This rating action follows news that Tristan will issue an additional USD120m of senior secured notes after it had raised USD300m of senior secured debt under the same indenture in December 2006. Part of the proceeds is expected to be used to refinance subordinated debt with the remainder for reinvestment in the business.

Fitch notes that Tristan's financial profile may be negatively affected by an ambitious capital expenditure programme, particularly if currently high hydrocarbon prices return to more normal levels in the medium term or if the company fails to meet challenging production and profit targets. For ratings to remain at their current levels, Fitch would, amongst other measures, expect the company to reduce leverage, measured as net debt to EBITDA, to 1x or below by 2009, from around 1.4x following the refinancing of the subordinated debt.

The agency will continue to monitor Tristan's financial and operational progress and comments that any significant deviation from Tristan's targets will increase the pressure on the current ratings. The ratings are also predicated on the assumption that dividend payouts will be reduced to assist the company in restoring a financial profile that is commensurate with the current rating level. Fitch derives some comfort from dividend restrictions in the bond indenture and the owner's stated intention to waive dividends in 2007.

Tristan is a small upstream crude oil and natural gas exploration and production group operating in the Pre Caspian Basin in Kazakhstan. Although the company classifies its 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.