Big Oil Eying Strong Comeback

After a heart-stopping plunge in the price of crude over the last two years, along with slashed dividends and the elimination of tens of thousands of jobs, the biggest oil companies are proving surprisingly adept at again pumping profits, as well as oil, out of the ground.

Indeed, with oil trading in a range of $40 to $50 barrel for most of the 2016, experts say the biggest energy producers are poised to rebound if prices remain stable, CNBC reported.

"It's a hunger games environment, but they are learning how to be more efficient," said Evan Calio, an equity analyst with Morgan Stanley. "Two years ago, nobody thought costs could drop as quickly as they did. It's staggering, and there's no doubt this has surprised people."

Over the last 12 months, drillers have eliminated nearly 20,000 jobs in the United States, according to the Labor Department, and Morgan Stanley expects domestic oil production to finish 2016 half a million barrels below where it started. Deepwater drilling has been curtailed in places like the Gulf of Mexico, as have multibillion dollar projects around the world.

But if crude prices can stay above $40 a barrel, the dividends, and stock prices, of the big American oil companies should be secure. And if oil stays above $50, or even hits $60 in the coming months or years, Big Oil may well emerge from the recent lean years stronger than ever.

"Whoever survives this is going to win," said Michael Rothman, a veteran oil analyst who is president of Cornerstone Analytics, a New Jersey-based research firm. "They're going to come out smelling like roses."

What is more, the big pullback in exploration has caused a steady drop in the cost of completing those projects that are still underway, as prices for steel, drilling rigs and other services have plunged.

That should enable major energy firms to take advantage of economies of scale and increase their profit margins further.

"Capital spending has come down massively, and majors have taken a lot of the fat out of their organizations," said Neil Mehta, who tracks the North American integrated oil and refining industry for Goldman Sachs.