THE WALL STREET JOURNAL: S&P Affirms Maritimes & Northeast Pipeline Ratings: “Shell Canada has indicated that reserves could be depleted by 2014, or five years prior to bond maturity, as opposed to original estimates of 2025.” (ShellNews.net)

DOW JONES NEWSWIRES

August 20, 2004 4:01 p.m.

Posted 21 August 04

The following is a press release from Standard & Poor's:

NEW YORK (Standard & Poor's) Aug. 20, 2004--Standard & Poor's Ratings Services affirmed its 'A' ratings on Maritimes & Northeast Pipeline LLC's US$240 million 7.7% bonds due 2019 and Maritimes & Northeast Pipeline Limited Partnership's C$260 million 6.9% bonds due 2019.

The proceeds from the sale of the U.S. and Canadian bond issues were used by the borrowers to pay the costs of constructing the U.S. and Canadian portions of the Maritimes & Northeast Pipeline and related facilities, as well as to repay certain previously incurred indebtedness.

The affirmation follows Standard & Poor's review of the project incorporating continued disappointing performance of the Sable Offshore Energy Project (SOEP), which currently is the only source of gas supply to Maritimes. In July, Shell Canada disclosed that its share of production had declined in the second quarter of 2004 to 129 million cubic feet/day (MMcf/d) compared to 142 MMcf/d for the previous year. Shell Canada and ExxonMobil have lowered reserve estimates for the SOEP fields to 1.35 trillion cubic feet (TCF) from an original estimate of 3.6 TCF in early 1999. More importantly, Shell Canada has indicated that reserves could be depleted by 2014, or five years prior to bond maturity, as opposed to original estimates of 2025.

The lower production has led to lower interruptible revenues on Maritimes-U.S. and expected weaker coverage in 2004 (1.45x versus 1.72x in 2003). Maritimes-U.S. has filed with the FERC for a rate increase of 54%. While Standard & Poor's does not expect Maritimes-U.S. to receive its entire request, some relief is likely. The lower production does not affect the Canadian side because the Canadian side does not rely upon interruptible revenues.

The rating on the bonds, which has been maintained since issuance, is supported by backstop agreements (with ExxonMobil, which mitigate supply risk. The backstop agreements obligate ExxonMobil to pay for unsubscribed capacity to the extent that gas is not transported (or otherwise paid for) pursuant to the supplier firm service agreements and/or pipeline utilization agreements.

Also supporting the rating is that 82% of Maritimes-U.S. capacity and more than 90% of Maritimes-Canada capacity are contracted under firm service agreements. Credit risk is appropriate for the rating level, as the U.S. shippers are all rated in the 'A' category or higher, while 75% of the Canadian shippers are rated in the 'A' category or higher.

The stable outlook reflects the projects' predictable revenues based on regulated tariffs, the credit quality of the basket of shippers under contracts, and the demand fundamentals of the projects' primary markets. The backstop agreements provide support to the rating, but Standard & Poor's will continue to monitor Maritimes' supply status, and if there is continued deterioration, a negative outlook or downgrade could result. Standard & Poor's will also follow developments in Maritimes-U.S.' rate case, as the results will have a large effect on coverage going forward.