High oil prices band "fire" shale oil and gas bonds

In the first quarter of this year, the two international benchmarks maintained high oil prices, which directly boosted the yield
of oil and gas bonds.
Entering April, the yield gap between high-yield energy bonds and high-yield bond indices narrowed rapidly, and the oil and gas bond market, led by shale, showed signs
of rebound.

In the first quarter, the issuance of oil enterprise bonds declined

Data compiled by U.
S.
financial media Advisor Perspectives shows that in the first quarter, the number of bonds issued by global oil, gas and coal companies hit a 10-year low, raising a total of $37.
6 billion, down from $79.
4 billion
in the same period last year.

However, the industry believes that the decline in bond issuance does not mean that the market is no longer pursuing fossil fuels, but it confirms that the general surge in commodity prices has prompted these companies to no longer need to raise funds
through bond issuance.

Some insiders expect that if the international oil price remains around $100 / barrel, it will be difficult for oil and gas companies to issue bonds to pay dividends and repurchase shares in the
medium term.
In the past 12 months, bp, Chevron and Shell have collectively bought back about $10 billion in bonds ahead of schedule
.

In fact, as the global green energy transition is gaining momentum, the oil and gas industry is facing increasingly difficult borrowing conditions and is under constant pressure
from commodity markets.
Despite the current rise in green bond issuance, banks and financial institutions have historically made much higher profits from bond underwriting and lending services to the fossil fuel industry than the green sector
.

Shale oil and gas bonds are sought after

At the moment, the most sought after in the oil and gas bond market is
shale.
According to the Financial Times, a large number of investors are continuing to buy bonds
from shale oil and gas companies.
U.
S.
Appalachian shale oil and gas producer Range Resources, for example, has just raised $500 million
through a bond issue.

Credit rating agencies have recently upgraded the credit ratings of several U.
S.
shale oil and gas producers, reflecting the shale industry's increasingly strong
balance sheets.
In addition, an increasing number of oil and gas companies are incorporating environmental, social and governance factors into their investment decisions, which has also boosted the attractiveness
of their bonds.
Major U.
S.
shale oil and gas producers, such as Range Resources, Chesapeake, Pioneer Natural Resources and Devon Energy, have all made commitments
to reduce greenhouse gas emissions from their operations.

The Buenos Aires Times reported that as of the end of March, Argentina's Petrogenate bond yielded 23%, surpassing all other bonds of emerging-market sovereigns and corporate issuers, and was the best bond in emerging markets with fixed income, laying a solid foundation
for long-term development plans for Argentina's shale oil and gas fields.
As of the end of last year, Argentina Petroleum had $1.
1 billion in cash and equivalents
.

Bank of America's Global Research Department pointed out that credit market investors currently tend to withdraw from all types of bonds, except for oil and gas bonds, and funds are generally increasing their holdings of high-yield energy bonds, which means that investors tend to hold more high-yield bonds issued by energy companies than other high-yield bonds
.

Currently, the yield gap between high-yield energy bonds and high-yield bond indices is rapidly narrowing, from 12 percentage points in 2020 to about 0.
2 percentage points
today.
Last September, oil and gas companies had coupon rates of about 6.
2 percent, compared with about 3.
4 percent on other European high-yield bonds, a gap of more than 2 percentage points
.

"Chasing green" is difficult to stop the strong performance of oil and gas bonds

In an environment where investors are chasing high yields, the global pursuit of green energy transformation is still difficult to suppress the strong performance
of oil and gas bonds.
David Newman, chief investment officer of global high-yield bonds at Desunmet Allianz Asset Management, said oil and gas remained one of
the areas where high-yield bonds could provide double-digit returns.
Azhar Hussain, Head of Global Credit at Royal London Asset Management, also said: "In global high-yield portfolios, carbon-related investments cannot be excluded if they do not want to affect returns, as investment in the oil and gas sector accounts for more than
15%.
”

It is worth noting that the European Union, India, etc.
are considering bond financing to resist high inflation
.
Among them, the European Commission said it plans to issue 100 billion euros of bonds to ease the pressure on the energy bills of EU countries, while hoping to use the funds raised from the bonds to buy more energy
.

Based on current energy prices and exchange rate levels, the cost of energy purchases is climbing
dramatically.
According to the Bruegel Institute, a Belgian think tank, the cost of filling up gas storage in Europe was 10 billion euros a few years ago, but now it has risen to more than 70 billion euros
.

"Europe needs at least tens of billions of euros to strengthen its energy security
.
" Slovak Finance Minister Igor Matovic said, "We can neither rely on Russia nor the United States, and joint bond issuance is undoubtedly the only way
for the European Union.
" ”

India has also fallen into a situation of rapid economic deterioration due to the energy market fluctuations caused by the Russian-Ukrainian crisis, the country relies heavily on imported energy, 80% of oil demand comes from imports, and high oil prices directly increase the country's fuel consumption costs
.
India Today reports that the Indian government may issue oil bonds to offset the impact
on consumers caused by soaring domestic fuel prices.

S.
C.
Garg, the former finance minister of India, said that India's fuel excise tax is very high, but if oil prices continue to hover in the $130/b-$140/b range, even if the GST is reduced to zero, it will not eliminate the negative impact of price increases, and may even lead to the closure
of a large number of fuel underwriters.
"In a situation like this, we may need oil bonds
.
" India issued a large number of oil bonds between 2005 and 2010 to avoid fuel underwriters passing on costs to consumers
.