Fitch Revises Outlook on OQ & Energy Development Oman

Global credit rating agency Fitch Ratings has revised up its outlook on Oman’s global integrated energy group OQ and state-owned Energy Development Oman (EDO) to ‘positive’ from ‘stable’ and affirmed both companies’ long-term issuer default ratings at ‘BB’. The revision of the outlook on OQ and EDO reflects the recent revision of Fitch’s outlook on Oman’s sovereign rating, Fitch said in its statements.

Earlier this month Fitch revised its outlook on Oman’s long-term foreign-currency issuer default rating to ‘positive’, from ‘stable’, and affirmed the sultanate’s rating at ‘BB’. The rating agency said that the positive outlook reflects Oman’s lower government debt-to-GDP ratio, with high oil prices and spending restraint reducing external liquidity risk. ‘OQ’s ‘BB’ rating is equalized with that of Oman, given the strong links between the company and the sovereign, in line with Fitch’s government-related entities (GRE) rating criteria,’ Fitch noted.

Fitch assesses OQ’s standalone credit profile (SCP) at ‘b+’, which is supported by successful project execution in the upstream and downstream segments, alongside stronger financial performance. OQ’s SCP also reflects its solid business profile with integrated operations spanning exploration and production, refining, marketing, chemical and petrochemical segments, the rating agency said.

For Energy Development Oman, Fitch said EDO’s rating is constrained by the rating of its sole shareholder, the government of Oman, given their close links. This reflects the influence the state exerts on the company through strategic direction, taxation and dividends, the rating agency said. Fitch assess EDO’s SCP at ‘bbb’, supported by the company’s large-scale oil and gas operations and low leverage. The SCP is constrained by a fairly complex operating structure and short reserves life, albeit with a strong record of successful reserves replacement, the agency said.

The recently revised ‘positive’ outlook on Oman incorporates Fitch’s expectation that the government remains committed to fiscal consolidation. The rating agency said that fiscal reform should be sufficient to limit a deterioration of Oman’s budget, debt-to-GDP ratio and external position under its assumption of lower oil prices this year and next. Oman’s government debt-to-GDP ratio fell to 40 % in 2022, from 61 % at end-2021, and Fitch expects it to reach 37 % by end-2024. Fitch projects a government budget surplus of 2.3 % of GDP in 2023, against 4.9 % in 2022, Oman’s first surplus since 2013.