Report: Oman looks to increase revenue to offset the effect of dwindling oil prices

A weak oil and gas market has forced the Oman government to adopt measures to increase its revenue, says a GlobalData report.

Low oil prices have persuaded the authorities to shift their focus from providing incentives to the upstream sector for boosting investments, to the tightening of fiscal regulations.

The report, titled ‘Oman Upstream Fiscal and Regulatory Report – Oil Price Drop Forces Government to Look to Boost Revenue‘, mentions that oil and gas activities are all set to be impacted by the government’s changed stance, especially in the short-to-medium term.

Norms for product sharing agreement (PSA) have been altered to make them more profitable to the authorities. The standard cost recovery limit has also been reduced, shifting price risk from the government to the operators.

The government held a licensing bid for its oil and gas blocks in 2012 and 2014, seeking investment for both its existing assets as well as unexplored prospects. The decline in oil prices, however, prompted oil majors including Total, MOL Group, DNO ASA, and Circle Oil to give up the acquired blocks in 2015, leaving Oman with 15 unlicensed blocks.

The report indicates that the authorities will be tempted to hold fresh bids for the blocks, but low oil prices and reduced exploration budgets may delay the process.

In the current environment, there are strong indications that the authorities may introduce budgetary changes that will adversely influence the oil and gas sector, such as an increase in corporate income tax rate from 12% to 15%. It is expected that this hike in tax rate will affect service contractors indirectly, although PSA contractors will be unaffected.

Meanwhile, the Ministry of Finance has proposed to levy a 5% value added tax in the near future, a move that is expected to affect the PSA contractors as goods and services will become dearer.

The change in the government’s focus will make new PSAs less profitable, while challenging projects are expected to benefit from more favourable terms.