Major energy companies have sold unprecedented amounts of debt in early 2015, taking advantage of very low interest rates after oil prices plunged more than 50 percent. The total debt raised in the first two months of 2015 by large European and US companies has gone up by more than 60 percent from the fourth quarter of last year. According to Morgan Stanley, this outstrips the previous record that was set six years ago.
Sales by six of these giants – such as BP, Chevron, ExxonMobil or Total – reached $31 billion in January and February, accounting for nearly half of $63 billion raised by oil and gas groups worldwide. As a result of the increasingly dominant position of the major energy firms, smaller oil explorers and refiners find it increasingly difficult to borrow money as associated costs are on rise. According to the US bank, some of the biggest energy players might be readying the ground for acquisitions as smaller companies may start becoming more and more vulnerable. According to the bank’s analyst Martijn Rats of the US bank, the number of mergers and acquisitions could go up as early as the second half of this year.
There is yet another reason for the high levels of debt issuance by energy giants – debt remains a relatively inexpensive way to pay for big projects and fund dividends as cash flow diminishes because of low prices. Big energy groups are generally pledging to keep pay-outs to investors untouched, except for Italy’s Eni, which has announced that it would cut dividends this year. For the first two months of 2015, the energy majors have so far accounted for about 48 percent of oil and gas debt issuance compared to 30 percent in the last quarter of 2014.