BAKU, Azerbaijan, May 7
By Leman Zeynalova – Trend:
Russia’s Lukoil company will accommodate the oil output cuts under OPEC+ deal more easily than less diversified producers, Trend reports citing Fitch Ratings.
In April 2020, OPEC+ agreed to cut a total 9.7 mmboepd of production in response to the immense demand destruction caused by lockdown and quarantine measures implemented globally to control the pandemic.
‘Russia's headline share of the cut is 2.5 mmboepd, which may result in full-year production falling around 10 percent yoy. The cuts will likely be allocated on proportionate basis determined by average production volumes in February - March 2020. We expect that Lukoil's diverse asset base will enable the company to accommodate the cuts more easily than less diversified producers. We expect the impact from reduced production and price shock to be material, but unlikely to affect Lukoil's rating,” the rating agency said in its report.
Fitch Ratings expects Lukoil will maintain more than sufficient hard-currency liquidity for external debt service.
Fitch views Lukoil's low leverage (negative on an funds from operations (FFO) net leverage basis as of end-2019), and exceedingly low costs, as advantages that allow the company to maintain its credit profile through the current cycle despite the unprecedented demand destruction and hydrocarbon price volatility.
Lukoil is Russia's largest privately owned oil company, and is one of the world's largest oil and gas producers. Its total hydrocarbon production (2.35mmboepd in 2019, excluding West Qurna-2) is comparable with that of Total SA (AA-/Stable; 2.3mmboepd, excluding equity affiliates), BP plc (A/Stable; 2.5mmboepd) and Eni SpA (A-/Stable; 1.9 mmboepd). However, Lukoil's upstream remains heavily exposed to Russia (above 90 percent of 2019 output). Its asset base is geologically diversified, with brownfields mainly in western Siberia and greenfields on the Caspian Sea and in the Timan-Pechora basin.
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