The new strategy is, in effect, maintaining dividends by returning part of capital. It is clearly not a very sustainable strategy.
It will take a while for these cut-backs in Capex expenditures to find their way through to oil output, but it could very well start in a year or two. This is disturbing.
What we are seeing now is a cutback in what companies consider “economically extractable oil”–something that isn’t exactly reported by companies. I expect that what is being sold off is mostly not “proven reserves.”
In this talk, it looks like lack of sufficient investment is poised to bring the system down. That is basically the expected limit under Limits to Growth.
In theory, if an expansion of China’s oil demand does bring oil prices up again, it could in theory encourage an increase in drilling activity. But it is doubtful that economies could withstand the high prices–they are already having problems at current price levels, considering the continued need for Quantitative Easing to keep interest rates low.
A recent news item was titled, G20 Finance Ministers Agree to Lift Global Growth Target. According to that article,
Mr Hockey said reaching the goal would require increasing investment but that it could create “tens of millions of new jobs”.
The cutback in investment by oil companies is working precisely in the wrong direction. If these cutbacks act to cut future oil extraction, it will bring down growth further.