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Dubai — Oman, the Middle East's biggest oil producer outside of OPEC, is deliberating several options to restructure its state-backed oil and gas companies to provide a much-needed cash injection to the country's balance sheet, while continuing plans to increase production, a ministry source told S&P Global Platts.

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Options include creating a new national oil company, changing the structure of semi state-owned Petroleum Development Oman (PDO) to enable it to raise its own debt, or listing or divesting a portion of state-owned OQ, the source said. The country may also consider selling a stake of a large asset, in the same manner as when Petronas bought a 10% stake of Oman's BP-operated Khazzan gas project in late 2018.

"Brainstorming sessions are underway to look at different options," the source said. "Everything is in the early stages."

Current market conditions make it unlikely that Oman will pursue a deal soon. Crude prices have tumbled after Saudi Arabia and Russia, two of the world's largest oil producers, couldn't agree on extending production cuts, setting the stage for a potential price war among major producing nations. Oil majors will also be under pressure to slash their investment plans and cut shareholder payouts this year. That could make it challenging for Oman to raise the cash that it seeks.

"It's not a good time to be selling," Robin Mills, CEO of Qamar Energy, said. "The market is so uncertain, how would anybody agree on a price?"

He added that if Oman was intent on conducting a sale, downstream assets would make for better candidates for a transaction because upstream assets are seeing their valuations shrink significantly.

Oman needs to raise between $5 billion and $6 billion this year to balance the budget, banking sources said.

Revenue from the hydrocarbon sector accounts for about 80% of the sultanate's national budget, which has been hit by years of low oil prices and is in deficit. The breakeven oil price needed to balance the budget this year is $85.90/b, according to the International Monetary Fund. Brent crude was trading at $36.95/b at 1:20 pm Singapore time (0520 GMT).

Production target

PDO pumps 630,000 b/d of oil, and has a production target of 700,000 b/d within five years. Changing the structure of PDO to make it more of an independent entity, rather than a developer and operator on the government's behalf, would mean the company would be able to tap its own financing from debt markets, the government source said.

At present, the majority of PDO's funds are provided by the government, and changing the structure of the company would relieve the government of this burden, the source said.

The company's 2020 budget is around $7.5 billion, which covers capital expenditures and operational expenditures. About 40% of this is funded by PDO's external shareholders; the rest is government money. Oman owns 60%, while Shell holds 34%, Total 4% and Partex 2%.

PDO has also said it plans to divest some of its more capital intensive upstream assets. Under the instruction of the Omani government, PDO has already been selling off parts of the large Block 6. For example, the six licenses tendered by Oman this year from Blocks 58, 70, 73, 74, 75 and 76 were carved out of Block 6. These licenses are yet to be awarded, the government source said.

OQ may sell 20% to 25% of its stock in an IPO, either through a public stock listing or privately. There have been no talks with potential investors, the source said.