Investors rush to US oil and gas bonds as energy prices boost finances

Investors rush to US oil and gas bonds as energy prices boost finances

Investors are loading up on the debt of US oil and gas companies, lured by their ability to generate cash again as energy prices soar.

Funds now hold overweight positions in high-yield energy bonds compared to a benchmark index, according to Bank of America Global Research. This means that, instead of simply trying to track the proportion of energy sector bonds in the index, investors are choosing to own much more.

Investors’ appetite for energy bonds comes as crude oil prices stage a ferocious recovery, more than doubling since late 2020 to $90 a barrel, their highest in seven years. Natural gas prices have also rallied.

Range Resources, a shale gas producer active in the Appalachian region, raised $500mn in January, receiving twice the level of investor demand than typical oil and gas deals, according to a person with direct knowledge of the deal.

The strong appetite for the debt helped Range cut its interest costs almost in half, with the coupon on the eight-year deal dropping to 4.75 per cent, significantly below the 9.25 per cent coupon on the debt the proceeds were used to repay.

Investors noted that since the pandemic, many financially weaker energy companies have either restructured their debt or gone