Dissertation: The Role of FDI in Oman's Oil and Gas Sector Development

This dissertation examines the crucial role of foreign direct investment (FDI) in Oman's oil and gas sector, a key driver of the country's economic development. The study analyzes the impact of FDI on the oil and gas industry, highlighting how it has facilitated technological advancements and infrastructure improvements. It explores the business models employed in the sector, including the use of Enhanced Oil Recovery (EOR) technologies, and assesses the influence of government policies and globalization on attracting foreign investment. The research provides detailed data on trade balances, exports, imports, and foreign direct investment trends, offering a comprehensive overview of the economic landscape and the positive implications of FDI for Oman's oil and gas sector. The findings underscore the importance of a conducive investment climate and strategic policies in fostering economic growth and leveraging the country's rich natural resources.

Running head: DISSERTATION
Dissertation
Name of the student
Name of the university
Author note

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Chapter 4
Findings and Analysis
4.0 Findings and analysis
4.1 Necessity of foreign direct investment in oil and gas sector in Oman
Oman is still a developing country and foreign direct investment (FDI) is the key
source of development of the economy of the country. Moreover, according to the Gulf
Cooperation Countries (GCC), the ability of the countries to attract foreign direct investment
can be considered as the source of political, social and economic development in the country
(Ibrahim and Abdel-Gadir 2015). The introduction of the new legal business framework has
liberalised the business environment of the country and restrictions on the foreign firms have
been reduced significantly. The changes that were made are favourable for the foreign
countries and they have the opportunity of investing in the market that is untapped. The
political and the economic stability of the country is a factor, which had attracted the
attention of large number of organizations. Manufacturing industry was mostly benefitted
from this development as the major restrictions were removed in this sector. However, the
restrictions on the natural resource industry have also been reduced significantly. This
globalization policy has been implemented by the GCC with an aim of making significant
developments in the field of economy (Eudelle and Shrestha 2017).
Oman is a country, which is rich in all its resources, but they do not possess the
advanced technology and infrastructure to make proper utilization of these resources so the

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government of the country is trying to make use of this opportunity by liberalising the foreign
investment laws in the country. Moreover, the overall climate of investment for the country is
conducive to all the major global nations. The major economies in the world have better
technology, expertise and skills, which will help the still developing nations to get a boost in
their economy (Alraja, Hammami and Al Samman 2016). The location of the country is the
ideal location for trade and most of the countries would prefer using as a source of rich oil
and gas sector. Oman uses free market in trading with other countries so that they can
capitalize of the foreign investment make improvements in the economic development of the
organization. The geographical location of the country is very appropriate and consists of
several ports at the outskirts of the Persian Gulf, which has enabled the country to be linked
easily with the continent of Asia, Africa and Europe. This is the very reason that Oman is the
country, which consists of the maximum foreign investment when compared to the other
countries in the Middle East region (Mubeen and Ravikumar 2016).
However, various studies suggested that change in the environment of business will
not have any effect on the foreign direct investment of the country. On the contrary, as stated
by Varghese, JOHN and QATROOPI (2016), the government policies of the country will
have a positive impact on the foreign direct investments as it will make the nation more
lucrative to the foreign investors. However, motivates of the investors in foreign direct
investment is still not clear and these factors may vary depending upon the sectors in the
market. The oil dominates the economy of the country and gas sector as the majority of the
revenue of the country is generated in this sector. The export of oil to other countries has
been the main source of the foreign capital generation (Abdouli and Hammami 2017). Oman
has always been biased towards the development of the local companies so they have always
discriminated with the foreign investor by making sure that impose restrictions of the foreign
companies. However, the government realised that the growth of the economy is totally

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dependent on the globalization so they reduced the amount of taxes on the foreign investors
and created a free market economy. These barriers in the economy were reduced and the
government promoted foreign direct investment, which is the main reason for revitalizing the
economy of the country. The country through a phase of national deficit and the country is
able to overcome these issues by enabling the foreign direct investment in to the country.
This has also helped the country to gain new technologies and knowledge regarding the
improvements in the infrastructure of the country (Agrawal and Sethi 2017).
During the early 90, the country was going through a phase of deficit due to the
reduction in the prices of oil and gas. As the main source of revenue, for the country is the oil
and gas sector so Oman was going through a fiscal deficit. This the time when the country
realized that in order to make improvements in the economy of the country, the government
will have to globalize the economy (Mina 2017). Thus, the government started making
policies, which will create a free market for trade. The policy of the country is based on four
essential pillars, which are business facilitation, new legal framework, promotion of the
country and liberalization of the economy. These key factors were the key reason that the
country consist of the maximum number of foreign direct investments in the Middle East.
The foreign companies are provide with the equal liberty and rights which has developed the
business environment of Oman.
The country has made efforts to promote foreign investment and have made changes
to the policies in order to make improvements in the business climate of the organization.
Moreover, the quality of life among the consumers is high and they have high disposable
income, which is favourable for all the foreign investors in the market. The workforce in the
country is highly educated and bilingual which will help in developing a workforce, which is
productive (Azad and Khatabi 2017). The government is more focused on making
improvements in the field of infrastructure and this huge investment programs started by the

