Exxon Issues $9.5 Billion In Fresh Debt

Exxon sold $9.5 billion in new debt this week ahead of earnings season, amid a rush among oil companies to create for themselves financial cushions against further blows from the coronavirus pandemic.

The supermajor issued five batches of bonds, MarketWatch reported, with the shortest bond maturing in three years and the longest in 30. The issue comes amid a record-high spike in investment-grade corporate bond issues over the last few weeks as the Fed signaled it would do whatever it takes to keep markets well supplied with money, including launching a $2.3-trillion bond-buying program.

Earlier this month, Exxon said it would cut its capital expenditure plans by as much as 30 percent. It also said it would trim cash operating expenses by 15 percent in response to the combination of a sharp drop in demand for oil and oil products, and excessive supply.

“After a thorough evaluation of the impacts of the pandemic and market conditions, we have worked closely with business partners to plan and execute capital adjustments that preserve long-term value, maximize cost efficiency, and put us in the strongest position when market conditions improve,” chief executive Darren Woods said in the news release.

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The critical factor for oil producers now is determining when market conditions will improve. An unprecedented agreement among OPEC and non-OPEC producers will remove more than 10 million bpd from global markets, with countries such as Norway, Brazil, and the United States for the first time taking part in such a concerted effort at controlling supply. However, this may not be enough in light of how badly demand for oil has suffered because of the pandemic.

Estimates of how much demand has been lost due to the combination of too much supply and too little demand have ranged between 15 million bpd and 30 million bpd. In any case, the loss of demand is much higher than the production cut agreed on this weekend. What’s more, the recovery is questionable: some countries are mulling an extension of the lockdowns, and some Asian countries are reporting a rise in new cases after a decline, suggesting that a second wave of infections may be on the way. This will prolong the recovery, which will, in turn, delay any lasting improvement in oil demand. Stocking up on cash in these times seems like the only rational thing to do.

By Irina Slav for Oilprice.com

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