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    Fitch: Shell disposals could cushion results - strategy key

    News // January 21, 2014

    Royal Dutch Shell’s sale of its stake in the Australian Wheatstone project, part of its widely-reported US$15 billion disposal programme, could cushion its financial profile against the impact of significant investment spending and headwinds in some parts of its business, Fitch Ratings says.

    But it remains to be seen whether Shell will take the opportunity that this flexibility affords it to retrench, or be tempted into shareholder friendly actions that could threaten its ‘AA’ credit rating.

    A decision to adopt a less conservative financial profile was the main reason for our downgrade of the company from ‘AA+’ in 2011 after it increased net debt by US$22.6 billion in the preceding two years. "We expect to find out more about Shell’s intentions at its investor day in March," said Fitch.

    "Shell’s recent profit warning will not impact the rating as its announcement broadly matched our expectations. In particular, Shell announced that cash flow from operations for 2013 will be US$40 billion, which is in line with our forecast. We expect FFO-adjusted net leverage to be 1.4x in 2013 improving to 1.2x in 2015 under Fitch’s conservative oil and gas price deck.

    "The company’s strategic goal of investing US$130 billion between 2012 and 2015 is manageable at the current rating, but will require stringent capital discipline. Project delays extending the time to cash generation, volatility in the financial profile, negative free cash flow and a capex-to-cash flow from operations ratio of more than 100 per cent could all lead to a negative rating action."

    Fitch said Shell's strong credit profile is supported by an array of new projects that came on stream in 2012 or are due in the next 18-24 months. Shell announced US$10 billion of acquisitions in 2013, including the US$4.4 billion purchase of Repsol’s LNG business and US$1.4 billion for a 20 per cent partnership in the Brazil Libra field.

    Shell also recently announced strategic reviews of its US shale business and Nigerian assets and cancelled a planned multibillion investment in a gas-to-liquids plant in Louisiana to streamline capital allocation.


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