Cash Flood, Not Green Dreams, Behind Slump in Oil Bond Sales
Banks earned record first-quarter fees from arranging green bond deals, while oil, gas and coal companies issued the lowest amount of debt in a decade.
But all isn’t as it seems.
The slump in fossil-fuel issuance isn’t necessarily a sign bankers have woken up to the seriousness of climate change. Instead, it reflects the fact that energy companies haven’t had to tap the bond markets for cash given the surge in commodity prices.
With oil above $100 a barrel and likely to stay there for the foreseeable future, “the time of borrowing to pay dividends and buy back shares is over,” said Fernando Valle, a senior oil and gas analyst at Bloomberg Intelligence.
Fossil-fuel companies raised $37.6 billion selling bonds in the first three months of the year, down from $79.4 billion in the same year-earlier period when crude prices were closer to $61 a barrel, data compiled by Bloomberg show.
Crude markets have been so robust that “oil companies have little need to issue bonds as they have so much cash and free cash flow,” said Paul Vickars, a senior credit analyst at Bloomberg Intelligence. “In fact, they have been redeeming bonds in cash rather than replacing them with new ones, and even buying some bonds back early.”
Together, BP Plc, Chevron Corp. and Shell Plc repurchased about $10 billion of bonds ahead of schedule in the past 12 months, he said.
Valero Energy Corp. and Phillips 66 are doing the same, and Exxon Mobil Corp. is committed to reducing its debt, Valle said.
Still, it remains true that green bonds, and green bond fees, are on the upswing. Historically, banks have made much more money providing underwriting services and extending loans to the fossil-fuel industry than they have arranging green-related bonds and loans. That started to change last year.