At the same time, the agency affirmed the BBB- long-term corporate credit and ruAA+ Russia national scale ratings for the country's largest independent crude producer.
"The revised outlook reflects LUKoil's increasingly strong cash flow generation in 2007, which we expect to continue in coming years," said Standard & Poor's credit analyst Karl Nietvelt.
According to S&P, cash flow is set to grow following significant production growth expected in 2008 and 2009, notably from new regions such as Timan Pechora in European Russia's north.
Other factors are the structurally higher international oil and domestic gas price environment, strongly improved refining and marketing profits in Russia and the anticipated positive impact from upcoming changes in Russia's oil and gas extraction tax regime.
"These will be particularly important in offsetting continuous challenging cost inflation that Russian oil and gas producers face," the agency said in a news release.
"The positive outlook also factors in our expectations for continued strong debt metrics, despite the near-term possibility of some $5 billion in acquisitions," said Nietvelt.
LUKoil's management has expressed strong interest in Western downstream assets. LUKoil's current credit metrics contain significant headroom, however, with the fully-adjusted ratio of operating cash flow to debt standing at 111% at the end of 2007.
The second-largest oil company worldwide by proven reserves of hydrocarbons, LUKoil accounts for about 1.3% of global oil reserves and 2.1% of world crude output. The company contributes 18% to Russia's oil output and 18% to the country's oil refining.
LUKoil raised $9.51 billion in U.S. GAAP net consolidated income in 2007, up 27.1% year-on-year.
LUKoil's majority shareholder with over 70% of shares is Russia's ING Bank (Eurasia), and U.S. oil major ConocoPhillips has a 20% stake in the crude producer.
