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CFO View: Drilling Down into PDO’s Funding Strategy with Haifa Al Khaifi

Haifa Al Khaifi serves as Finance Director of Petroleum Development Oman, LLC. She joined the company in 1995, and currently manages the company’s capital and operational funding strategy. Haifa also serves as a Board Member and Treasurer for the Oman Society for Petroleum Services, and an Advisory Board Director for the Academic Innovation Assistance Program (AIAP) at Sultan Qaboos University.

Aug 30, 2016 // 4:19PM

What are some of the major strategic initiatives on the horizon at PDO?

PDO’s strategic focus has been on operating more efficiently while stripping out waste without impacting on our overarching priority of Health Safety and Environment (HSE), or impacting our production goals, which would undermine our drive for value creation.

We are on course to deliver a new long-term oil production plateau of 600,000 bpd well before the 2019 target, and are determined to create thousands more jobs and training opportunities for Omani jobseekers with our contractors. This is being done through our In-Country Value strategy which we launched to retain more of our sector’s wealth in the Sultanate of Oman. So far, we have created more than 20,000 jobs and training opportunities for nationals since 2011.

We are being called on to deliver more for less and it’s important to highlight some of the initiatives we have launched to operate more efficiently and control our cost base. Some examples of the steps we have taken include introducing new capital efficiency measures, contract optimisation practices, simplifying our engineering standards, increasing production and shortening shutdown durations, as well as cuts to discretionary spending.  

How would you characterize the funding environment in Oman currently? How has forecast oil prices affected the outlook for the funding environment going forward?

Since the oil price drop from June 2014, both the private and public sectors in Oman have been financially squeezed due to the significant drop in oil revenues. This has resulted in significant deficits at both the Government level, as well as across the private sector. The current subdued oil prices have definitely resulted in increased borrowings from Oman-based companies and the Government of Oman itself.

Oman has a relative advantage as the existing leverage of both the private and the public sector is very low. There is also significant appetite in the international market for Oman, as evidenced by the recent PDO financing, where the facility was upsized significantly.

Oil prices are likely to remain volatile in the near future, and we believe that effective measures being implemented in Oman will be likely to have positive effect in the near future.

PDO’s debut borrowing in the international market versus traditional reliance on direct budget support is one of the examples of the change in the funding environment. We expect this to continue in Oman with both public and private sectors exploring alternative funding arrangements. We believe that the current low oil price environment is a challenge, but with this, opportunities have been presented to explore more innovative funding arrangements. At the same time, the present challenge has caused both the Government and private businesses to examine all layers of their operations for efficiencies.

Congratulations on the recent loan deal. Can you walk me through the strategy on that deal? How did pricing and terms align with expectations?

The proposed deal was the first of its type for PDO, and for us it was important for us to establish a strong relationship banking group, so the roadshows that we engaged in after we took the decision to hit the debt market was critical.

We invested quite a bit of time at the outset to build those relationships and take as much feedback as we could from the market in terms of pricing and structure. The whole deal took less than 6 months from launch to close, beginning in January. We closed the deal on time in June as expected.

While pricing is driven by the market, the strong interest from the international banks that we evidenced at the onset enabled us to leverage that knowledge and interest in working with us, to launch a very attractive transaction to the market. Although we are a first-time borrower, we always have very high expectations in all that we do, so we are pleased with the outcome. This is certainly true when you consider the higher borrowing costs for the oil majors in the region and internationally.

As this was the first time PDO tapped into the debt markets, was there a learning curve involved?

I was very happy with how the deal went, and in some ways better than expected. We had initially targeted US$3bn, and when we did the roadshow in London we saw significant participation from various banks. Our process and production optimisation practices were differentiating characteristics for the stakeholders involved, and generated strong positive sentiment around what we were trying to achieve. Given the level of enthusiasm, we saw this as a great opportunity to widen our circle of influence as well as our relationship with banks that we may not have dealt with in the past for one reason or another. So we upsized the loan, but at the same time we left quite a bit of money on the table.

One of the things we did during the process was allow some of the Tier I banks to scale back their commitments, which is part of how we do business as a company. We prefer a collaborative approach because we feel that is more sustainable in the long run, and helps generate good will.

Do you see greater potential to tap into the debt markets more frequently going forward?

Absolutely. We have an extensive portfolio that is still competitive in a low oil price environment. That portfolio can be subdivided into a range of categories and sizes, and includes a number of renewable projects including solar and clean water projects. That said, we may seek to explore green bonds – it could become an area of significant interest for us. But there are still a number of changes that would need to take place before we could issue – for instance, we are not a listed company, we don’t have green bond-related certification, and there is a mind-set change. We aren’t there yet, but it is an area we are increasingly interested in. Green bonds could be an interesting instrument to pilot before heading into other areas of the debt market at scale.

What do you see as the biggest challenge facing the company over the next year?

Our challenge remains ‘to stay the course’ and maintain our commitments to our core business of the exploration and production of oil and gas, while simultaneously pursing vigorous targeted cost control measures. We need to deliver more for less to combat the impact of the oil price decline. The market remains in a state of flux, and on-going supply and demand issues could still mean we may need to further reappraise our plans, but the bulk of our programme is robust at low price realizations.

We will continue to pursue early monetization wherever economically viable, and to make strategic investments which will serve the Sultanate well into the future. We will continue to endeavour to eradicate wasteful activities to help support the Government in its efforts to tackle the fiscal deficit. We will also sustain our drive to train and employ more Omanis and continue to expand the local supply chain and skills base to serve our sector and wider economic diversification.

Overall, the industry is facing challenging times. Our business plan and performance delivery today are stronger today than when prices were above US$100 per barrel in every single key performance indicator, bar total revenues. Our projects are profitable and provided we continue to work collaboratively with our contractors to optimise expenditure and implement structured cost control, the future is bright.

So we will be ramping up our focus on personal and process safety and asset integrity, driving early monetisation of exploration prospects and accelerating “easy” primary and secondary oil production. At the same time, we will continue with our pursuit of operational excellence and world-class project delivery, and seize the opportunity to drive efficiency changes in every facet of our business. There is much to do but we have the right calibre of people to do it, and I am confident that PDO can weather the storm and carry on creating value for Oman.

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