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Reuters: Shell outlook now stable, was negative – Moody’s

Mon Jun 12, 2006 2:49pm ET
NEW YORK, June 12 (Reuters) – Moody’s Investors Service on Monday changed its outlook on Royal Dutch Shell Plc. (RDSa.L: Quote, Profile, Research) to stable from negative, citing the company’s progress in addressing governance issues regarding its oil booking practices.

Moody’s had maintained a negative outlook on the ratings since February 2005, when the company announced a second round of some 1.4 billion barrels of oil equivalent reserve de-bookings after an intensive internal and external review of its reserve base and booking practices, the ratings agency said in a statement.

“The stabilization of the rating outlook reflects Shell’s progress in addressing governance and reserve oversight issues and in identifying a path for reserve and production growth in the medium-term,” Moody’s said.

Shell completed the unification of its two former public group companies under the new Royal Dutch Shell PLC holding company in late 2005, putting in place a unified board and clear reporting lines to the chief executive, Moody’s said.

The company also streamlined and centralized the reserve review process and trained its staff world wide to comply with guidelines by the Securities and Exchange Commission on reserve booking practices, Moody’s said.

Moody’s rates Shell’s issuer rating “Aa1,” its second highest ranking. A stable outlook indicates the debt is less likely to be lowered over the next 12-to-18 months.

“The stable outlook recognizes that Shell continues to lag its strongest rated integrated peer companies in key upstream metrics such as reserve replacement, reserve life index, and unit cost structure elements including unit finding and development costs,” Moody’s said.

“Sustained improvement in these measures will take a number of years to achieve, given the scale of Shell’s fundamental reserve replacement challenge in an increasingly competitive environment for conventional upstream resources and industry cost pressures,” Moody’s said.

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