Oman reevaluates oil, gas portfolio in low price environment

Dubai — Oman is reviewing its oil and natural gas projects with a breakeven cost of more than $30/b but hopes the global economy will stabilize in the second half of the year, a finance ministry official told S&P Global Platts on Tuesday.

"We will look at different scenarios for $15/b, $20/b and $30/b oil," said the official, who spoke on condition of anonymity. "We expect further pressure on oil prices until this situation between Russia and Saudi Arabia is worked out. We have to revisit oil and gas projects that cost more than $30/b."

Last week, the Omani government announced it would slash 5% from 2020 budgets for all of its ministries. The decree issued urged all ministries to "review all types of spending, especially on consumer items on which the reduction is still available."

Oil minister Mohammed al-Rumhy told Platts last week that the budget cuts had not yet affected Oman's oil and gas investments, but supply chains were at risk from the coronavirus outbreak, potentially delaying projects.

Next steps in cost saving measures are a "working progress," the finance ministry source said, adding that the government looking at ways to raise cash without going to the market for a loan or to sell a bond during the coronavirus crisis.

Oman was looking to raise up to $6 billion this year to balance its books, financial sources have said. This was supposed to be a mixture of bonds, loans and asset disposals. However, raising debt will be tabled until at least mid-year, the ministry official said.

"It is not the right time to borrow. It is not the right time to go outside. But after June, we expect things to settle down," the source said.

Oman's economy is already heavily burdened by debt, and is one of the most exposed countries in the Gulf Cooperation Council to low oil prices. Its sovereign creditworthiness is deemed to be in junk territory by ratings agencies S&P Global Ratings, Moody's and Fitch.

Since the OPEC+ deal collapsed on March 6, Oman's borrowing costs have doubled to around 11%, financial sources said.

"With Oman's high fiscal breakeven oil price, the country's outlook remains vulnerable to oil price declines, particularly if a downturn in global risk appetite makes it more difficult for the country to raise fresh financing requirements," said Ehsan Khoman, head of Middle East and North Africa research and strategy for investment bank MUFG.

Oman crude price down 60% from January 1

Under pressure from the coronavirus pandemic, as well as the collapse of the OPEC+ production cut agreement – which has resulted in a price war between Saudi Arabia and Russia – front-month Brent futures were trading at $27.86/b at 1312 GMT on Tuesday, far below Oman's fiscal breakeven cost of almost $86/b.

Platts assessed front-month Oman crude at $26.99/b Tuesday, down about 60% from the start of the year.

Any projects with returns forecast to be below this level no longer make sense to pursue, the finance ministry source said. All companies will be reviewing their project portfolios in the next board meeting, including semi-state-owned Petroleum Development Oman, which will be holding its board meeting in the coming weeks, the ministry source added.

"There is a phenomenal amount of asset monetization that can take place in Oman – 60 years of investment that can be monetized," the ministry source said. "We have a lot of gas at attractive value. The stake sale of Khazzan [to Petronas in 2018] was a game changer for us."

Oman will target majors and pension funds as potential investors in its hydrocarbon assets, the official added.

Additionally, Oman will be upping its oil production to 1 million b/d, up from about 970,500 b/d, over the next few months, once its OPEC+ quota expires at the end of March.