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Energy companies with a ‘junk’ credit rating are succeeding is selling more bonds, as investors regain their appetite for risky corporate debt — ending the freezing out of smaller oil groups from capital markets.

Lowly rated companies in the oil and gas industry have sold more debt in May and June than in the preceding 11 months combined, and investor demand for two deals last week was so strong that bankers underwriting the transactions were able to increase both by 50 per cent.

But while the door has slowly reopened to the sector, investors remain reluctant to extend financing to the weaker oil and gas producers as fears persist over the sustainability of $50-per-barrel oil. Recent bond sales have been clustered in branches of the energy industry with less direct exposure to the movement of crude prices: pipeline owners, oil services companies and groups controlled by sovereign governments.

“$50 oil seems to be a rather nice number in today’s market to take fear out of bondholders regarding their positions,” said Richard Smith, head of leveraged debt capital markets at Mizuho. “If you are a weaker triple C credit with a lot of leverage and some hair, yes you’ll face some problems. But the higher quality names now do very well.” 

Brazilian oil major Petrobras, liquefied natural gas export plant operator Cheniere Energy and oil services company Weatherford International are among the handful of groups to have successfully issued debt as yields have fallen. Six companies have completed bond sales since the start of May, raising nearly $12bn, according to Dealogic.

Bankers expect several other companies to tap debt markets in the coming months, as energy groups replace bank loans with more permanent financing. Banks have been cutting back reserve-based lending as the value of oil and gas assets has fallen over the past two years.

“Issuers have learnt that an overreliance on RBLs can be a disaster for a company,” said David Alterman, Credit Suisse co-head of North American leveraged finance origination and restructuring. “If you look at all the big bankruptcies, they had one common characteristic, large RBLs and drawn balances that created a mess.”

Rising defaults in the sector have been widely telegraphed to investors and bankers say fund managers have a better understanding of which companies to avoid. Roughly 40 per cent of global defaults this year have stemmed from the US oil and gas industry, Standard & Poor’s estimates.

But investors are mindful that oil is likely to remain volatile over the coming months and that the recent stabilisation in prices could prompt more producers to bring rigs back online. On Friday Baker Hughes, the oilfield services company, reported a second consecutive weekly increase in the number of rigs drilling for oil in the US, contributing to a 3 per cent drop in the price of benchmark West Texas Intermediate crude.

“If you want a 7 or 8 per cent return, energy is the place you can still find that,” said Sabur Moini, a high-yield portfolio manager with Payden & Rygel. “We are still a little cautious and haven’t bought into the fact that this is sustainable. It is very fluid and tough to say the worst is over.”