Fitch Upgrades Salta Hydrocarbon Royalty Trust to 'B'.

BUENOS AIRES, Argentina -- Fitch Ratings has upgraded to 'B' from 'CCC' the global scale foreign and local currency ratings of Salta Hydrocarbon Royalty Trust US$234,000,000 targeted amortization notes. The Rating Outlook is Stable.

The rating action is based on the better performance observed during 2005, due to the recovery of hydrocarbon well-head prices that positively impact the collateralized royalty incomes. As expected by Fitch, royalty incomes continued improving in 2005 due to the higher average gas price applied for the payment of royalties (1.05 USD/MBTU in 2005 versus 0.82 USD/MBTU in 2004) -- that reflected the partial liberalization of the regulated well-head gas price, offsetting the decrease on production levels. Consequently, on the last three quarters it was confirmed the trend of payments of principal above targeted payments initiated in March 2005, which continued reducing the gap between the current outstanding of the notes and the originally scheduled outstanding debt. As of Dec. 28, 2005, the outstanding debt was US$206,672,127 (theoretical outstanding of US$200,242,525). At that date, the offshore six-month liquidity reserve account remains fully funded.

The rating is affected by the country ceiling of Argentina, reflecting the high Federal Government interference still observed in the hydrocarbon sector. Despite the increase on the gas price, concessionaries remain unwilling to increase capital expenditures with exploration of wells to revert the negative trend observed on proven reserves and hence on production levels. Concessionaries do not have incentives to further invest under the current market conditions, since the gas price in Argentina is still regulated and remains lower than the gas price prevailing in other markets. Furthermore, the Federal Government still maintains the export withholding tax for oil, and the fiscal incentives announced by the Federal Government to beneficiate concessionaries on the exploration of new basins are not clear. Despite this scenario of uncertainty and unclear rules, concessionaries are making some capital expenditures with maintenance of wells.

Even though hydrocarbon production continued decreasing during 2005 (6.5% in the first 10 months compared with the same period of previous year), in September 2005 it was cured the hold-back event triggered under the transaction in September 2004. Despite this negative trend on production, Fitch expects for 2006 increasing collateralized royalty incomes due to the recovery of the gas average price. Royalty incomes up to October 2005 were 17.6% higher than the same period of previous year, positively impacting the cash flows collateralizing the notes. In Fitch's opinion this will determine a further reduction in the difference between the real and the theoretical outstanding debt by 2006.

In a more predictable scenario, with less Federal Government interference, the hydrocarbon production may grow based on some capital expenses with maintenance of wells. Consequently, Fitch expects the structure continues performing well in the medium term. Fitch will continue to monitor developments in the oil and gas sector as well as legal issues that may impact the performance of this transaction.

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