FINANCIAL TIMES: Shell and BASF narrow down bidders: Shell has cut almost a third of its proved reserves. It received another blow to its corporate prestige yesterday after Standard & Poor's downgraded its credit rating for the second time in a year. The agency cut the rating from AA+ to AA because of Shell's continuing difficulty in replacing the oil and gas it extracts.” (ShellNews.net) 5 Feb 05

By Lina Saigol and James Boxell

Published: February 5 2005

Royal Dutch/Shell and BASF have taken three bidders to the third round of the auction for Basell, the polyolefins business they jointly own in a deal valued at up to €4.4bn (£3bn).

Ineos Chlor, a privately-owned European producer of chlor-alkali metals, National Petrochemical Company of Iran and Haldia Petrochemicals of India are all understood to have submitted offers of €4.3bn to €4.4bn.

Blackstone Group Apollo, Bain Capital and Goldman Sachs Capital Partners - the private equity firms that teamed up to make a joint offer for Basell - are not thought to have made it through.

BASF, the world's biggest maker of chemicals, has said it hoped to sell Basell during the first half of the year. Citigroup and Lazard are conducting the sale process.

Shell and BASF put Basell up for sale last year as part of Shell's plans to dispose of between $12bn and $15bn (£6.4bn to £8bn) of non-core businesses in the next three years.

The company has promised to spend $15bn a year on capital investment as it seeks to recover from last year's reserves cut scandal. Shell has cut almost a third of its proved reserves.

It received another blow to its corporate prestige yesterday after Standard & Poor's downgraded its credit rating for the second time in a year. The agency cut the rating from AA+ to AA because of Shell's continuing difficulty in replacing the oil and gas it extracts.

Shell revealed this week it had only replaced between 15 and 25 per cent of the reserves it used up last year, although this figure would have been between 45 and 55 per cent without disposals and accounting issues. S&P said replacement was "poor" and implied Shell would only have replaced 70 per cent of its reserves in the past five years.

After this week's cuts Shell said it had 12.95bn barrels of proved reserves at the end of 2003. S&P estimated this fell to 12bn barrels by the end of 2004. It said this was equivalent to "about eight and a half years of production, a level significantly below most oil companies".

Malcolm Brinded, Shell's head of exploration and production, said he was "reasonably confident" the company would replace 100 per cent of its reserves on average over the next five years, in line with peers such as ExxonMobil and BP. S&P said this recovery would be "back-loaded" towards the end of the five-year period.

However, S&P said Shell's "excellent" refining, marketing and chemicals businesses were performing better than AAA-rated Exxon.