The world’s top oil and gas companies are scrambling to tap bond markets to raise multi-billion dollars in debt to withstand one of the worst price crashes in history while facing looming dividend payments and high fixed costs. Among oil giants taping bond markets last week were Royal Dutch Shell, BP, Total, Equinor, and OMV. They reportedly managed to raise about $10 billion in debt.
Oil prices tumbled by about 65% in the first quarter this year dragged by a collapse in demand for transportation fuels due to strict movement restrictions around the world aimed to curb the coronavirus spread. At the same time, Saudi Arabia and Russia engaged in a market share war, threatening the market with a massive supply glut.
According to a Reuters report, the combined debt of Exxon, Chevron, Total, BP, and Shell, reached $230 billion in 2019 as they borrowed to pay billions of dividends while maintaining capital expenditure. Last month, Exxon raised $8.5 billion in debt, while Shell launched a revolving credit facility of $12 billion this week.
Credit agencies downgraded oil major’s credit ratings or ratings outlooks in recent days due to the price collapse. However, their bond issues in Europe were all reported to be over-subscribed. Those oil majors are expected to report falling revenue in their first quarter earnings calls. Despite the revenue decline and capex cuts, none of them has so far intended to reduce dividends.
