The worldwide spread of the COVID-19 has led to a steep drop in fuel consumption which forced global top oil and gas companies to raise debt to a record amount and boost cash reserves in the second quarter of 2020. The increasing debt piles are particularly acute for BP and Shell, which have already had high levels of borrowing and are currently transitioning towards renewables and low-carbon energy.
An industry survey found that the world’s top seven oil and gas companies: BP, Shell, ExxonMobil, Chevron, Equinor, Total, and Eni raised $60 billion in debt in Q2, accounting for nearly half of the $132 billion borrowings in the oil and gas sector. BP raised the most debt of nearly $16 billion. It had $78.5 billion in debt by the end of March.
Oil giants’ revenues are expected to drop drastically in the quarter as movement restrictions led to sharply reduced oil demand, while Brent crude LCOc1 averaged below $30/barrel, the lowest in the last 20 years. Shell expects a 40% drop in fuel sales in the second quarter, while ExxonMobil is expected to post a second consecutive quarterly loss.
The health crisis also battered these firms’ shares, which underperformed the broader indexes. The falling share prices act as an additional blow as it increases the ratio of their debt to total market size or gearing. Higher gearing can impact a company’s credit rating and raise the costs of borrowing.
