Fitch Rates Pan American Energy's US$250MM Proposed Issuance 'BB-'.

BUENOS AIRES, Argentina -- Fitch Ratings has assigned a foreign currency rating of 'BB-' to the proposed issuance of US$250 million by Pan American Energy LLC, Argentine Branch (Argentine Branch) under its US$1 billion medium-term note program. The notes will be guaranteed by Pan American Energy LLC (PAE). The proceeds from the issuance will be applied to the capital expenditure program and to refinance existing debt. The Rating Outlook is Stable.

Fitch continues to rate PAE's local currency Issuer Default Rating (LC IDR) 'BB' and its foreign currency Issuer Default Rating (FC IDR) 'B+'. The issue rating of 'BB-' reflects a recovery expectation in the 'R3' category (indicating a recovery estimation of 51-70%). The FC IDR is above the 'B' country ceiling rating of Argentina and reflects the ability and willingness of the issuer to remain current on its foreign currency debt obligations, even in the event of transfer and convertibility restrictions.

PAE's rating incorporates its solid credit profile, significant oil and gas reserves, and ability to retain a material amount of export revenues offshore. The rating continues to be constrained by the potential for interference in hydrocarbon operations, inherent risks of commodity price volatility, and small size relative to BP's (parent company) consolidated operations.

PAE's ability to generate sufficient cash flow in order to repay dollar denominated debt, coupled with its right to maintain 70% of export proceeds outside Argentina, has partially mitigated the risks associated with having the majority of its assets and cash-generating activities concentrated in the country. Nevertheless, the rating of PAE remains constrained by the risks of operating in Argentina.

PAE reported robust credit protection measures that have benefited from the global increase in the price of oil, although limited by the export taxes. Through March 2006, the company reported interest coverage of 37 times (x), net financial debt-to-EBITDA of 1.8x, and total financial debt-to-capitalization of 17.5%, which are strong for the rating category.

PAE is owned 60% by BP and 40% by Bridas and has been the vehicle for the exploration and production of oil and gas as well as mid- and downstream gas activities in the southern cone. Historically, PAE's main cash generating assets were located in Argentina. Cerro Dragon (San Jorge Basin) oil production accounts for more than 75% of total oil production while gas production shows a more diversified pattern. PAE also benefits from BP and Bridas' expertise in both oil and gas businesses.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.