The Times (UK): Shell threatened with AA rating downgrade: “S&P said it had put the oil group’s long-term debt “on credit watch with negative implications” and hinted strongly that it could lose its AA+ rating. The trigger was Shell’s announcement on Thursday that it might have overstated its oil and gas reserves again, this time by 900 million barrels.” (ShellNews.net)

By Patrick Hosking, Investment Editor

October 30, 2004

THE Royal Dutch/Shell group was threatened with a credit rating downgrade by the rating agency Standard & Poor’s last night.

S&P said it had put the oil group’s long-term debt “on credit watch with negative implications” and hinted strongly that it could lose its AA+ rating. The trigger was Shell’s announcement on Thursday that it might have overstated its oil and gas reserves again, this time by 900 million barrels.

“This latest warning about Shell’s reserves represents the fifth such announcement about the company’s reserves base this year,” S&P said.

“S&P did not expect that further significant adjustments to the company’s reserves base would be required.”

S&P had removed Shell from negative credit watch in July, when it appeared a line had been drawn under the reserves uncertainty.

“Now it seems that is not the case,” Eric Tanguy, S&P analyst, said.

A downgrade from AA+ to AA would only modestly increase Shell’s interest bill, but would diminish its standing in the world’s capital markets.

The group has outstanding bonds of about $20.4 billion (£11.1 billion). Shell lost its top-ranking AAA rating in April, at an earlier stage in the reserves scandal.

A spokesman for Shell said the increase in financing costs would be “immaterial”, and that short-term debt was not subject to a downgrade threat.

S&P said the company’s poor exploration performance and issues over reserves were counterbalanced by its conservative financial profile, consistently profitable downstream operations and other factors.

The latest blow comes in a landmark week for the Anglo-Dutch company, which unveiled plans to dismantle its 97-year-old dual structure to create a single board.