Press Release: S&P Affirms B+ Rating On Indonesia's Medco

Following is a press release from Standard & Poor's:

MELBOURNE (Standard & Poor's) March 26, 2003--Standard & Poor's said today it has affirmed its 'B+' corporate credit rating on Indonesian upstream oil and gas company, P.T. Medco Energi Internasional Tbk. (Medco). The outlook is stable.

The rating on Medco reflects the company's short proved reserves life of 4.9 years, which explains the company's aggressive push to acquire producing oil blocks in 2003 to immediately add to its proved reserves base and production volumes. "With reserves declining due to the faster-than-expected maturity of Medco's fields, the company is also expected to incur significant capital costs and face various execution risks to convert its substantial probable reserves into proved reserves," said Ee-Lin Tan, Associate Director, Corporate & Infrastructure Finance Ratings. Production and proved reserves growth remain highly dependent on the materialization of gas sales contracts, or the development of gas infrastructure in Indonesia, to absorb the company's large uncommitted gas reserves.

Although the direction of policy in Indonesia is largely positive, the full operational impact of expected changes remains to be seen. Uncertainly in the regulatory environment will therefore continue in the near-to-medium term. Medco does, however, enjoy a degree of insulation from sovereign debt risks. Despite its own difficulties, the Indonesian government in recent years has not sought to impose a debt moratorium or interfere with local companies accessing the foreign exchange markets to service their foreign currency obligations. Further, Medco's enjoys some insulation from currency instability and weaknesses in the Indonesian banking system as its oil prices and revenues are denominated in U.S. dollars, which are deposited mainly in offshore bank accounts.

The rating on Medco also reflects the company's favorable cost structure and production track record. The large size of Medco's operating areas, low labor costs, and proximity to oil and gas supply infrastructure contribute to its better-than-average cost structure. Lifting cost in 2002 was US$2.86 per barrel of oil equivalent (boe), compared with the global average of US$4-US$5 per boe. The company also has moderate, although increasingly aggressive, debt leverage and strong credit measures. Total debt to capital of 50%-60% is possible, depending on development and acquisition opportunities.

The stable outlook is based on the expectation that debt usage will increase to fund Medco's capital expenditure. The rating also assumes that the acquisition of petroleum assets in 2003 will cost between US$150 million and US$180 million, can immediately contribute meaningfully to the company's proved reserves base, and that corresponding production volumes can be realized in a timely manner. Securing long-term gas sales contracts would allow the company to convert its probable gas reserves into proved reserves. This could result in a modest improvement in Medco's overall credit quality, if coupled with an improving country risk environment. (*)

Standard & Poor's, Contact: Ee-Lin Tan, Singapore (65) 6239-6394; Yasmin Wirjawan, Singapore (65) 6239-6302.