(AFX UK Focus) 2005-08-08 16:24 GMT:
LUKoil ratings outlook raised to positive vs stable - S&P 
PARIS (AFX) - Standard & Poor's Ratings Services said that it has revised its ratings outlook on LUKoil OAO to positive from stable following a review of the company's 2004 operating and financial performance.
At the same time, S&P affirmed its 'BB' long-term corporate credit rating and 'ruAA' Russia national scale rating on the company.
"The positive outlook on LUKoil... is supported by strongly improved financial and operating performance in 2004," said S&P credit analyst Karl Nietvelt.
The agency views LUKoil's strategic focus on sustained high investment levels as favorable, as it should ensure robust long-term production growth, while shareholder returns remain more moderate than those of peers.
As a relative weakness, S&P notes that LUKoil's profitability and free cash flow generation are still below those of Russian peers.
"An upgrade is possible in the next 12 months, if LUKoil further improves its currently moderate free operating cash flow generation--including through limiting working capital outlays," said Nietvelt.
S&P said it will need to monitor the impact of any potential midsize acquisitions. For instance, LUKoil has expressed interest in PetroKazakhstan Inc. (B+/Stable/--) and in the Mazeikiu refinery in Lithuania.
jsa