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government is grabbing the attention of the foreign investors. The table and the figure gives
us the broad idea about the current economy and the influence of foreign direct investment in
the country.
Oman Trade Last Previous Highes
t
Lowest Unit
Balance of Trade 205.90 79.20 2379.00 -117.60 OMR
Million
[+]
Exports 1036.50 934.10 1992.00 423.00 OMR
Million
[+]
Imports 999.00 593.80 1392.10 242.50 OMR
Million
[+]
Current Account -
4737.00
-4155.00 3403.00 -
4737.00
OMR
Million
[+]
Current Account to
GDP
-15.40 5.10 17.84 -22.47 percent [+]
Capital Flows 1700.00 4741.00 4741.00 -
2411.00
OMR
Million
[+]
Gold Reserves 0.02 0.02 9.05 0.02 Tonnes [+]
Crude Oil Production 968.00 973.00 1057.16 693.04 BBL/D/1K [+]
Terrorism Index 0.00 0.00 0.00 0.00 [+]
Tourist Arrivals 299.00 263.00 436.00 123.00 thousand [+]
Foreign Direct
Investment
717.50 -1035.00 1281.00 -
1035.00
OMR
Million
[+]
Table 1
(Source: Alraja, Hammami and Al Samman 2016)

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Figure 1
(Source: Alraja, Hammami and Al Samman 2016)
The above data and the figure suggest that there has been significant increase in the
foreign direct investment of the country. The highest foreign investment was in the year of
2007 and maintains a steady rate afterwards. However, there was a steep decrease in the
investment in the year of 2015 due to the lack in the structural policies by the government.
However, the country has been able to recover from this crisis by making amendments to the
existing policies.
Oman Trade Last Q3/17 Q4/17 Q1/18 Q2/18 2020
Balance of Trade 206 299 102 301 299 248
Exports 1036 1018 1200 1011 1011 1680
Imports 999 782 1100 820 812 1400
Current Account -4737 -2297 -3610 -3629 -3649 -3678
Current Account to GDP -15.4 -17 -17 -15 -15 -9
Capital Flows 1700 2782 2959 3418 3878 4894
Gold Reserves 0.02 0.02 0.02 0.02 0.02 0.02
Crude Oil Production 968 977 976 976 976 976
Terrorism Index 0 0 0 0 0 0

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Tourist Arrivals 299 261 254 265 263 262
Foreign Direct Investment 718 25.2 14.48 56.05 97.61 151
Table 2
(Source: Mubeen, S.A. and Ravikumar, A., 2016)
Figure 2
(Source: Mubeen, S.A. and Ravikumar, A., 2016)
The forecasted report shows that the condition of the economy is in favour of the
country and Oman is expected to maintain a steady rate of foreign investment. Moreover the
implication of the foreign investment on the oil and gas sector is positive and has been
expected to remain that way. Oman is a small country and majority of the revenue is
generated from the oil and gas industry (Filippaios, Annan-Diab and Hermidas 2017). The
increase in foreign direct investment means that the companies in the oil and gas sector will
be able to generate a lot of revenue with the help of the foreign investments, which will help
to improve the technology and the infrastructure of this sector.

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4.1 Types of business model used in oil and gas sector in Oman
The business model of an organization is the main source of revenue generation as it
describes all the necessary procedures that are included in the operation. The business models
will an organization to add value to the products at different stages of the business procedure.
The business is the backbone of the organization as it helps to analyze whether a particular
strategy used by the organization is feasible or not. The business model of an organization
consist of the various core aspects of the organization such as the strategies, offerings,
purpose, organizational structure, infrastructure, operational processes, policies and trading
practices. The main purpose of the business model is the analysis of the various processes
and value creation of the product offered (Al-Mawali, Hasim and Al-Busaidi 2016). The key
partners, key resources, customer value, supply, cost structure and revenue generation are all
the important factors that is monitored using a business model.
The business model of the oil and gas sector will have to be defined based on the
needs and wants of that particular industry. The demand and supply part of the organization
will define what has to be included in to the business model. The organizations will have to
understand the economic conditions, geographical significance and the demand of the product
in the market. The company in this region will be analyzing these factors closely before
developing a business model suitable for the organization. The unique geographical location
of the country is one of the factors, which has given the sultanate of Oman a competitive
advantage as they able to develop trade relations with the countries out of the Persian Gulf.
The country has established their trade relations in the continents of Africa, Europe, Asia and
America (Nikhalat‐Jahromi, Fontes and Cochrane 2017). The country is rich in oil and
natural gas and is one of the major exporters of the oil to different parts of the world.
Enhance Oil Reactor (EOR) is one of technologies which all the companies are for increasing

