Big oil, small short

2 minute read

Oil shares have rallied hard as the sector has monetized Russia's invasion of Ukraine.

We highlight the large differential between Exxon Mobil (XOM US) equity dividend yield and two-year bonds, suggesting that the bond side can be used to ‘fund’ equity shorts and associated name-specific climate change mitigation engagement.

As oil majors have successfully monetised Russia’s invasion of Ukraine, their stock prices have been on a relentless rise. But even with efforts to channel idiosyncratic cashflows to shareholders, dividend yields have in many cases fallen dramatically, as we illustrate is the case for XOM US.

Simultaneously, short-end rates have gone up significantly and oil bond spreads have remained stable. This has resulted in dividend yields that are far inside short-dated corporate bond rate yields. Framing such capital structure dislocations can be interesting from a climate impact exposure angle.

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