Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }
Coronavirus information
Coronavirus information
The Zero Canada Project provides resources to help you make the most of staying home.
Visit the hub

Jim Tanner/Reuters

The world’s top oil and gas companies locked in cheap borrowing rates to raise a record amount of debt in the second quarter of 2020 and boost cash reserves as a buffer against a collapse in revenues because of COVID-19.

The dash for debt piles pressure on company balance sheets and the issue is particularly acute for BP PLC and Royal Dutch Shell PLC. Already burdened by high levels of borrowing, they also face the disruption of a major shift toward renewables and low-carbon.

The world’s top seven energy firms – BP, Shell, Exxon Mobil Corp., Chevron Corp., Equinor ASA, Total SA and Eni SpA – raised US$60-billion in debt in the quarter, nearly half of the US$132-billion in oil and gas sector borrowing over the period, Refinitiv data showed.

Story continues below advertisement

BP, which had US$78.5-billion in debt by the end of March, raised the most at nearly US$16-billion, using for the first time hybrid bonds that place less strain on the balance sheet as the principal is not required to be repaid.

Oil majors’ revenues are expected to drop sharply in the second quarter after movement restrictions to limit the spread of the novel coronavirus that causes COVID-19 led to a steep drop in fuel consumption.

Benchmark Brent crude averaged below US$30 a barrel in the second quarter when it hit the lowest in two decades.

Exxon, the largest U.S. oil company, is expected to report a second consecutive quarterly loss, while Shell said its fuel sales in the second quarter fell by around 40 per cent.

COVID-19 RECOVERY?

The coronavirus crisis has battered oil company shares, which underperformed the broader indexes, as concerns over their ability to withstand the short-term shock added to uncertainty linked to the world’s shift to renewable power.

The share price drop dealt a double blow to the companies as the ratio of their debt to total market size, known as gearing and an indicator of financial health, is set to rise.

Higher gearing can affect a company’s credit ratings and increase its cost of borrowing.

Story continues below advertisement

Jason Kenney, analyst at Banco Santander SA, said oil majors were likely to see debt levels spike in 2020.

“This is not necessarily all bad given the current low interest rates and the chance to increase liquidity cheaply,” Mr. Kenney said.

“That said, gearing and leverage levels will likely move out of target ranges before moving back to more usual levels over the coming years.”

The debt crisis coincides with BP and Shell’s plans to shift from fossil fuels in the coming decades, details of which they are expected to unveil later this year.

BP acted to reduce its debts with the US$5-billion sale of its petrochemical business in late June, helping it reach its US$15-billion asset disposal target.

But the strain on its balance sheet could lead its chief executive Bernard Looney to cut the company’s dividend when it reports its second-quarter results on Aug. 4.

Story continues below advertisement

Redburn analyst Stuart Joyner said he expects BP to reduce its dividend by 33 per cent.

Although the debt levels of BP and its rivals are set to rise, the companies do not face severe distress with current oil prices of above US$40 a barrel, Mr. Joyner said.

“As long as you believe that there is some sort of recovery from COVID-19, there is no problem with the debt,” he said.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies