Just a week after Chevron Corporation (CVX 0.75%) issued $6 billion in bonds fellow big oil behemoth ExxonMobil Corporation (XOM -0.09%) is looking to top it by raising $8 billion in debt. These companies are taking advantage of an opportunity to do something that many smaller drillers cannot, which is issue debt amid a weak oil market. That's because the market is very worried that smaller drillers won't be able to repay the debt they already have if the oil market doesn't improve by the end of the year. That's leaving smaller producers with a very expensive alternative to raise cash in the current market environment. 

Big oil bulks up
Chevron's $6 billion bond offering in late February was the largest by an oil and gas producer since the oil market began to collapse late last year. Most of the money it brought in was used to repay shorter term borrowings. However, the company decided to take advantage of what could be its last opportunity to raise capital at rock bottom interest rates. For an example on how cheaply it can raise debt right now, the AA rated company was able to issue 5-year notes at 1.9%, which is even better than the five and seven year debt it currently has on its balance sheet which carry an average yield of 2.4%. The reason it is being proactive is because those interest rates might not be available later this year not just because interest rates could be on the rise, but there are growing worries of a massive energy bond default wave to hit the industry over the next year if oil prices don't improve.

Given how well Chevron's offering went Exxon is planning to follow up with its own multi-billion debt offering. The company is looking to sell as much as $8 billion in bonds as it bolsters its balance sheet amid the continued weakness in the oil market. The company will likely follow in Chevron's footprints and use some of the cash to repay a portion of its short-term or higher interest borrowings. However, the company could also use the cash to fund its capital spending program as well as acquisitions. The key, though, is that both Exxon and Chevron still have access to cheap capital with no strings attached as to how it's used.  

Smaller producers look elsewhere for cash
Open access to capital is not a luxury that all oil producers have these days. Smaller producers, in particular, are forced to look elsewhere for cash. One place producers are going is the equity markets in order to raise cash to pay down high cost debt issued when the oil price was much higher.

We saw that this past week when Permian Basin focused driller Laredo Petroleum (LPI -0.74%)launched an equity offering to raise about $600 million. With that cash the company plans to repay its credit facility and redeem a portion of its outstanding $550 million senior unsecured notes due in 2019 that yield 9.5%. While getting those notes off its books will provide some relief, the company is issuing equity at the wrong part in the cycle as its stock is down 62% from its 52-week high.

Laredo Petroleum, however, is far from the only smaller oil producer looking to raise equity at the bottom of the market to repay debt. In another recent example a small producer whose stock is off 87% from its 52-week high issued equity in order to repay the borrowings under its credit facility. Given how far its stock has fallen it's issuing equity at what could be the worst point in the market, however, it really doesn't have any choice as the market is worried it will go bankrupt if the company doesn't pare down its debt. We'll likely see many other smaller producers turn to the equity market this year in order to ward off a liquidity crisis.  

Investor takeaway
Large oil companies don't seem to be having any trouble raising money right now. However, that's certainly not the case for smaller producers as there's a big worry that these companies could default on their debt if weak oil prices persist. That's a big reminder to investors of the risk of investing in smaller oil companies as they don't have the access to capital of bigger players. That is forcing many to sell deeply discounted stock at what could be the worst point in the market just to stay afloat.