Energy Development Oman SAOC (EDO) has received a ‘BB’ long-term issuer default rating (IDR) with a stable outlook from international ratings agency Fitch. This comes after S&P rated EDO with BB- with stable outlook earlier this month.
Fitch also assessed EDO’s Standalone Credit Profile (SCP) at ‘bbb’, supported by large-scale oil and gas operations and low leverage.
The inaugural assessment by Fitch Ratings is another milestone in EDO’s development, as it serves to enhance the status of Oman’s hydrocarbon and alternative energy sectors as attractive spheres for investment and financing. Furthermore, the rating increases transparency and comparability for debt investors and capital market participants active in the Sultanate of Oman.
Commenting on the credit rating, Sultan bin Ali al Mamari, Chief Financial Officer – EDO, stated, “This assessment by Fitch is a recognition of EDO’s financial strengths as well as the prudent fiscal management of the economy by the Omani government. The rating provides a firm platform to attract multiple forms of investment into the country.”
“As a landmark achievement for EDO, this is an important step towards our objective of leading the energy transition in alignment with Oman’s Vision 2040,” the CFO added.
Fitch views EDO’s socio-political implications of default as 'Strong'. The oil and gas sector represents a significant part of the Omani economy, with EDO's Block 6 concessions accounting for a very large portion of the nation's total oil and gas reserves. Furthermore, EDO in one of the largest corporate employers in Oman.
The agency also rates EDO’s financial profile as ‘Strong’. EDO plans to maintain FFO net leverage below 2.2x on a through-the-cycle basis. The metric has been set by the Board. EDO plans to optimise its capital structure by raising additional debt.
Supportive scale of operations, EDO owns a 60 per cent interest in the Block 6 oil concession and a 100 per cent interest in the Block 6 gas concession. Petroleum Development Oman (PDO) operates the onshore Block 6 oil and gas concession, which has more than 50 years of production history. Fitch expects an output of around 865,000 barrels of oil equivalent per day (kboe/d) until 2026. Contracts for sales of oil at market prices are signed by the government, but EDO receives payments directly from customers. Non-associated gas (NAG) is sold to the government, which pays EDO a fixed transfer price, subject to annual indexation.
In 2021, EDO's total production costs before royalties amounted to around $3/boe of direct production costs and around $10/boe of capex, which puts EDO at the lower end of the global cost curve. However, adding Fitch-estimated generous royalties of around $10/boe sharply increases total production costs. The increase in cost is somewhat mitigated by EDO's still strong financial profile, by EDO's and the government's interests being largely aligned and by the progressive nature of taxation with respect to oil prices.
Fitch commends EDO’s improving ESG footprint. EDO continues to reduce greenhouse gas emissions sfrom operations and flaring as well as improving energy efficiency. PDO also plans to expand its green generation portfolio to 30 per cent of energy capacity by 2025, with the commissioning of Amin and Miraah solar projects in recent years.
Energy Development Oman was established in December 2020 by Royal Decree (2020/128) to focus on realizing efficiencies and pursuing new growth opportunities in Oman’s energy sector. The company’s stated vision is to be a world-class partner for growth, while driving a sustainable energy future.