(Bloomberg) – Oman is seeking to raise funds from its biggest oil bloc, as the cash-strapped Gulf nation seeks new ways to rein in its budget deficit and stabilize a faltering economy.
The sultanate is transferring its 60% stake in Block 6, which has a production capacity of 650,000 barrels per day, from Petroleum Development Oman to a new company, according to three people familiar with the matter. The company would then tap international financial markets, allowing Oman to take on debt without putting it on the government’s books, they said, asking not to be identified because they are not authorized to speak to the media.
The new company could try to sell about $3 billion in bonds in the first half of next year, one of the people said. JPMorgan Chase & Co. advises the government, the person said.
PDO and JPMorgan declined to comment. Spokespersons for Oman’s energy and finance ministries did not immediately respond to emails seeking comment.
Create a precedent
The proposal could set a precedent for other Middle Eastern oil and gas producers who want to raise funds without stretching their balance sheets. The Kurdish region of Iraq sells oil before it is pumped under so-called prepayment financing agreements, and the United Arab Emirates has raised billions of dollars this year by selling lease rights on pipelines and properties. But no government in the Middle East is known to have used specific oil blocks as funding collateral.
Oman’s structure would likely be similar to reserve-based loan facilities that are common among US shale producers.
Block 6 contains 75% of Oman’s crude oil reserves, according to Wood Mackenzie Ltd., an energy consultancy. Royal Dutch Shell Plc owns 34%, while Total SE owns 4% and Partex Oil & Gas 2%. Oman, which is part of the OPEC+ producer alliance, pumped nearly 720,000 barrels a day last month.
Collapsing energy prices this year and local shutdowns to stem the spread of the coronavirus have hammered Omani businesses and government finances. According to forecasts by the International Monetary Fund, the budget deficit is expected to reach almost 19% of gross domestic product this year. The economy will contract by 10%, the highest figure of the six Gulf Cooperation Council countries.
The government itself issued $2 billion in bonds last month. Its debt-to-GDP ratio has soared since 2014, when it was just 5%, and will reach nearly 90% next year, according to the IMF.
Sultan Haitham Bin Tariq Al Said has cut spending and launched previously unthinkable economic reforms since he came to power in January. His administration plans to introduce income tax in 2022, which would be a first for a Gulf Arab state. He also cut thousands of government jobs and said he would remove water and electricity subsidies by 2025.
–With the help of Anthony Di Paola and Matthew Martin.
© 2020 Bloomberg L.P.