U.S. Oil Producers Issue The Most Debt And Equity Since August

Higher oil prices and low interest rates have prompted listed independent U.S. oil producers to raise in March the most financing via debt and equity issues since August last year, the Energy Information Administration (EIA) said on Friday.

The EIA used data from industry intelligence provider Evaluate Energy and found that the listed U.S. firms issued a total of $4.4 billion in debt and equity last month. This amount was the highest since August 2020 and higher than the five-year (2016–2020) median of $2.4 billion, the EIA said.

The administration, however, warned that the findings of its analysis may not be indicative of the whole U.S. oil industry right now because private companies do not have to report their debt-raising moves.  

The two key reasons for the highest debt and equity issuance in seven months are the higher crude oil prices and the low interest rates.  

“Since crude oil prices began increasing, U.S. crude oil producers have been raising debt and equity to refinance debts, resume drilling activities, or purchase acreage,” the EIA said.

In addition, low-interest rates have lowered the cost of debt and have likely contributed to the recent growth in debt and equity issues, it noted. The Fed has held the federal funds rate, which affects interest rates across the market, at a target of 0.00 percent to 0.25 percent since March 2020.

Those historically low-interest rates give additional incentives to U.S. shale drillers to raise new debt and to refinance existing liabilities. Currently, it’s as cheap for the U.S. energy sector to raise new debt as it was seven years ago, when oil was $100 per barrel, according to Bloomberg Intelligence.

“Many may not be able to resist the siren song of historically low-interest rates,” Bloomberg Intelligence analyst Spencer Cutter wrote in a report last month.  

Low corporate bond yields have also contributed to lower interest rates on new bonds and reduce the cost of issuing debt, the EIA noted.

“Although primarily a result of higher crude oil prices, high capital availability for U.S. producers also supports EIA’s forecast for U.S. crude oil production to increase from 10.7 million b/d in first-quarter 2021 to 12.2 million b/d by fourth-quarter 2022,” the EIA said in its April Short-Term Energy Outlook (STEO).