Story by Bloomberg
Chevron Corp. sold $6 billion of bonds, the biggest offering by the U.S. oil and gas producer since the 54 percent rout in crude began in July, as investors seek debt of energy producers that can weather the downturn.
As part of the deal the company sold $1.75 billion of 1.961 percent, five-year notes yielding 50 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. That gives Chevron a lower borrowing cost than the average of company debt with similar ratings and maturities.
“Chevron is a reminder that all energy companies aren’t created equal,” said Scott Carmack, a money manager at Portland, Oregon-based Leader Capital Corp., which oversees $1.5 billion in fixed-income assets. “They are a behemoth of a company that is built for the long haul. Investors have no problem lending to them.”
While the stock market has punished Chevron since the start of the oil rout by sending its shares down 18 percent, making it suspend share buybacks for 2015, it has been treated more gently by bond investors. Debt of the riskiest energy companies tracked by Bank of Merrill Lynch Bond Indexes lost more than 9 percent since last June, while those of safer energy securities gained 0.6 percent.
Proceeds of Tuesday’s bond sale will be used to refinance short-term borrowings, known as commercial paper, and for general corporate purposes, according to Standard & Poor’s, which rated the debt AA.
AA rated company debt maturing in five to seven years yield 2.38 percent, according to Bank of America Merrill Lynch Indexes, 42 basis points more than Chevron’s five-year note sale. Chevron issued the deal in six parts, including $900 million in two-year notes, $1.75 billion in three-year securities and $700 million in seven-year debt, Bloomberg data show. A basis point is 0.01 percentage point.
Chevron is accelerating spending cuts that got under way last year as falling crude prices eroded cash needed for exploratory drilling, platform construction and other capital projects. The San Ramon, California-based company said last month it plans to reduce outlays by 13 percent this year to $35 billion and halted stock repurchases that absorbed $5 billion in cash last year in order to cope with falling oil prices.
The oil producer last sold bonds in a $4 billion offering in November, Bloomberg data show.
The new debt is an insurance policy against further declines in oil as well as an opportunity to take advantage of lower interest rates, Fadel Gheit, an analyst at Oppenheimer & Co., said in a telephone interview.
“If they see a once-in-a-lifetime investment opportunity, they don’t want to be stuck in a situation where interest rates rise,” Gheit said.
Moody’s Investors Service awarded the energy company’s proposed notes an investment-grade rating of Aa1, one step above S&P.
“The company entered this period of weak oil prices with low financial leverage, competitive capital returns, and a more restrained approach to shareholder rewards compared to its peers,” Peter Speer, Moody’s senior vice president wrote in a note to clients. The sale will help sustain “the company’s liquidity while it funds major capital projects through this period of low oil prices.”