Muscat – Fitch Ratings has upgraded Energy Development Oman’s (EDO) long-term issuer default rating (IDR) to ‘BBB-‘ from ‘BB+’, with a stable outlook. The rating action follows a recent upgrade of Oman’s sovereign rating to ‘BBB-‘ from ‘BB+’, the agency said.
Fitch noted that EDO’s rating is constrained by that of its sole shareholder, the Government of Oman (BBB-), reflecting the close links between the two, in line with Fitch’s Government-Related Entities (GRE) and Parent and Subsidiary Linkage (PSL) rating criteria.
The agency said EDO’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 gas sale prices and a flexible royalty framework, a flexible dividend policy, and low leverage. “The SCP is constrained by its concentration in a single country, a solely upstream-focused business model, and a mature reserve base with a shorter proved reserve life compared with peers,” Fitch added.
EDO’s ‘very strong’ decision-making and oversight reflects full state ownership, with no near-term privatisation plans, Fitch added. “The company’s strategy and activities are directed by a board of directors nominated by the government. Its gas business is subject to regulated pricing, and its Block 6 oil and gas concessions are critical to the domestic economy.”
The oil and gas sector remains a major component of the Omani economy, with EDO’s Block 6 concessions accounting for a significant portion of the nation’s total oil and gas reserves. The company primarily sells gas on the domestic market. Additionally, EDO is one of the largest corporate employers in Oman, Fitch noted.
Fitch expects EDO to maintain a strong financial profile until 2028 under its base-case oil and gas price assumptions, despite growing capital expenditure and high royalties and tax payments to the government. “Dividends are distributed from excess cash flow after all debt service obligations and working capital requirements have been met, while maintaining minimum cash levels to preserve cash flow flexibility,” the agency said.
Highlighting EDO’s improving Environmental, Social and Governance (ESG) performance, Fitch said the company continues to reduce greenhouse gas emissions from operations and flaring while improving energy efficiency.
“EDO also aims to expand its renewable power generation capacity to up to 30% of total capacity in the medium term. We view EDO’s environmental targets as broadly in line with Middle Eastern peers, but lagging those of large European companies such as BP,” the agency added.
