Oman is trying to raise money using its largest oil block, as the nation is searching for new methods to tackle its budget deficiency and stabilize the economy.
According to sources, the Sultanate intends to move its 60 percent stake in Block 6, which has a daily production capacity of 650,000 barrels, from Petroleum Development Oman (PDO) to a new company.
The new company may try to sell about $3 billion worth bonds in the first half of next year and US-based investment bank and financial services holding company, JPMorgan Chase & Corporation is advising the government on the deal, the source added.
PDO and JPMorgan did not comment about the news and Spokespeople for Oman’s energy and finance ministries also did not offer any response.
The plan could set a precedent for other Middle East oil and gas producers who want to collect cash without stretching their balance sheets. The Kurdish area of Iraq sells some oil before it is pumped under so-called pre-payment financing deals, and this year the UAE earned billions of dollars by selling leasing rights to pipelines and properties. There is no information about whether the Middle Eastern government has used particular oil blocks as financing collateral.
For Oman, the structure will likely be similar to the reserve-based lending facilities common to US shale producers.
According to Wood Mackenzie Limited, an energy consulting firm, Block 6 contains 75 percent of Oman’s crude oil reserves. Royal Dutch Shell owns 34 percent of it, while Total SE owns 4 percent of it and 2 percent is owned by Partex Oil & Gas.
Last month Oman, which is part of the OPEC+ producers’ alliance has pumped nearly 720,000 barrels per day.
Omani companies and government budgets have been battered by this year’s fall in oil rates and municipal shutdowns to stem the spread of the coronavirus.
The International Monetary Fund (IMF) estimates that the budget deficit will hit almost 19 percent of the gross domestic product (GDP) this year.
Last month, the government itself sold $2 billion bonds. According to IMF, its debt-to-GDP ratio has risen since 2014, when it was just 5 percent, and will hit nearly 90 percent next year.
Sulthan of Oman, Haitham Bin Tariq Al Said has reduced expenditure and instigated economic reforms previously considered unthinkable since he came into power. His administration plans to implement an income tax for the wealthy in 2022, a first for an Arab Gulf state. It has also cut thousands of government jobs and declared it would reduce subsidies for water and electricity by 2025.