Moody's places Medco Energi's ratings on review for possible downgrade

(Singapore, November 03, 2008) -- Moody's has placed PT Medco Energi Internasional Tbk's B1 corporate family rating and B2 senior unsecured rating (Senior 8.75% bonds due 2010 issued by MEI Euro Finance Limited) on review for possible downgrade. The review follows Medco's announcement that the Technical Assistance Contract (TAC) with PT Pertamina EP has expired.. The TAC relates to its Tarakan, Singa-Sanga, and Somboja Working Areas in East Kalimantan and were formally operated and held under "PT Medco E&P Kalimantan".

"The loss of the Kalimantan TAC and its resulting cash flows, together with the recent material decline in energy prices would further pressure Medco's already tight liquidity profile over the coming 12 months" says Tony Tsai, Senior Vice President at Moody's.

"In addition, ongoing turmoil in the financial markets may constrain Medco's access to sources of funding" says Tsai, adding "The Company's alternative liquidity plans, consisting of asset divestment program, could also face prolonged negotiations process as a result of recent volatile market conditions."

Moody's recognizes that Medco's current liquidity profile has been bolstered by successful asset divestitures, however, these are countered by sizeable debt maturities capital expenditure, and dividend needs over the next twelve months.

The review will focus on measures taken by Medco to improve its liquidity profile and its capex plan to cope with reinvestment risk given that its depleting reserves are undergoing long-term natural decline. Moody's notes the company needs to secure committed long-term financing to fund its upcoming 2009 maturities, amounting to over $400 million, and capital expenditure requirements, estimated to cost approximately $350-$400 million over the next 12 months. In addition, Moody's will monitor the company's ability to monetize its non-core assets as part of the asset enhancement divestiture program.

The rating could be subject to downward pressure in the event that Medco is unable to maintain liquidity and operational profiles consistent with our previous expectations.

Headquartered in Jakarta, Medco is predominantly an oil and gas exploration and production (E&P) company with additional operations in drilling, downstream oil & gas activities and power generation. Through its acquisition of Novus Petroleum of Australia in 2004, Medco gained a platform to expand overseas, to the US, Middle East, Libya, Tunisia, Oman, Cambodia and Yemen. Its international assets, which are mostly in the exploration stages, remains small, accounting for 3% of proved reserves and 2% of annual production as at 31 December 2007. Its annual production capacity is approximately 17 million barrels of oil equivalent and 40 billion cubic feet of gas . The company reported sales of $1,313 million for the trailing twelve months ending September 30, 2008. (end of release)