Upgrading Royal Dutch to Accumulate
Royal Dutch Petroleum (RD ): Upgrading to 4 STARS (accumulate) from 3 STARS (hold)
ExxonMobil (XOM ): Keep 5 STARS (buy)
Analyst: Tina Vital
S&P made these ratings moves on news of a Chinese Upstream ($3.3 billion) and Pipeline Project ($5.2 billion, 65% debt). A 45-year venture was agreed to on July 4 (50% Petrochina, 45% energy companies lead by RD, XOM, OAO Gazprom, and 5% Sinopec) to build a 4,000 km pipeline to bring gas from Western to Eastern Chinese markets. With targeted 12%-15% returns, expected gas use as a percent of Chinese total energy demand to more than triple by 2010, and with Gazprom's participation mitigating long term risk to Chinese-based reserves, we at S&P like the deal.