Fitch Ratings-London/Moscow-7 February 2007: Fitch Ratings has today assigned BVI-based oil and gas producer Tristan Oil Ltd’s USD300m notes maturing 2012 a senior unsecured rating of ‘B+’, a Recovery rating of ‘RR4’ and an Issuer Default rating of 'B+' with Stable Outlook. Although the company classifies the notes as senior secured, Fitch views the collateral in place as being insufficient to meet creditor claims and has therefore assigned a senior unsecured rating.

Tristan is a small upstream crude oil and natural gas exploration and production (“E&P”) group operating in the Pre Caspian Basin in Kazakhstan. It therefore has a business profile that is limited not only by its scale, but also by its vulnerability to volatile crude oil prices.

Its reserve base and production profile are dominated by natural gas, which is a regulated market in Kazakhstan, and therefore has limited profit potential for the group. While crude oil figures less prominently in the group’s asset mix, it generates more than 88% of its revenues. Tristan is challenged by the scale of its operations, in as much as the group will likely struggle to replace reserves onshore in Kazakhstan. Recent legislative changes seem to favour the state-run KMG EP in this respect, giving the company the right of first refusal on all onshore oil resources.

Tristan is looking to grow its business organically, and is in the process of constructing both a gas and condensate processing facility and a new liquid petroleum gas (“LPG”) plant. Management hopes that the new LPG plant will help to expand the market for the group’s natural gas resources by allowing them to be transported by means other than pipeline.

Tristan’s financial profile could come under pressure, however, if oil prices were to decline even marginally, and remain there. As the group is purely an upstream operator, its revenue sources remain more vulnerable to market volatility than integrated players. As such, downward earnings pressure could result in a weakening of Tristan’s interest coverage and leverage ratios as Fitch does not expect its debt to decline materially until the notes mature in 2012.

The Stable Outlook foresees a balanced operating environment for Tristan coupled with an accommodative regulatory and licensing regime. Crude oil production rates are expected to grow from the current 31,000 bpd on average for the next two years while Tristan enjoys contractual commitments to supply crude to both domestic and foreign markets with access to transportation infrastructure. A relatively high crude oil price environment is also expected in the short- to medium-term; however, any sudden or prolonged downturn in crude oil prices would severely affect the group’s operating and financial profiles.