Fitch Affirms JSC KazMunaiGas Exploration Production at 'BBB-'; Outlook Stable

/Fitch Ratings, London/Moscow, August 08, 08/ - Fitch Ratings has today affirmed Kazakhstan-based JSC KazMunaiGas Exploration Production's (KMG EP) ratings at Long-term foreign and local currency Issuer Default (IDR) 'BBB-' (BBB minus) and Short-term IDR 'F3'. The Outlooks for the Long-term IDRs are Stable. The ratings reflect KMG EP's strong ties with its parent company, KazMunaiGaz National Company (NC KMG; 'BBB'/Negative), through which KMG EP has preferential access to the onshore fields in Kazakhstan, as well as oil and gas pipelines. Utilising its relationship with the parent company, KMG EP acquired a 50% interest in Kazgermunai and a 50% stake in CCEL, which owns Karazhanbasmunai; the acquisitions have had limited impact on the company's credit metrics. The ratings also factor in KMG EP's solid credit metrics, with a FY07 EBITDAR margin of 63.8% and gross leverage of 0.1x, placing KMG EP favourably among its Russian and international oil and gas peers. However, KMG EP's earnings and cash flows are fully exposed to oil price volatility. At the same time, the ratings consider KMG EP's small scale (oil output of 238 kbopd in H108) compared to its similarly-rated Russian and international oil and gas peers. Fitch expects KMG EP to expand production through acquisitions, given its mature core assets. However, the limited number of attractive onshore acquisition targets in Kazakhstan might constrain the company's future expansion. Furthermore, the ratings take into account KMG EP's reserve life of 13.1 years (based on proven oil reserves), which is in line with its international oil and gas counterparts' but lags its Russian peers'. This is somewhat mitigated by the company's high reserve replacement rate (RRR; based on proven oil reserves) of 194.5%. The ratings also incorporate KMG EP's acquisition-driven growth strategy. Among its planned acquisitions in 2008, the largest one is a 33% stake in PetroKazakhsan acquired by NC KMG in July 2006 for USD1.4bn. In Fitch's view, the company's current ample liquidity and overall strong financial profile provide considerable headroom for acquisitions. The Stable Outlook reflects a favourable operating environment for KMG EP and Fitch's expectations that the company will maintain its strong financial profile throughout the industry cycle. Contact: Angelina Valavina, London, Tel: +44 (0)20 7682 7383; Valentina Goryunova, Moscow, +7 495 956 7096 Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364; Alla Izmailova, Moscow, Tel: +7 495 956 9903 [2008-08-08]