Russia's second largest oil producer independent Lukoil increased its oil output by 1% y/y to 90.8mn tonnes, according the preliminary data published by the company. At the same the company estimated that hydrocarbon reserves grew at a coefficient of 112% to the output. Total hydrocarbon output by all group's companies increased by 1.9% y/y in 2013 to 116.6mn of oil equivalent. Although the growth in output is slower than expected 3% in 2013, it is still positive news as it follows three consecutive years of oil output decline. In 2012 output declined by 1% y/y to 89.9mn tonnes, making 2012 a third consecutive year of shrinking oil output. In August 2013 Fitch Ratings upgraded the foreign and local currency long-term Issuers Default Rating (IDR) of Lukoil from BBB- to BBB, outlook Stable. The agency attributed the upgrade to a positive view on Lukoil's upstream and downstream operations and strong credit metrics that are expected to be maintained in 2013-2016. Most notably Fitch expected Lukoil to maintain and to ever increase its hydrocarbon output. Strong credit profile is expected even despite the USD 50bn capex program and rising dividend payout until 2016. The rating is supported by strong operations, large hydrocarbon reserves and production, as well as a low-cost position. High state presence in the oil and gas sector puts private companies such as Lukoil at a disadvantage. This does not significantly affect Lukoil in mid-term due to 21 years of oil reserves.
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