Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Well, Big Oil's third-quarter earnings season wasn't completely terrible -- which makes it a relative success.

All five of the largest Western oil majors -- Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell Plc, BP Plc, and Total SA -- beat earnings estimates. That hasn't happened for the entire group since the first quarter of 2015, according to data compiled by Bloomberg.

What really matters, though, is cash. And here, there were also signs of real progress being made -- along with a realization that there is still a ways to go.

The majors' main objective is simple to define and fiendishly difficult to reach: cover their capital expenditure and dividend outlays with cash flow from operations. In other words, be self-funding and stop running up debt.

In the third quarter, their collective free cash flow (after dividends) was still negative, to the tune of $4.4 billion. That's a big improvement compared to earlier in the year, although still a bigger a deficit than this time last year:

Big Oil (Fire)
As a group, the majors have burned through $61 billion in the past year -- but the rate is slowing sharply
Source: Bloomberg, the companies.

Within this, there are some real successes. Royal Dutch Shell, which reported on Tuesday, made more cash from operations in the latest quarter than in the previous three combined, just about covering capex and dividends. Chevron, meanwhile, was still negative in terms of free cash flow. But, at $1.95 billion, the gap was the narrowest in two years (plus, lest we forget, Chevron's got that whole Permian shale thing going on).

Exxon also cut its free cash flow deficit, to just $1 billion, but this was somewhat overshadowed by its warning about a potentially huge de-booking of reserves. BP, meanwhile, turned in cash flow from operations that was down by about half from the same period last year; causing cash burn to accelerate. As for Total, it had the highest free cash flow of all -- but mainly because it has resorted to scrip dividends.


As fellow Gadfly Chris Hughes points out here, even Shell's surprisingly good results leave it with a pile of debt. And Shell isn't alone. The most striking change over the past year has been in the condition of Big Oil's balance sheet, where leverage overall has jumped by a full 8.5 percentage points:

This Can't Go On
Big Oil has piled on debt to fund dividends and capex over the past year
Source: Bloomberg, the companies
Note: Net debt divided by (net debt plus shareholder equity).

With oil's latest rally having foundered on the reality of OPEC's deep divisions, closing Big Oil's funding gap completely will require even greater efforts. Balance sheets are running out of room to just keep taking the strain in the meantime.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Liam Denning in New York at

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Mark Gongloff at