elevenths darn: TEXT-S&P assigns 'B' rtgs to Energi Mega and its proposed notes

Thursday, October 18, 2012

(The following statement was released by the rating agency)

Oct 18 -

Overview

-- Indonesian E&P company EMP intends to issue notes to refinance US$460 million

of its existing loans.

-- While EMP has favorable growth potential, the company's aggressive capital spending plan

will limit its free cash flow, in our opinion.

-- We are assigning our 'B' long-term corporate credit rating to EMP and our 'B' issue

rating to the company's proposed guaranteed senior secured notes.

-- The positive rating outlook reflects our expectation that EMP's cash flows will improve

from 2013 because of higher gas production.

Rating Action On Oct. 18, 2012, Standard & Poor's Ratings Services assigned its 'B'

long-term corporate credit rating to Indonesian exploration and production (E&P) company PT

Energi Mega Persada Tbk. (EMP). The outlook is positive. At the same time, we assigned our 'B'

issue rating to a proposed issue of senior secured notes that EMP and its subsidiaries

guarantee. EMP's subsidiary, EMP International Holdings Pte. Ltd., will issue the notes. The

rating on the proposed notes is subject to our review of the final issuance documentation. EMP

is a holding company that has interests in production sharing contracts in various oil and gas

blocks.

Rationale

The rating on EMP reflects the company's large capital expenditure requirements relative to

its free cash flow generation. The rating also reflects the limited track record of EMP's

development blocks, and the company's exposure to volatile oil prices and asset concentration in

Indonesia. EMP's good growth potential in its blocks, long-term fixed-price gas sales contracts,

and the favorable outlook for energy demand in Indonesia, particularly for gas, temper the above

weaknesses. The rating is based on our assumption that that the company will refinance its debt

with the proposed notes.

elevenths darn