Supermajors Dig Out of Doldrums as Cash Poised to Surge

Big Oil’s struggle against crude’s collapse is starting to ease, giving some companies enough cash to pay shareholders without piling on more debt.

The world’s five biggest non-state oil producers, known as the supermajors, probably increased cash from operations by a combined 67% last quarter from a year earlier, according to HSBC Bank Plc analysts Gordon Gray and Kim Fustier. That may allow some to cover dividends and capital spending without borrowing for the first time since 2012, they said, Bloomberg reported.

In the past three years, Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp., Total SA and BP Plc have canceled billions of dollars of projects, dumped thousands of jobs and amassed towering debts to weather crude’s decline. While prices are still half their 2014 level, a partial recovery, coupled with spending cuts, contributed to “sweet-spot” conditions in the first quarter that probably drove up earnings, according to Morgan Stanley.

The “macro environment was favorable for the majors during the first quarter,” said Martijn Rats, an analyst at Morgan Stanley in London, citing higher prices and resilient refining margins. “In addition, cost reductions are still coming through,” helping bring a “significant improvement in net income,” he said.

The five companies combined are expected to more than double first-quarter net income, according to analyst estimates compiled by Bloomberg.

Chevron will return to profit while Shell’s earnings will rise to a seven-quarter high, the estimates show. Exxon, Total and BP may post their biggest profits since September 2015.

The big five oil producers also operate refineries and petrochemical plants, giving them a safety net during crude’s downturn when earnings from oil and gas production sank.

Refining margins rose during the worst of the slump as the cost of the raw material -- crude oil -- fell while demand for fuels stayed strong. Margins have since narrowed but remain buoyant.

Yet doubts remain. Oil’s recovery has stalled this year as a revival in US shale production threatens an attempt by the Organization of Petroleum Exporting Countries and its allies to eliminate a global oversupply.

Although benchmark Brent crude rose more than 50% last year, prices are down about 9% in 2017.