THE WALL STREET JOURNAL: Moody's Affirms The Aa1 Sr Unsecured And P-1 Commercial Paper Rtgs Of Shell Fin (NETHERLANDS) B.V. And Shell Fin (U.K.) P.L.C.; Maintains Outlook-Neg: “Moody's is maintaining a negative rating outlook rather than downgrading the rating. The rating agency will monitor Shell's progress on re-positioning the upstream over the next year or two. A material deterioration in Shell's reserve replacement or production growth in the medium-term could pressure the long-term rating” (ShellNews.net)
DOW JONES NEWSWIRES
Posted 30 Oct 04
The following is a press release from Moody's Investors Service:
New York, October 29, 2004 -- Moody's Investors Service affirmed the Aa1 long-term and Prime-1 commercial paper ratings of the guaranteed subsidiaries of the Royal Dutch/Shell Group of companies (Shell ) and is maintaining a negative outlook in response to Shell 's announced restructuring proposal as well as disclosures of the potential reclassification of an additional 900 million barrel-of-oil equivalent (BOE) proved reserves. Shell is proposing a plan whereby a new holding company, Royal Dutch Shell plc, will tender to exchange all the shares of Royal Dutch Petroleum and acquire all the shares of Shell Transport & Trading to be merged into a single new U.K. based public company.
The ratings affirmation reflects Moody's expectation that Shell would act decisively to address legal structure and governance concerns that emerged in the wake of the unprecedented de-booking of some 4.4 billion BOE proved reserves earlier this year. The proposal, which Moody's believes will significantly improve governance and accountability, includes a single holding company to replace the existing cumbersome dual public company structure, and a single unified board of directors acting under by-laws of the new holding company.
Moody's is maintaining a negative rating outlook rather than downgrading the rating. The rating agency will monitor Shell's progress on re-positioning the upstream over the next year or two. A material deterioration in Shell's reserve replacement or production growth in the medium-term could pressure the long-term rating. Moody's will also monitor the company's progress implementing and operating within its new legal and governance structure, and the strengthening of internal controls related to reserve estimates.
The board will be composed of a majority of independent members with a non-executive chairman and deputy chairman. The new legal structure with a streamlined board should provide improved oversight of Shell's vast operations. It should also result in better communications and management accountability with the appointment of a new Chief Executive Officer, the elimination of the Committee of Managing Directors, and the direct participation of Shell executives at the board level. Jeroen van der Veer will be appointed as the new Chief Executive Officer.
The ratings affirmation also reflects the unchanged protections for holders of debt obligations of Shell Finance (Netherlands) B.V. and Shell Finance (U.K.) P.L.C. These funding conduits are rated Aa1 based on joint and several guarantees by the group level holding companies, Shell Petroleum N.V. and The Shell Petroleum Company Limited, both of which will remain in existence as sub-holding companies with direct access to the cash flow and assets of Shell's numerous operating subsidiaries.
On the reserve front, Shell 's disclosure that it is reviewing an additional 900 million BOE of proved reserves for possible de-booking is troublesome both in terms of its magnitude, which has reduced Shell's total proved reserve base another 6% to about 13.5 billion BOEs, with a shortened pro-forma reserve life index of about 10 years, and relative to concerns over the thoroughness and efficacy of Shell's reserve audit procedures, which have been extensively revamped but remain to be tested.
Although complete details about the reserves have not been disclosed and the internal review is in progress, Shell does not expect the de-bookings to affect its already disclosed plans for upstream reserve development, its production profile, and exploration plans, at least over the next four to five years. In addition, with expectation of reasonably strong oil and natural gas prices, Shell's cash flow, earnings and liquidity position are very