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Low-Rated U.S. Oil Firms Raise Record $20 Billion In Bonds

The recovery in oil prices this year has increased investor appetite for high-yield bonds of low-rated U.S. energy firms, helping them to raise a record more than US$20 billion on the bond market so far this year, the Financial Times reported, citing data from companies tracked by Refinitiv.

In light of the rising oil prices since November last year, debt investors have grown more interested in high-yield energy bonds, after having steered clear of the sector for most of the past two years.

As a result, the riskier lower-rated U.S. oil firms have managed to raise a total of over U$20 billion this year alone, a record amount in data going back to 1996, according to Refinitiv estimates cited by the FT.

For example, Chesapeake Energy – the poster child of U.S. shale firms “drilling themselves to oblivion,” which filed for bankruptcy last year and emerged from Chapter 11 in January this year – issued in February US$1 billion in senior notes, with part of the proceeds expected to fund the company’s emergence from Chapter 11.

Many other companies have managed to price bond issues this year, as debt investors have started to look more positively at the short-term prospects for oil firms.

In the longer term, however, the keyword is caution, and investors advise caution because of the possible negative effects of the energy transition on the oil industry.

Earlier this year, S&P Global Ratings warned it could downgrade the ratings on some of the world’s biggest oil firms, citing increased risks coming from the energy transition, price volatility, and weaker profitability. The credit rating agency revised its industry risk assessment to ‘moderately high risk’ from ‘intermediate risk’, due to the challenges the energy transition poses to companies, the pressure on the firms’ return on capital, and the volatility in oil and gas prices.  

A few weeks later, S&P Global Ratings downgraded Exxon, Chevron, and ConocoPhillips by a notch to AA-.

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By Tsvetana Paraskova for Oilprice.com

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