LONDON • From ExxonMobil to Total, the world's largest listed oil companies have sent a message to sceptical investors and rivals at Opec: We can get by in a world of US$50-a-barrel crude.
Big Oil generated a gusher of cash in the first quarter. The surge shows how a mix of cost-cutting and asset sales - plus the tailwind of new output from projects approved several years ago - helped companies to survive and then thrive with prices that were less than half what they were a few years ago.
"Oil majors have adapted to the low-price environment," said Mr Olivier Jakob, head of oil consultant Petromatrix GmbH in Switzerland.
Exxon, Total, Royal Dutch Shell, BP and Chevron reported combined first-quarter free cash flow - money they can use to pay dividends - of US$11.4 billion (S$16 billion), compared with a shortfall of US$14 billion a year earlier, according to data compiled by Bloomberg. That puts their performance in the period on a par with what they often delivered between 2010 and 2014, when oil traded above US$100.
Wall Street analysts and fund managers hailed the turnaround. Shell is a "cash machine", said Mr Jason Gammel at Jefferies Group. Mr Simon Gergel of Allianz Global Investors said "high dividend yields" are sustainable. Mr Alastair Syme of Citigroup said: "Total free cash flow gets back to US$100-a-barrel levels."
Mr Danilo Onorino, portfolio manager at Dogma Capital in Switzerland, said: "Right now is the time to start increasing exposure to Big Oil. You buy upside to oil prices, and cash generation is again strong."
For the Organisation of Petroleum Exporting Countries (Opec), the oil majors' comeback is a painful reminder that corporations can impose austerity by firing workers and cutting projects a lot easier and faster than governments can adjust their budgets.
Three years into the oil slump, Saudi Arabia, the world's largest oil exporter, still needs US$83 crude to balance its budget, according to the International Monetary Fund. While Opec, Russia and their allies consider whether to extend their output cuts for another six months in order to eliminate a global inventory surplus, their rivals are starting to invest in new production.
After slashing spending in 2015 and last year, companies are taking advantage of cheaper drilling rigs and other equipment in an effort to boost - albeit rather timidly - oil and gas production.
Despite the improvement, the major oil companies aren't yet free of their troubles, and probably won't be until oil prices rise to US$60.
Yesterday, West Texas Intermediate slid below US$45 a barrel for the first time since Opec agreed to cut output in November.
On the same day, Opec and other countries that agreed to cut crude production were converging on the need to extend the pact beyond next month to help clear a supply glut, Saudi Arabia's Opec governor said.