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Climate Concerns Haven’t Crippled Big Oil Funding

The global push for decarbonization hasn’t impacted either the access to external capital or the cost of capital for oil and gas companies, S&P Global Ratings and S&P Global Commodity Insights said in a new report.

Most mid-sized and large oil and gas companies in Europe and North America “still have a relatively long runway in terms of capital access,” the authors of the report wrote.  

Those firms could see intensified pressures in terms of access and cost of capital after 2030 when oil demand is expected to begin to flatline and eventually start to drop, according to S&P Global.

Moreover, despite the volatility in the industry, “there have been little discernable risk premiums attributed to oil and gas bond pricing (outside of commodity cycle troughs) compared with those of the broad corporate industrial universe,” S&P Global noted.

Overall, capital markets continue to be open to funding fossil fuel companies. But those firms have seen lower needs to borrow money in recent years amid record earnings and cash flows. Big Oil and independent mid and large-scale North American producers emerged from the pandemic-driven industry slump with stronger balance sheets and raked in record-high profits last year when energy commodity prices shot up in the wake of the Russian invasion of Ukraine.

“Environmental concerns seem to be far from the most important factor for funding of oil and gas companies,” S&P Global said.

In some cases, some firms have seen difficulties in borrowing, but this has likely been related to the quality of the assets instead of climate concerns, S&P Global added. 

While this analysis shows that Big Oil doesn’t have to worry about access to capital in the near to medium term, some investors have started to pay more attention to the ESG credentials of the companies in their portfolios.

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Climate change is the single largest motivation of investment institutions to decide to exclude companies from their portfolios, a newly launched ‘exclusion tracker’ showed last month.

By Tsvetana Paraskova for Oilprice.com

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