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Fitch Warns on Shell’s Credit Rating



LONDON—Fitch Ratings on Monday revised its outlook for energy giant Royal Dutch Shell PLC’s credit rating to negative from stable, citing doubts that the company’s medium-term cash flow will be strong enough to maintain its current double-A-plus rating.

The decision is a blow for Shell, which is nearing the end of a major restructuring and hopes that 2010 will mark a turnaround from its weakening performance in recent years.

“Despite Shell’s forecasted production increase of approximately 600,000 barrels of oil equivalent [a day] by 2014 in a $60 per barrel price environment, the company’s operating cash flow in the medium term may be insufficient to restore its financial profile,” Fitch said in a statement.

Shell could have its rating downgraded in the future if it doesn’t increase oil and gas production, hold down spending in its North American operations or recover from operational weakness in refining and petrochemicals, Fitch said. But the company could have its outlook return to stable if it can demonstrate it is able to generate enough cash to cover capital expenditure and dividends, and use the extra money to pay down its debt, Fitch added.

Shell’s gearing, or ratio of net debt to total capital, at the end of 2009 was 15.5%, well below its maximum level of 30%, although the figure does not include pension liabilities.

Write to James Herron at [email protected]


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