Release: Moody's assigns B1 corporate family rating to PT Medco Energi, outlook stable
Friday, July 8 2005 - 07:12 AM WIB
At the same time, Moody's has affirmed the B2 senior unsecured bond rating of MEI Euro Finance Ltd which is guaranteed by Medco. The B2 rating incorporates legal and structural subordination risks where more than 15% of total debts are on a secured basis and at the subsidiary level.
Following Moody's global announcement on the withdrawal of issuer ratings for speculative grade issuers, Medco's B2 issuer rating has been withdrawn accordingly.
Medco's B1 rating continues to reflect 1) its competitive cost position, although it is on an increasing trend due to higher lifting costs, 2) its experience in Indonesia's operating environment, and 3) its moderate state of financial leverage in terms of Adjusted Debt to Proved Developed Reserves.
Medco's financial leverage - based on Adjusted Debt to Proved Developed Reserves of USD4.4 at end-2004 - compares favorably relative to exploration and production companies with similar ratings. However, based on proved developed reserves, it has a relatively short reserve life, although over time, its proved developed reserves are expected to increase if it successfully commercializes its large undeveloped gas reserves.
At the same time, the rating reflects 1) Medco's relatively short proved developed reserve life index, estimated to stand at 4.2 years at end-2004, 2) the uncertainty arising from its acquisitive strategy and the resultant associated capex, which will likely be majority debt funded, and 3) the continued natural decline expected in its production base over the next 2-3 years, although the successful Novus acquisition will moderately improve its production profile.
Moody's says that the rating could rise if Medco's operating and financial profiles strengthen, with proved developed reserves life lengthening to more than 7 years and leverage - based on Adjusted Debt/Proved Developed Reserves -- falling below USD4.00 on a sustainable basis.
On the other hand, the rating could experience downward pressure if 1) Medco's financial profile weakens as a result of an aggressive debt-funded acquisition and expansion strategy that leads to higher leverage with the Adjusted Debt/Proved Developed Reserves ratio exceeding USD5.00 or 2) if such strategy is funded by short term financing which further constrains the company's liquidity profile.
PT Medco Energi Internasional Tbk is predominantly an independent Indonesian E&P company with total proved reserves of approximately 188 million barrels of oil equivalent (BOE) and production of 36 million BOE in 2004. The company also maintains oil service operations and a methanol plant in Indonesia. (end of release)