S&P: Medco Energi 'B' rating affirmed with stable outlook; rating withdrawn at issuer's request

(Dec. 16, 2014)--Standard & Poor's (S&P) Ratings Services today affirmed its 'B' long-term corporate credit rating and 'axBB-' long-term ASEAN regional scale rating on Indonesia-based oil & gas explorationand production company PT Medco Energi Internasional Tbk. (Medco). We then withdrew the ratings at the company's request.

At the time of the withdrawal, the stable outlook on Medco reflected our view that the company's ample short-term investments of US$265 million should enable the company to meet its upcoming debt maturities of US$236 million overthe coming 12 months from Sept. 30, 2014, without the need to refinance. Medco also intends to reduce capital expenditure, which should balance the impact from weaker oil price on its earnings. We expect it to be able to maintain its interest cover metrics at 2.8x-3.0x, a level we consider appropriate for the ratings.

In return, we considered Medco's liquidity position as less than adequate at the time of withdrawal. We believe substantial cutbacks on capital expenditure--an exercise the company has limited track record in--might take longer than the company expects. In addition, potentially lower earnings and declining cash balances will cause the company's sources of liquidity to decline. Nevertheless, we also believe Medco's high cash reserves, good access to domestic capital markets, and well-diversified banking relationships will mitigate any negative impact on its liquidity.

The rating reflected the company's small to midsize asset base, declining production at its maturing blocks, high geographic and project concentration. These weaknesses are partly offset by good growth potential at its gas development blocks and rising gas sale price. The rating also reflects the Medco's highly leveraged balance sheet compared with relatively lower and stagnant profitability. (ends)