Fitch Affirms EDO at ‘BB+’ with Positive Outlook: What It Means for Investors and Business Growth in Oman
MUSCAT: Fitch Ratings, a leading international credit rating agency, has affirmed the Long-Term Issue Default Rating (IDR) of Energy Development Oman SAOC (EDO), a wholly government-owned energy sector holding company, at ‘BB+’ with a Positive Outlook. This rating places EDO at the highest level of the non-investment-grade (speculative) category, just one step below the lowest investment-grade rating of BBB-.
Fitch explained that EDO’s rating is closely linked to that of the Government of Oman, its sole shareholder, reflecting their strong ties in accordance with Fitch’s Government-Related Entities (GRE) and Parent and Subsidiary Linkage (PSL) Rating Criteria. The agency noted the positive outlook mirrors that of Oman’s sovereign rating.
The company’s standalone credit profile (SCP) of ‘bbb+’ is supported by its substantial oil and gas operations, robust and stable cash flow driven by contracted gas sale prices, a flexible royalty framework, prudent dividend policy, and low leverage.
EDO, affiliated with the Ministry of Finance, holds a 60 percent stake in the Block 6 Petroleum concession, operated by Petroleum Development Oman (PDO), and 100 percent ownership of the Block 6 non-associated gas concession. As PDO’s output comprises the majority of Oman’s total hydrocarbon production, EDO plays a critical role in the sector. Additionally, EDO fully owns Hydrogen Oman (Hydrom), the key entity responsible for planning Oman’s green hydrogen industry.
Fitch highlighted EDO’s “strong” history of government support. In 2022, the government granted a shareholder bridge facility permitting EDO to defer dividend payments, enabling the company to allocate surplus cash towards near-term investments. Moreover, the government introduced a flexible royalty system based on average oil prices during relevant periods, helping EDO preserve cash flow in times of low hydrocarbon prices. Fitch expects this government backing to continue given EDO’s vital role in Oman’s infrastructure and economy.
The agency also emphasized EDO’s significant contribution to the Omani economy through its Block 6 concessions, the importance of natural gas in driving economic growth, and EDO’s status as one of the country’s largest employers.
EDO is Oman’s largest oil and gas producer via its interest in PDO, which operates the onshore Block 6 concessions spanning over 24 percent of Oman’s land area with over fifty years of production history. This diversification within a single country mitigates operational risks. Fitch anticipates EDO’s average production to exceed 700,000 barrels of oil equivalent per day (boed) through 2028.
Financially, Fitch projects EDO to maintain a solid profile through 2029 under its base-case oil and gas price assumptions, despite rising capital expenditures and significant government royalties and taxes. Dividends will be paid from excess cash flow after fulfilling debt service, working capital needs, and maintaining minimum cash reserves, ensuring cash flow flexibility. Fitch forecasts EDO’s EBITDA net leverage will stay below 1x from 2024 to 2029. The company targets keeping net debt under 2.2x funds from operations, a board-mandated goal no longer tied to debt covenants.
Key assumptions underpinning Fitch’s rating case include Brent crude oil prices from 2025 to 2028 aligned with Fitch’s base forecast, gas production sold at fixed prices under existing contracts, and upstream production averaging about 820,000 boed during 2025-2028. Capital expenditures are expected to average $4.4 billion annually over the same period, with dividends distributed according to the company’s financial policy.
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The reaffirmation of Energy Development Oman’s (EDO) ‘BB+’ rating with a Positive Outlook by Fitch underscores strong government backing and resilient cash flows, making EDO pivotal in Oman’s energy sector and economic stability. For businesses and investors, this signals opportunities in energy-related ventures, particularly green hydrogen via Hydrom, but also highlights risks tied to global hydrocarbon price volatility. Smart investors should closely monitor EDO’s capital expenditure plans and government policy shifts, which will shape Oman’s energy landscape and its transition to sustainable growth.
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