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the recovery of oil. EOR injects a fluid in the reservoir, which will help in extracting more
amount of oil when compared to the conventional water pressure or flood. The companies to
extract more amount of oil than the conventional method can use the EOR technology and
Sultanate of Oman has been the leaders in commencing EOR projects. PDO is a company,
which is using the EOR technology in three different projects to extract more amount of oil
from the reservoirs. The oil and natural gas is the major generator of revenue for the country
so they are using advanced technology to make improvements in their energy extraction
techniques. Oman has started the field steam injection EOR that is the first of its kind
(Espinasa et al. 2017). The magnitude of the project is the largest in the world and uses a
technology named thermally assisted gas oil gravity drainage (TAGOGD) which has never
been used before in any carbonated reservoir. This process will help in the increasing the
production of the oil and natural gas by 25% (Khalifa, Alsarhan, and Bertuccelli 2017). This
shows that, as the country is dependent on the oil and natural gas for generation of revenue so
the companies are using innovative technology in the business model to improve the
production.
Generally, the oil and gas industry use similar kind of business model for the
development of the organization. However, there are two aspects, which are mainly important
for the organization, one is the supply and other is the demand. The demand and the supply of
the products will determine how the business model of the system is going to work. The
demand of oil and natural gas is high and Oman is one of the largest producers of oil and
natural gas. The business model of the organization will depend on the size of the business
and generally, there are five models that have been used in oil and natural gas industry. The
first model is named as buccaneers, which is used by the small companies and had made
exploration in uncharted waters to collect raw materials (Zhu, Pan, and Chang 2016). These
are relatively new companies, which use dry well to dig up oil. The sustainability of such

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organization will be a problem sa they will become prey for the large organization in the
market. The companies will have the opportunity to survive by making mergers with similar
type of organizations. The second model in this industry has been named as the Sharks of
Shale who generated new resources by the usage of the hydraulic fracturing. These
companies will have to keep on moving if they want to survive as they face problem due to
the drilling in the slum areas (Al Hatmi et al. 2014). The companies got victimized by their
own success and they are huge amount of debt in the market. Eventually, the lenders will lose
their patience and even hedging their funds to mitigate their risk in the market will not be
enough to save their creditworthiness. However, these companies can maintain their
sustainability by reducing the cost of production and making improvements in the technology
used by the organization. The third business model is named as Super tankers and consists of
the major oil companies in the world. These companies do not have any problems in
maintaining in the sustainability in the market but they are facing problems due to the
swelling cost and the stagnancy in production (Buchanan et al. 2014). These companies have
high financial strength and they will face less amount of problem in maintaining their
sustainability. However, these will have to downstream their assets to reduce the cost of the
organization and use strategies to hedge the risk in the market. The next model is named as
flagships and consists of all the national companies who have internationalised in the market.
These companies have brought a new dimension to the market and the organization secured
the use of hydrocarbons in the domestic market (Khatib 2014). These companies will keep
on making expensive purchases so that they can make gain competitive advantage in the
market. The last and the final model that is used in the oil and the natural gas industry is the
merchant who look for opportunities to capitalize on and these companies have diversified
their portfolio. The companies not only manufacture oil and gas but other products such as
metals, commodities and agriculture (Treyer and Bauer 2016). However, the companies will

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have to be aware of their debt so that they do not put too much burden on the capital reserves
of the organization.
Oman is one of the largest suppliers of oil outside the OPEC countries but still cannot
be considered as a major petroleum exporter. The companies in Oman belong to the category
of Sharks of Shale and they make use of the advanced technology to improve the quantity of
oil they can extract form their reserves. The figure shows the consumption and production of
oil in Oman which means that the company are of medium magnitude and has the
opportunity of growing in the market (Charabi and Al-Badi 2015). Thus, it can said that as
the country’s economy is dependent on the revenue generated from the oil and natural gas
sector so the companies will have to keep on innovating their business model by using latest
technology so that they can maintain their sustainability in the market.
Figure 3