Even before the latest Saudi-instigated oil war crashed oil prices, Oman had a budget breakeven price per barrel of Brent of over US$85, with a senior legal source in Abu Dhabi focussed on the oil industry spoken to by OilPrice.com at that time stating that the Sultanate needed at least US$7 billion ‘very quickly’ to avoid extremely negative financial consequences. Given the twin facts that Oman only has around five billion barrels of estimated proved oil reserves (barely the 22nd largest in the world) but is still dependent on the hydrocarbons sector for over 80 per cent of its national budget revenues, the recent relatively moderate rebound in oil prices has done little to alleviate Oman’s perilous economic position. Last week’s downgrading of Oman by global ratings agency, Moody’s Investors Service, to Ba3 – three levels down into non-investment (junk) status – after S&P Global Ratings’ downgrade in March (to BB-, with a negative outlook) has further narrowed the re-financing options for the Sultanate, leaving it ‘examining all options, however unpalatable’, according to the legal source in Abu Dhabi.
On the expenditure side of Oman’s government balance sheet, much had already been done to reduce costs in the aftermath of the first Saudi-led oil price war beginning in 2014 and lasting for two years. So determined was Oman to keep its fiscal deficit within manageable proportions, that not only did it implement measures – including lower expenditure on wages and benefits, subsidies, defence, and capital investment by civil ministries – that reduced expenditure (in 2016 by around 8 per cent of GDP) but also moved to rein-in hydrocarbons-related spending as well. In this context, the Sultanate’s Financial Affairs and Energy Resources Council formed a specialised working group to study public spending and the means by which to reduce it. At the same time, it was made clear that the Omani government would apply zero-based budgeting in the ninth five-year plan of approving allocations for development projects only after all feasibility studies and real cost analysis of each of them had been completed. The Council also underlined that it aimed to avoid having any additional requests for funding from developers after any project had been started.
These measures were geared towards safeguarding the US$7 billion emergency figure but more dramatic measures are now being considered in light of the additional negative hit to Oman’s finances that resulted from the latest oil price war. One of these, according to various reports out of Oman last week, is a re-examination of the costs to the Sultanate of the planned gas-to-liquids (GTL) project with Royal Dutch Shell (Shell) and French major Total. Given that the cost of Shell’s Pearl GTL plant in Qatar trebled from US$6bn to US$18.5 billion between the go-ahead being granted for the project in 2006 and its completion five years later in 2011, Oman’s concerns over ballooning costs appear well-founded. “The starting costs figure is way more than the Pearl plant –…
Read More: Gulf Oil Producer Oman Is Quickly Running Out Of Options | OilPrice.com
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