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November 15, 2019  

Oil Giants Explore Bonds Backed by Reserves

Some of the world’s largest oil companies are looking at securitization.

Sources said Chevron, Exxon Mobil, Lukoil and their peers have spoken to bankers and rating-agency analysts about the potential deals. Lukoil, for example, is considering an offering of up to $1 billion that could hit the market by midyear 2020.

While the exact structures of the offerings remain uncertain, what’s known is that the issuers would use them to monetize their untapped petroleum reserves. The companies apparently would pledge revenues from the eventual sales of the oil as collateral.

The securitization proceeds would fund exploration and development efforts, as well as purchases of rights to tap additional reserves. Some of the capital also could replace unsecured debt.

Why the sudden interest in starting asset-backed bond programs? Energy companies are still recovering from a 2014 collapse in oil prices, and as such face elevated financing costs in the corporate-debt market.

At the same time, oil and gas reserves have been growing, creating a tempting source of securitization collateral. Proven crude-oil reserves in the U.S. grew 19.5% to 39.2 billion barrels in 2019, according to the U.S. Energy Information Administration. Proven reserves measure the estimated quantities of crude oil that have a high degree of certainty of existence and viability for economical extraction. Oil companies typically pay landowners or host countries for the rights to tap the reserves.

Lukoil, for example, had untapped reserves equivalent to 12 billion barrels of oil at yearend 2018 — much of it in Siberia.