TEXT-Fitch places Tristan Oil Ltd. on rating watch negative

(The following statement was released by the rating agency)

Jan 14 - Fitch Ratings has today placed Tristan Oil Ltd.'s (Tristan) Long-term foreign currency Issuer Default Rating (IDR) and senior unsecured rating of 'B+' on Rating Watch Negative (RWN). Tristan's Recovery rating is 'RR4'.

The RWN reflects Fitch's concern of a potential negative impact relating to the latest actions of the Kazakh authorities on Tristan's financial standing and business prospects. The Ministry of Energy and Mineral Resources of Kazakhstan (MEMR) cancelled a previously issued waiver of the state's pre-emptive rights in respect to one of the two operating companies of Tristan - Tolkynneftegaz LLP (TNG) (accounting for about 69% of the group's 9M08 revenue and 77% of operating profit) - which may result in a revocation of TNG's subsoil use contract.

Furthermore, the other operating company of the group - Kazpolmunay LLP (KPM) - is subject to a criminal investigation.

Fitch believes that a negative resolution of either of the authorities' actions will have a significant negative impact on Tristan's operational and financial profile, and is thus likely to result in a multi-notch rating downgrade. Although TNG is the larger of the two operating companies, Fitch believes that the group does not have sufficient financial cushion to service its debt (two eurobond issues totalling USD420m due in 2012) and cover capex needs in case of a detachment of either of the companies.

TNG must submit all the necessary documents to MEMR by 23 January 2009. In order to resolve the RWNs, Fitch will closely monitor the implications of the above-mentioned actions, including their immediate impact on Tristan's oil and gas production, and the decisions of the Kazakh authorities and their impact on the group's credit metrics.

Fitch affirmed Tristan's ratings and maintained a Negative Outlook on its Long-term foreign currency IDR in November 2008, which reflected the agency's concern that Tristan's intensive capex requirements, coupled with its exposure to volatile oil and gas prices, could put pressure on the company's credit metrics, especially if it pursues a more aggressive financial policy.

Tristan operates on a small scale with oil and gas output of 31.5Kboepd in 2007 (about 8% of KazMunaiGaz National Company's RDGZ.KZ (NC KMG; 'BBB-'(BBB minus)/Negative) 2007 oil and gas production). After an increase of the gas production at TNG, Tristan doubled its output to 54.9Kboepd in H108 (about 15% of NC KMG's 2007 production). In 2006, Tristan issued notes due in 2012 and provided a loan to two operating companies involved in oil and gas exploration and production in western Kazakhstan, KPM and TNG. All three entities, Tristan, KPM, and TNG, are 100%-owned, directly or indirectly, by Anatolie Stati, a Moldovan entrepreneur.