Oman has set up a new state energy company which will own part of the Gulf nation’s largest oil block and be able to raise debt, as the cash-strapped country seeks to offset the impact of lower oil prices.
The new company, called Energy Development Oman (EDO), will have a shareholding in Petroleum Development Oman, a state-owned oil and gas exploration and production company, and an interest in Block 6, according to the country’s Official Gazette.
EDO’s primary activities will be related to projects in Petroleum Development Oman’s prolific Block 6, which is Oman’s largest field and produces approximately 650,000 b/d. In recent years, Oman’s energy ministry has tendered smaller licenses that fall within Block 6 as Petroleum Development Oman is obligated to sell them under statutory license rules, the oil ministry has previously said.
Oman’s energy ministry said EDO is 100 percent government-owned and that it will collect oil and gas revenues and pay capital and operating costs.
This means Petroleum Development Oman’s oil and gas expenditures will be excluded from the state budget, giving the company financial independence, the energy ministry said in the statement carried by state media.
EDO will be entitled to raise financing independently of Oman’s Ministry of Energy & Minerals which can be secured against its projects, according to the report.
Oman’s proposal could set a precedent for other governments in the Middle East that want to raise cash without stretching their balance sheets. Iraq’s Kurdish region sells some crude before it’s pumped under so-called pre-payment finance deals, and the neighbouring United Arab Emirates has raised billions of dollars this year by selling rights to lease pipelines and properties. But no Middle Eastern government is known to have used specific oil blocks effectively as collateral for funding.
EDO will work on oil and gas exploration as well as on renewable energy projects in Oman, according to the Gazette.
It will also “borrow or raise money and/or financing of any nature” and use “defined or identifiable cash flows, revenues, receivables or assets (including those which are Shariah compliant) to issue securities in one or more tranches to investors in Oman and/or other countries,” it said.
The authorised and issued share capital of the company is 500,000 Omani rials (US$1.3 million), divided into 500,000 shares, the Gazette added. A CEO, CFO and other senior executives have yet to be appointed.
Low oil prices and the economic slowdown caused by the coronavirus outbreak are straining the finances of Oman, a relatively small energy producer. Oil and gas account for about 75 percent of the government’s revenue. Oman’s budget deficit is projected to reach 17 percent of GDP this year after a shortfall of 7 percent in 2019, according to recent estimates by the International Monetary Fund.
Oman, rated sub-investment grade by all major credit rating agencies, faces a widening deficit and large debt maturities in coming few years. It has recently embarked on a new fiscal plan to wean itself off its dependence on crude revenues.
New ruler Sultan Haitham bin Tariq al-Said has shaken up the government and state entities, and in October approved introducing value-added tax in April to boost state revenues.