Oil Majors Find Their Way Back to Normality

Production cuts by OPEC and allies are shrinking a global oversupply. Production cuts by OPEC and allies are shrinking a global oversupply.

Oil supermajors are getting back to their normal way of life after surviving a price slump that shook the foundations of their business, with BP Plc giving the boldest signal yet that the worst of the downturn is over.

After posting third-quarter earnings that comfortably beat estimates, shares of the London-based company surged to the highest since 2014, joining its closest peer Royal Dutch Shell Plc at a level not seen since the infamous OPEC meeting that triggered price collapse, Bloomberg reported.

“What the buyback signals is we’re back into normality,” BP’s Chief Financial Officer Brian Gilvary said in a phone interview. “We will have to continue to manage the volatility that comes with this market, but we now have a base business that can balance itself at $49 a barrel.”

Brent crude, the international benchmark, rose above $60 a barrel last week for the first time since July 2015 as production cuts by the Organization of Petroleum Exporting Countries and allies, including Russia, shrink a global oversupply.

Results from several of BP’s peers also signaled a return to growth. Total SA reported the highest profit from pumping oil and gas in more than two years, followed by consensus-beating earnings from Chevron Corp. and Exxon Mobil Corp.—with the latter posting a 50% jump in net income.

While the outlook for the industry has brightened, the heady, free-spending days of $100 a barrel are not likely to return any time soon. The deep cost cuts, mass layoffs and project cancellations that enabled the majors to live a little easier with prices closer to $50 remain in place, clouding the outlook for production growth years from now.

Still, BP’s numbers impressed analysts. Adjusted net income doubled from a year earlier, cash generation rose to near the highest since the slump began and net debt dropped for the first time in two years.

Add new comment

Read our comment policy before posting your viewpoints