperson Kitty Eide reportedly declined to comment on media reports about the Ormen Lange reserves.

upstreamonline.com article (Subscription)

offshore247.com article

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