Muscat – Global credit ratings agency Fitch Ratings has assigned Energy Development Oman (EDO) a long-term issuer default rating of ‘BB’ with a stable outlook.

Fitch’s decision came after S&P Global Ratings earlier this month assigned EDO a ‘BB-‘ long-term issuer rating with a stable outlook.

EDO’s rating is constrained by the rating of its sole shareholder, the government of Oman (BB/stable), given their close links, Fitch said in a statement on Monday.

‘This reflects the influence the state exerts on the company through strategic direction, taxation and dividends,’ the ratings agency said.

Fitch assesses EDO’s stand-alone credit profile at ‘bbb’, supported by large-scale oil and gas operations and low leverage. The stand-alone credit profile, Fitch said, is constrained by EDO’s fairly complex operating structure and short proven reserves life, albeit with a strong record of successful reserves replacement.

‘Given EDO’s robust financial and operational profile, the company has not required government support thus far but we expect support to be forthcoming given the pivotal role EDO plays within Oman’s infrastructure and economy. This leads to strong support track record,’ Fitch noted.

S&P on August 3 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.

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 concessions.

‘We therefore expect an output of around 865,000 barrels of oil equivalent (BOE) per day 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 is sold to the government, which pays EDO a fixed transfer price, subject to annual indexation,’ Fitch said.

Highlighting EDO’s favourable unit economics, Fitch said in 2021 EDO’s total production costs before royalties amounted to around US$3 per BOE of direct production costs and around US$10 per BOE of capital expenditure, which puts EDO at the lower end of the global cost curve.

As noted by Fitch, EDO had cash and cash equivalents of US$341mn at end-2021 against no short-term debt.

‘We expect EDO to maintain a robust liquidity profile as negative post-dividend free cash flows will be offset by no debt service outflows until 2024, and a flexible dividend policy allowing for liquidity preservation during periods of restricted capital-market access and/or lower prices,’ Fitch added.

Improving ESG footprint

Two global credit ratings agencies have recognised EDO’s improving ESG (environmental, social and governance) footprint. Fitch said EDO continues to reduce greenhouse gas emissions from operations and flaring as well as improving energy efficiency.

The ratings agency said 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.

‘We view EDO’s and PDO’s environmental targets as broadly in line with Middle Eastern peers’, but lagging that of their large European peers such as TotalEnergies, BP or Eni,’ Fitch said.

According to S&P, EDO’s strategy explicitly targets emissions reduction through a cumulative 6mn tonnes greenhouse gas emission reduction by 2030, and through its aim to achieve net zero emissions by 2050.

‘We note that the company’s strategy is aligned with the Oman Energy Master Plan 2040. EDO is working on developing renewable energy sources and projects to meet Oman’s target of a 39 per cent renewable contribution to its total power mix by 2040, up from 5 per cent in 2020,’ S&P said.

EDO is Oman’s national energy company and owns participating interests in two concessions, accounting for approximately 65 per cent of Oman’s oil and gas production. EDO’s liquids production totalled 381,000 barrels per day in 2021 while gas production totalled 60mn cubic meters per day.