S&P drops PetroKazakhstan view to stable

Standard & Poor's said it revised its outlook on PetroKazakhstan Inc. (PKZ) to stable from positive.

At the same time, the agency said it affirmed its B+ long-term corporate credit rating on PKZ.

The agency said the action follows a decline in production in the second quarter and reflects reduced expectations for the full year.

S&P said it believes that production cuts caused by Kazakh gas-flaring regulation and ongoing litigation regarding Turgai Petroleum, PKZ's 50:50 joint venture with LUKoil OAO (BB/stable), together with tax and antitrust litigation, limit the upside potential on the rating.

The rating on PKZ is constrained by the difficult operating environment it faces in Kazakhstan, its sole area of operations, particularly regarding the uncertain implementation of regulation and tax legislation, the agency said.

S&P noted the rating is supported by the company's high cash-generating capacity in the current oil price environment and its limited debt and adequate liquidity, which provide certain comfort against various contingent claims.

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