The world’s biggest oil companies have raised debt worth more than $32bn in recent weeks to build up war chests to manage the financial fallout of the coronavirus outbreak while preserving shareholder payouts.
Companies that have tapped the bond market since mid-March include ExxonMobil of the US, Royal Dutch Shell, UK-based BP, Norway’s Equinor and France’s Total, raising debt in euros and dollars.
Oil and gas companies are pulling on every financial lever possible before having to cut their dividends. They are curbing capital spending by billions of dollars, suspending share buyback programmes, reducing costs and delaying the approval of projects.
Global oil demand has collapsed amid widespread lockdowns and travel bans. The drop in consumption has coincided with a Saudi Arabia-led price war that could see millions of barrels a day extra unleashed on to the oil market.
The drop in Brent crude — the international oil benchmark fell last week to the lowest level since 2002 — has caused turmoil for energy companies whose share prices have also taken a hit.
Brendon Moran, a senior energy banker at Société Générale said: “The playbook is the same as previous crises: those that can get out into the bond market are doing it. It secures liquidity but it also demonstrates that they have access to funding.”
Shell this week raised €3bn and $3.75bn, while BP tapped the market for €3.25bn and $3.25bn. Total and Equinor raised debt of €3bn and $5bn respectively. OMV of Austria raised €1.75bn. This followed a move by Exxon to raise $8.5bn a few weeks earlier.
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For some companies, such as Shell and BP, the bond issuance comes on top of securing new multibillion-dollar credit facilities.
While some smaller companies and independent companies have already cut their dividend as they come under financial pressure, major energy groups are treating this as a last resort.
Many are aware that the payouts are one of the few reasons some investors hold the shares, as pressure builds on investors to move away from carbon-intensive industries.
Before the coronavirus outbreak, oil and gas companies were already facing challenges. They had promised to keep shareholder distributions intact despite the macroeconomic uncertainty, maintain revenues from fossil fuel businesses and invest in lower carbon energy.
Analysts have said that while existing payouts from international energy majors were generally safe for now, the return of scrip dividends could happen, referring to the option for investors to receive additional shares instead of cash payments.