Royal Dutch Shell Group’s downward revisions to its proved oil and natural gas reserves has cost the producer its top credit rating from Standard & Poor’s Ratings Services (S&P). S&P estimated that proven reserves amounted to “only 12 billion boe,” or about eight-and-a-half years of production at Dec. 31, 2004, “a level significantly below that of most oil companies globally.”

On Thursday, Shell announced its fifth recategorization to proved reserves in the past 13 months (see Daily GPI, Feb. 4).

S&P lowered Shell to “AA” from “AA+” and removed from CreditWatch its long-term corporate credit ratings on the corporation and its subsidiaries. The long-term ratings were placed on CreditWatch last October. The “A-1+” short-term corporate credit ratings on all of the entities were affirmed, and S&P’s outlook on the company is stable.

“During the 2004-2008 period, the expected full reserve replacement is to be backloaded,” said S&P credit analyst Emmanuel Dubois-Pelerin. “The audit of reserves — launched in 2004 and now completed with unparalleled prudence — will lead to a recategorization…of the group’s year-end 2003 proven reserves by a significant 1.4 billion boe.

Dubois-Pelerin said the recategorization “implies that Shell will have replaced only about 70% of its reserves during 2001-2005. In contrast, our affirmation of the ratings on Shell on July 8, 2004, with a negative outlook, included the assumptions that reserves would not be significantly restated, and that they would be fully replaced during 2004-2005. The stable outlook factors in a gradual improvement in Shell’s organic reserve replacement rate, as reflected in the company’s full-replacement target over 2004-2008”

The new S&P rating “also takes into account the absence of major upstream project overruns and delays, so that production objectives are met, and moderate shareholder distributions — including $3 billion-$5 billion share repurchases in 2005 — should hydrocarbon prices remain high.”

Shell announced Thursday that it would relaunch its share buyback program, which had been suspended since October 2004. The suspension was announced because of U.S. securities laws, applicable as a result of the announcement of the proposed unification of the Royal Dutch Shell Group of Co. under Royal Dutch Shell plc.

Fitch Ratings on Friday affirmed Shell’s Senior Unsecured “AA+” and short-term “F1+” ratings with a stable outlook. The affirmation, said Fitch, “considers the near-term production profile, increased replacement costs and low levels of reserve replacement against the expectation of continuing prudent financial management, higher pricing and further financial flexibility availed through asset divestment.”

The ratings agency said it anticipated “significantly improved reserve replacement levels next year and further improvement thereafter. Fitch also considers the short- to medium-term objective of 100% reserve replacement and low cost production both achievable and affordable under both anticipated and low case near term pricing scenarios. However, the desire to control unit costs of finding and development, within an environment of industry wide cost inflation, could affect the rate of replacement over this period.”

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