By: Zawya

Leading international credit ratings agency Fitch Ratings has affirmed the Long-Term Issue Default Rating (IDR) of Energy Development Oman SAOC (EDO) — the wholly government-owned energy sector holding company — at 'BB+' with a Positive Outlook. Fitch’s ‘BB+’ rating sits at the very top of the non-investment-grade (speculative) category — just one notch below BBB-, the lowest investment-grade rating.

Highlighting its rationale for the rating, Fitch said: “EDO's rating is constrained by that of the government of Oman (BB+/Positive), its sole shareholder, due to their close links, in line with Fitch's Government-Related Entities (GRE) Rating Criteria; and Parent and Subsidiary Linkage (PSL) Rating Criteria. The Positive Outlook reflects that on Oman's sovereign rating”.

It further added: “The company's 'bbb+' Standalone Credit Profile (SCP) is supported by its large-scale oil and gas operations, strong and resilient cash flow generation due to contracted sale prices for gas, a flexible royalty framework and dividend policy; and low leverage”.

EDO, affiliated with the Ministry of Finance, owns 60 per cent of the Block 6 Petroleum concession operated by Petroleum Development Oman (PDO) and 100 per cent of Block 6’s non-associated gas concession. PDO’s oil and gas production accounts for the lion’s share of Oman’s aggregate hydrocarbon output. In addition, EDO holds 100 per cent of Hydrogen Oman (Hydrom), the master planner of the Sultanate of Oman’s green hydrogen industry.

In affirming its credit rating, Fitch cited EDO’s “strong” precedents of government support. “In 2022, the government provided a shareholder bridge facility by permitting EDO to defer dividend payouts and allowing the company to allocate its excess cash towards near-term investments. The government also established a flexible royalty regime, whereby royalties are based on average oil prices during the relevant period, allowing EDO to preserve cash flow when hydrocarbon prices are low. We expect the government to continue providing support due to EDO's pivotal role within Oman's infrastructure and economy”, the ratings agency said.

Additionally, Fitch underlined the pivotal contribution of EDO’s Block 6 concessions to the Omani economy, the role of natural gas in fuelling growth and its position as one of the country’s largest corporate employers.

It added: “EDO is the largest oil and gas producer in Oman through its interest in Petroleum Development Oman (PDO). PDO operates the onshore Block 6 oil and gas concessions, which comprise over 24 per cent of Oman’s land acreage and have more than 50 years of production history. This mitigates EDO's focus on a single country of operations. We expect an average output of over 700,000 barrels of oil equivalent per day (boed) until 2028”.

Fitch also expects EDO to maintain a strong financial profile through 2029 under its base-case oil and gas price assumptions, despite rising capital expenditures and high government royalties and taxes. Dividends will be paid from excess cash flow after meeting debt service, working capital needs and maintaining minimum cash levels, allowing for cash flow flexibility. Fitch forecasts EDO’s EBITDA net leverage to remain below 1x from 2024 to 2029 and notes the company’s target to keep net debt under 2.2x funds from operations, a board-set goal no longer included in debt covenants.

Fitch’s key assumptions for the issuer’s rating case include Brent crude oil prices from 2025 to 2028 aligning with Fitch’s base-case price forecast, gas production sold at fixed prices under existing contracts and upstream production averaging approximately 820,000 barrels of oil equivalent per day (boed) during 2025 to 2028. Capital expenditures are expected to average $4.4 billion annually over the same period, with dividend payments made in accordance with the company’s financial policy.