Fitch Affirms Russia's LUKOIL; Outlook Negative
OREANDA-NEWS. Fitch Ratings has affirmed PJSC LUKOIL's Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'BBB-' with Negative Outlook.
The ratings are capped by the Russian sovereign ratings of 'BBB-'/Negative, due to the company's asset concentration in Russia and the influence that the Russian state exercises on the oil and gas sector through taxation and regulation.
LUKOIL has strong upstream and downstream operations and maintains solid credit metrics. Its considerable crude production in Russia and its successful international expansion, mainly in Iraq's West Qurna-2, have benefited its upstream business. While western sectoral and financial sanctions have had little impact on the company so far, since end-2013 LUKOIL has relied on bank funding instead of bond issuance.
LUKOIL is one of the largest listed global oil majors, with 2015 total hydrocarbon production of 2.1 million barrels of oil equivalent per day (MMbpd), excluding equity affiliates and Iraqi production, down 2% on 2014, 85% of which were liquids.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- A positive rating action on Russia.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- A negative rating action on Russia
-Aggressive investments, acquisitions or dividends, resulting in FFO-adjusted net leverage exceeding 2.5x (average expected value for 2016-2019: 1.6x) and FFO interest coverage falling below 10x (average expected value: 12x)
- Deteriorating liquidity, such as one-year sources/uses ratio significantly below 1x
- Falling oil production in Russia for several consecutive periods
- Significant amount of unrecovered investments in WQ2.