The picturesque coastal state of Oman, bordering oil rich Saudi Arabia and the UAE, is perhaps best known for its peaceful coexistence with its neighbours. A developing natural gas market has led to the country’s two liquefied natural gas exporters joining forces, in an effort to help drive the country’s wider economy.

With the government eager to diversify Oman’s economy, the energy industry presents an opportunity for it to increase revenues for the rest of the country. It owns a major stake in the country’s leading natural gas exporter Oman LNG, which recently completed a successful integration of Qalhat LNG into its operations. With other key international backers that include Shell and Total, the company is clearly seen as a rising star in the region’s energy market.

World Finance spoke to the company’s CEO, Harib Al Kitani, about the country’s prospects, the changing energy landscape, and how the recent integration with Qalhat LNG translates to an even greater competitive advantage for the company and country.

Catalyst for growth
The importance of the energy sector to Oman’s wider economy is obvious, as it generates substantial revenue for the government to invest in other areas. The sector is also an important investor in social development. Oman LNG, for instance, dedicates one and half percent of its after tax profits to investments in development programmes across a range of areas including job creation and healthcare.

Al Kitani is positive about the resources to hand, and what they can do for the country’s economy. “Like most economies of the world blessed with natural resources, Oman has for a long time focused on developing its energy resources, with earnings from these resources making up a large part of the country’s revenue.”

However, diversifying the economy is key to unlocking Oman’s potential in the region, and industries like tourism are getting considerable attention from the government.

“The focus is gradually shifting as the government continues to execute a far-reaching diversification programme. Tourism, for instance, has grown steadily over the years, with its contribution to the economy rising in a similar fashion.”

Al Kitani thinks that growing the tourism sector makes sense in Oman, given the hospitable nature of country’s people and the beauty of the landscape. “Frankly, it is not at all surprising when you consider the natural disposition of the Omani people to be friendly and welcoming; when you consider that Oman is largely a pristine location where you can see much of nature still in its untouched state, with a coastline of nearly 1,700km.

“Other non-oil sectors are also projected to grow in the coming years, and with some of the earnings from the energy sector directed to diversification, including spreading infrastructure, a new economic landscape based on a broader set of commercial endeavours is certainly emerging.”

With the government as a major shareholder in the integrated entity, much of the revenue generated from exports of natural gas contributes directly to Oman’s ability to grow its economy.

“Also, considering the government is the main shareholder with high stakes in the integrated company – it holds 51 percent shareholding in Oman LNG and 46.8 percent in Qalhat LNG – it benefits from the expected higher revenues which a combined structure positions us to achieve in the long term,” says Al Kitani.

Oman’s hydrocarbon sector
Oman LNG is one of the dominant players in the energy sector in Oman, having recently subsumed Qalhat LNG.

“With the consummation of recent integration with our sister company, Qalhat LNG, in September, Oman LNG has become the only face of liquefied natural gas (LNG) supply from the Sultanate to the world,” says Al Kitani.

“As the country’s only exporter of liquefied natural gas, with a three-train plant operation and 10.4 million tonnes per annum capacity, we play quite a significant role in the sector (see Fig. 1). Oman LNG and Qalhat LNG contribution to the country’s revenue in 2012 generated over $5bn.”

The integration of Qalhat LNG with Oman LNG has created an industry powerhouse that is ready to help spur the country’s economy further. The reasons the two companies decided to combine their operations lie in the similarities that existed in how they both work.

“The integration of Oman LNG and Qalhat LNG is based on a number of obvious synergies between the companies. After years of operating as individual entities and developing their respective niche markets, the government and other shareholders decided it would be wise to capitalise on these synergies, save costs in some respects and offer a better and more efficient service to our customers.”

The integration has also made sense because both firms received gas feedstock from the same supplier, as well as sharing some facilities. “Prior to the integration, both companies received feed-gas from a single supplier, Petroleum Development Oman (PDO), and utilised vessels from the Oman Shipping Company (OSC). They also both made use of shared facilities at the plant in Qalhat, Sur.”

News of the decision to combine the two corporations has also been met enthusiastically by shareholders, who believe the company is now better placed to successfully develop Oman’s energy market. “The integration brings together our strengths,” says Al Kitani. “It shows some clear thinking on the part of shareholders on how we can remain successful and has been well-received by investors, lenders, insurers, buyers (see Fig. 2) and our other stakeholders, because it positions Oman LNG to do more with its resources.”

When two leading companies decide to combine operations, there is a danger of a clash of corporate cultures and differences in the way things are run. However, Al Kitani is insistent that, due to his experience at both companies, this issue is unlikely to arise.

“I speak from personal experience of having had the privilege of serving at both entities prior to the integration. I was at Oman LNG for 10 years and left as the company’s marketing manager to assume the position of chief executive officer at Qalhat LNG in 2005. At both organisations, there was a deliberate effort to cultivate value in everything we set out to accomplish.

“I was appointed as a CEO of Oman LNG in August 2012 and although there were a number of remarkable changes over the seven years I was at Qalhat LNG, there remained at the company’s core: the desire to add more value to the many services delivered to stakeholders. The same mindset was cultivated at Qalhat LNG where we had a view of our stakeholders as being ‘partners in excellence’.”

Good governance
Corporate governance is also taken seriously at Oman LNG, and is supported by the government, which is keen to ensure it is carried out robustly. Al Kitani says that it is integral to how Oman LNG operates.

“Any activity that improves our corporate governance can only support our viability as a sound and transparent company. One of the principal reasons the integration has been so successful is because it passed through a rigorous due diligence process. This helped to give all stakeholders in these kinds of transactions good comfort on the fusion.

“I know that maintaining a sound corporate governance has always ranked high on our list of goals. I thank our leader, His Majesty Sultan Qaboos bin Said, for encouraging this attitude across all of Oman. At Oman LNG, we also want to thank the Minister of Oil and Gas, Dr Mohammed bin Hamad Al Rumhy, and the Under Secretary of Oil and Gas, Nasser bin Khamis Al Jashmi, for taking a continued and robust interest in seeing the company establish and abide by principles of good corporate governance. This has undeniably contributed to our success as a company.”

Looking to the future
In the near future, it’s unlikely that Oman will challenge the likes of neighbouring Saudi Arabia and the UAE in terms of oil and gas output; however, the contribution organisations such as Oman LNG can make to the region is not to be ignored.

“At the moment, our focus is making the best possible use of what is available to Oman LNG in terms of gas supply to meet demand in the market. We are not taking any options off the table and, as with most exploration activities, we cannot exactly predict what the ongoing search for more gas in the country could yield.”

The integration between the two firms will, however, help to strengthen the industry within Oman, and as a result Al Kitani is expecting good things for the coming years.

“This integration will definitely bring good opportunities to our company, the wider hydrocarbon industry in the country and Oman generally, as we seek new ways to deploy our resources profitably. So everything considered, I am optimistic about the future.”