Two oil bonds for adventurous investors

Two once-bedraggled oil exploration and production firms have issued bonds that promise investors a chunky yield. But they're definitely not for the nervous, says David C Stevenson.

Energy stocks are in fighting form as Brent oil prices surge back to around $70 a barrel. This recovery is most obvious with the once-bedraggled exploration and production (E&P) players, such as London-listed Enquest and Premier Oil. These firms had a torrid few years as oil prices threatened to crash all the way down to $20 a barrel, making their main focus on expensive North Sea oil almost completely uneconomic.

Share prices plummeted and the panic also hit their bonds (see chart below). Both had tapped the retail-bond market to help fund their capital expenditure, which seemed a great idea until the oil price collapsed at which point many retail investors overreacted by selling down their bonds at ludicrous prices. Most investors in distressed debt are comfortable with the idea that recovery rates on bonds in trouble are usually somewhere between 50p and 70p in the pound. Yet at varying points over the past few years, Enquest's retail bonds have traded below 50p in the pound.

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NameEnquestPremier Oil
TickerENQ1PMO1
ExchangeLSE ORBLSE ORB
CurrencyGBPGBP
Original maturity15 February 202211 December 2020
Original coupon5.5%5.0%
Original typeFixed rate, unsecuredFixed rate, unsecured
Revised maturity15 April 202231 May 2021
Revised coupon7%6.5%
Revised typePIK toggle, unsecuredFixed rate, secured
Other revised termsExtendable to October 2023Equity warrants
FrequencySemi-annualSemi-annual
Payments15 February, 15 August11 June, 11 December
Size£155m£150m
ISINXS0880578728XS0997703250
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David C. Stevenson
Contributor

David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire. He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com

David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space. 

Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business. 

David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust. 

In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.