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S&P downgrades Statoil over Algerian investment

Standard & Poor's Ratings Services lowered its outlook for Norwegian state oil company Statoil on Tuesday, from stable to 'negative.'

Standard & Poor's Ratings Services lowered its outlook for Norwegian state oil company Statoil on Tuesday, from stable to "negative." It clearly isn't thrilled about Statoil's increased investment spending or its new gas acquisitions in Algeria.

S&P affirmed its "A/A-1" credit ratings for Statoil but said Statoil was vulnerable to the negative consequences of heavy spending.

S&P said the acquisition cost of two gas properties in Algeria and subsequent capital spending "will add to the company's already increasing spending over 2003-2005. Credit measures could consequently become weak for the current ratings."

Statoil announced Monday that it would acquire the Algerian properties for USD 740 million. Capital spending needed to extract the first gas from the properties in 2005 is estimated to hit an additional USD 750 million.

The gas fields are currently being developed by British Petroleum (BP). Given the security concerns in Algeria, the In Salah and In Amenas fields will be treated like those in the North Sea, with workers flown in and out by helicopter.

S&P called the Algerian acquisition only "moderately positive for Statoil's business profile," given the political risk in Algeria. S&P says the projects also will put pressure on Statoil's cash flow, adding that the company "needs to apply strict investment discipline" in order to maintain credit protection measures.

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