Fitch Ratings Assigns 'A' Rating to ENAP.

CHICAGO -- Fitch Ratings has assigned an international foreign currency rating to Chile's Empresa Nacional del Petroleo (ENAP) of 'A' with a Stable Rating Outlook.

The assigned credit rating reflects ENAP's state-ownership, favorable government support, dominant domestic market share, an international product price environment, improving efficiency standards, and solid financial measures. In addition to its significant refining business, the company also benefits from its participation in the exploration and production of crude oil and gas, primarily from Argentina, Colombia, and Ecuador, though revenue contribution from these activities is relatively small compared to the refinery business. These strengths are tempered by vulnerability to fluctuations in international commodity prices, exposure to political interference, currency risk, domestic market revenue concentration, and significant medium-term capital-investment requirements.

The recent actions taken by the Chilean government to limit the impact of external market factors on the domestic product prices is not expected to have a material impact on ENAP. The mechanisms employed for managing this exposure (i.e., stabilization funds, reduction in dividends) illustrate the government's material support of ENAP and its commitment to maintaining the financial integrity of the company. To stabilize the prices of refined products in the local market the Chilean Congress recently approved a new stabilization fund (FEPCO - Fondo de Estabilizacion de Precios de Combustibles). The FEPCO utilizes revenues from copper sales that have exceeded the budgeted level this year to cover the lost margin resulting from higher product import costs and potentially capped local consumer prices. The law is not expected to materially affect the credit quality of ENAP; nevertheless, ENAP remains exposed to the high volatility of international refining margins and the highly capital intensive nature of the sector.

The company benefits from its state-ownership and strategic importance to the country. As the largest producer and marketer of refined projects in the country, ENAP represents all of the country's refining capacity and supplies 86% of domestic demand. As a result, ENAP maintains a strategic and competitive advantage over other downstream suppliers, and its geographic location also helps ensure that distributors have adequate and timely product supply. The company's operations are of vital economic importance to the nation, suggesting the government has a prime incentive to ensure ENAP access to hard currency for servicing foreign obligations. The combination of ultimate government control and a significant domestic market focus continues to influence the company's stand-alone rating.

ENAP's refineries are efficient, reasonably complex, and meet better environmental standards when compared with their Latin American peers. ENAP continues to invest in its refineries to increase efficiency, reduce feedstock costs, improve environmental standards as required by legislation, and increase output. The company is developing a new coker facility at the Aconcagua refinery to increase quality of refined products while processing less expensive crude.

With respect to its E&P business, the decline in oil reserves and production in Chile has led to increased exploration and production activities abroad through its affiliate ENAP Sipetrol. In 2004 international production represented approximately 87% of total crude oil production for ENAP (mostly from Argentina, Colombia, and Ecuador). Business growth is primarily based on the further development of international activities. ENAP is expanding its portfolio with new exploration projects, primarily by means of strategic partnerships with other companies. ENAP prefers projects that are in the starting phase of exploration, in order to emphasize the use of its competitive advantages. Despite its international focus, the company is actively pursuing strategic opportunities in the domestic market to find and develop additional natural gas supplies in the southern region in the context of the unreliable natural gas supply situation.

ENAP has reported increased revenues due to improving market fundamentals both upstream and downstream in the form of higher oil and product demand and prices. However, margins and coverage ratios have been affected by the country's energy crisis stemming from interruptions of natural gas supply from Argentina, increased related costs, somewhat higher debt levels, and increased interest expense. The company reported EBITDA-to-interest through September 2005 of 7.7 times (x) and total financial debt of US$881 million plus US$231 million of forfaiting, resulting in leverage as measured by debt-to-EBITDA of 2.2x. ENAP has a manageable debt amortization schedule over the near to medium term.

ENAP is Chile's leading energy company, which carries out oil exploration and production activities both domestically and abroad. The company has three refining plants (Aconcagua, Bio Bio, and Gregorio), and produces and sells fuel in the local market, as well as exporting a small portion of its production. The company is owned by the Chilean government. ENAP is organized as a holding company, with two primary business lines exploration & production and refining, logistics, & sales. It supplies 40% of the Chilean energy matrix and covers 86% of the local fuel market.

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