• 3 minutes Boris Johnson taken decision about 5G Huawei ban by delay (fait accompli method)
  • 6 minutes This Battery Uses Up CO2 to Create Energy
  • 10 minutes Phase One trade deal, for China it is all about technology war
  • 12 minutes Trump has changed into a World Leader
  • 3 hours We're freezing! Isn't it great? The carbon tax must be working!
  • 6 hours Indonesia Stands Up to China. Will Japan Help?
  • 3 hours US (provocations and tech containment) and Chinese ( restraint and long game) strategies in hegemony conflict
  • 10 hours Shale Oil Fiasco
  • 24 hours Might be Time for NG Producers to Find New Career
  • 10 hours Environmentalists demand oil and gas companies *IN THE USA AND CANADA* reduce emissions to address climate change
  • 3 hours Historian Slams Greta. I Don't See Her in Beijing or Delhi.
  • 7 hours Tesla Will ‘Disappear’ Or ‘Lose 80%’ Of Its Value
  • 17 hours Beijing Must Face Reality That Taiwan is Independent
  • 1 day Angela Merkel take notice. Russia cut off Belarus oil supply because they would not do as Russia demanded
  • 21 hours Anti-Macron Protesters Cut Power Lines, Oil Refineries Already Joined Transport Workers as France Anti-Macron Strikes Hit France Hard
  • 1 day China's Economy and Subsequent Energy Demand To Decelerate Sharply Through 2024
Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

More Info

Premium Content

Shell and No-Risk Oil

It's feeling euphoric in the oil sector these days.

Valuations for E&Ps are good. And firms are having no trouble raising capital.

There's been a spate of junior financings in the hundreds of millions of dollars range. And last week even the majors got in on the action, with Shell issuing $3.75 billion in bonds and debentures.

The really interesting thing was the rate on Shell's new debt. The company's 5-year notes were sold at just 55 basis points (0.55%) above Treasuries. Even Shell's longer-dated, 10-year notes only commanded 83 basis points to Treasuries.

That means investors are demanding much less than 1% in extra return in order to tie up their money for 10 years with an oil company, rather than the U.S. government.

It might be tempting to blame this low premium on mistrust of government bonds. But the mood lately in the petroleum sector suggests that investors just don't see a lot of risk here. And are thus happy to put in money at lower returns.

This is striking for an industry that's often taken to task for its potential downsides. There's the political problems (which Shell's globalized portfolio is probably somewhat insulated against--although recent events in Nigeria might suggest otherwise). And possible swings in commodity prices (which Shell has absolutely no control over). To name a few.

And yet Shell's new investors have largely overlooked these factors. The commodity price risk being particularly surprising, given oil is trading at quite-elevated levels, raising the possibility of a pullback.

But investors today want a story to believe in. There's been so little good news around global stock markets. And one of the only bright spots has been the phenomenal success and wealth creation of the North American unconventional oil and gas sector.

Investors in U.S. E&Ps have done very well. And the giddy feeling has spilled over into the wider energy sector. If Bakken producers are good, all oil producers must be too.

The psychology is understandable. But the effects could be dangerous for investors putting money into the sector at higher valuations, and thus higher risk of losses.

Choose your spots wisely.

Here's to a good story,

By. Dave Forest




Download The Free Oilprice App Today

Back to homepage




Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play