TEXT-Fitch release on Tristan Oil Ltd

(The following statement was released by the rating agency)

Nov 10 - Fitch Ratings has today affirmed Tristan Oil Ltd.'s (Tristan)
Long-term foreign currency Issuer Default Rating (IDR) and senior unsecured
rating at 'B+' and its Recovery rating at 'RR4'. The Outlook for the Long-term
rating remains Negative.
The Negative Outlook reflects Fitch's concern that Tristan's intensive capex
requirements coupled with its exposure to volatile oil and gas prices could put
pressure on the company's credit metrics especially if it pursues a more
aggressive financial policy.
The improved leverage (net leverage of 1x in H108 versus 2.2x in 2007) makes
the group more comfortably positioned among its Russian and international oil
and gas peers with median net leverage of 0.6x. However, the de-leveraging that
occurred in H108 was driven by production expansion and favourable oil and gas
industry fundamentals. As oil and gas output is expected to remain relatively
flat in 2009-2012, maintaining achieved leverage ratios and their improvement
in the future is a function of EBITDA generation which in turn depends on oil
and gas prices. Therefore, if the company chooses to implement a more
aggressive financial policy it will adversely impact the group's credit metrics
in light of weakening oil prices.
The ratings reflect Tristan's position as one of the most profitable (FY07
EBITDAR margin of 71.6%) companies among its oil and gas peers. Nevertheless,
Fitch notes that Tristan compares unfavourably with its counterparts based on
coverage ratios.
The ratings factor in Tristan's ability to achieve production targets as
planned. Due to the completion of a second gas processing plant, the company's
oil and gas production rose to 54,900 barrels of oil equivalent per day (boepd)
in H108 from 31,500 boepd in 2007.
However, the ratings also take into account Tristan's limited scale of
operations, relatively low reserves-to-production ratio (R/P), and lack of
business diversification which makes the company vulnerable to oil price
movements. In light of this, any cost overruns or severe delays in implementing
its capex programme might jeopardise its cash flow and overall credit metrics.
In 2006, Tristan issued senior secured notes due in 2012 and provided a loan to
two operating companies involved in oil and gas exploration and production in
western Kazakhstan, Kazpolmunay LLP (KPM) and Tolkynneftegaz LLP (TNG). All
three entities, Tristan, KPM, and TNG, are 100%-owned (directly or indirectly)
by Anatolie Stati, a Moldovan entrepreneur. Although Tristan categorises its
notes as senior secured due to the pledge of 100% of the capital stock of
Tristan, KPM and TNG, Fitch takes a conservative position regarding the
reliability of this collateral in a distressed scenario and has therefore
assigned them a senior unsecured rating.
(New York Ratings Team)