Moscow: Lukoil, Russia's second-largest crude producer, boosted total output in the first half to 2.26 million barrels of oil equivalent a day as gains in natural gas compensated for falling oil production.

Oil output declined 1 per cent to 1.96 million barrels a day in the first half, Lukoil said on Friday in a statement. Russian production in fell 1.7 per cent to 45 million metric tonnes (1.83 million barrels a day) in the period and international output rose 9.2 per cent to 3.11 million tonnes, the company said.

Oil output will probably continue to decline slowly in Russia until Lukoil starts production in 2013 at Filanovsky, its largest Caspian field, Pavel Sorokin, an oil and gas analyst at Alfa Bank, said by telephone from Moscow yesterday. The Korchagin field in the Caspian, which began producing earlier this year, hasn't balanced out declines at core west Siberian deposits.

Production

"Opportunities for output growth in Russia, the company's key production region, have been limited but with the exit of ConocoPhillips that may change," Sorokin said.

Lukoil agreed to buy 7.6 per cent of its own shares back from the Houston-based company and has until September 26 to exercise an option to purchase as much as 11.6 per cent more. The company may improve its chances of gaining rights to large deposits to which the state has limited foreign access by increasing its Russian ownership, Kiti Pantskhava and Maxim Korovin, analysts at VTB Capital in Moscow, said on August 10.

Output of gas available for sale rose 26 per cent to 9.24 billion cubic meters from a year earlier, the Russian company said.

Unsecured loan to finance share buyback

Lukoil, Russia's No. 2 oil producer, has raised $1.5 billion in an unsecured loan to finance part of the buyback of its shares from ConocoPhillips, the company said yesterday.

US oil major Conoco said last month that it would sell its entire 20 per cent stake in Lukoil, which will buy back 40 per cent of it for $3.44 billion (Dh12.6 billion) using the $1.5 billion club loan from six banks and its own funds.

Lukoil has a 60-day option that expires on September 26 to buy back the remaining 11.61 per cent of Conoco's stake, worth an estimated $5 billion. On Thursday ratings agency Standard and Poor's put the non-state owned oil giant on a negative credit watch and expects to downgrade the Rusian group if it exercises the remaining buyback option. "We are placing Lukoil on CreditWatch with negative implications because a decision to exercise the option would materially increase leverage," the agency said in a statement.

Meanwhile Fitch kept Lukoil's long-term credit rating at BBB-.

Lukoil Vice President Leonid Fedun said last month that if it decides to buy back the remaining shares from Conoco it will let the shares grow in value and then either cancel them or use them for M&A activity.

— Reuters