S&P Assigns ‘BB-‘ Rating to Oman’s EDO, Keeps Outlook Stable

S&P Global Ratings has assigned Energy Development Oman (EDO) a ‘BB-‘ long-term issuer rating with a stable outlook. In a research update released on Wednesday, S&P said its business risk profile assessment for EDO is supported by company’s access to sizeable reserves, leading domestic share of Omani hydrocarbon production, and low operating cost structure, all of which support cash flow visibility. S&P views positively EDO’s access to sizable reserves via concession agreements until 2044. These total more than 1.5 billion barrels of oil equivalent in proven reserves and include more than 60% of Oman’s proven oil and non-associated gas condensate reserves.

‘We believe the company’s strong track record of proven and probable reserve replacement, above 100% on average, and successful history of executing complex mega projects, such as the Yibal Khuff construction, should support cash flow visibility,’ the ratings agency said. It added that EDO’s 60%stake in Petroleum Development Oman (PDO) makes it the largest oil and gas producer in Oman – accounting for about half of the country’s combined hydrocarbon production. PDO also owns oil pipelines and gas processing plants, which, coupled with good quality oil and a record of sufficient annual reserve replacement, supports low operating costs and cash flow visibility.

S&P said its ‘stable outlook’ on EDO mirrors that on the sovereign. ‘Any upward or downward pressure on Oman’s sovereign rating will be reflected in that on EDO. We would lower the rating on EDO if we take a similar action on our Oman sovereign rating,’ the ratings agency said. S&P expects EDO has a ‘moderately high’ likelihood of extraordinary government support from Oman, given the government’s 100% ownership of EDO and its board representation, EDO’s alignment with the country’s Vision 2040 development plan, the company’s significant contribution to employment and GDP, and a historical track record of government support.

Key player in energy sector

‘We think EDO will remain a key player in Oman’s energy sector. As a result, our assessment on EDO factors our expectation of a moderately high likelihood of government support and we consider EDO to have an integral link with and very important role for the government,’ S&P noted. The integral link with the government is underpinned by the state’s 100% direct ownership of EDO, S&P said, adding that the government also has a strong influence on EDO’s strategic plans. ‘We also view that the company plays a very important role in the Omani economy as its largest oil and gas producer, through its 60% ownership of PDO and its position as a significant employer,’ the ratings agency added.

Moreover, S&P estimates EDO’s average annual oil capital expenditure and gas capital expenditure of about US$2.6 billion and US$1.1 billion, respectively, until 2026. In August 2021, EDO successfully secured a US$2.5 billion debut financing which had attracted an overwhelming response from international investors. EDO was established in December 2020 through a Royal Decree and is wholly owned by Oman. In 2021, the government transferred its 60% stake in the Block 6 oil concession, through its ownership in PDO, to EDO and granted EDO 100% of the new Block 6 gas concession.