Lukoil Raised at S&P to Russia’s Rating on Output Stabilization

OAO Lukoil, Russia’s second-largest oil producer, was lifted one step at Standard & Poor’s, matching the country’s BBB rating.

S&P raised non-state Lukoil’s long-term ratings to its second-lowest investment grade category with a stable outlook, the service said in a statement today.

Lukoil’s hydrocarbon production may “slightly increase” after output stabilized last year, S&P said. Adjusted debt will remain below 1.5 times earnings before interest, taxes, depreciation and amortization under a standard oil price scenario, the ratings company said.

“The upgrade reflects our expectation that Lukoil’s hydrocarbon production will be stable or will grow slightly, even before factoring in the contribution from the production sharing agreement in Iraq,” S&P said.

Lukoil has boosted investment in drilling and acquisitions to stabilize domestic oil output after declines since 2009. The company agreed to buy Samara Nafta from Hess Corp. this month for $2.05 billion and won an auction for the Imilor field in Siberia for $1.7 billion late last year. The producer also has the rights to Iraq’s West Qurna-2, the world’s second-largest undeveloped field, according to its website.

Lukoil dollar bonds maturing in June 2022 were little changed, yielding 4.01 percent, according to data of Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The rating upgrade has been already priced in and there probably won’t be any “significant action” in the company’s Eurobonds, according to Alexander Sklemin, deputy head of credit research at Raiffeisen Bank International AG in Vienna.

Still, “this rating action could create a positive technical background for the company’s potential new Eurobond issues as we do not exclude the possibility of Lukoil returning to the Eurobond market as early as this year with an eye to proactively refinancing its debts due in 2014,” he said in an e-mailed note today.

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