Gloom & Doom.
If you read through the pages of the media all is gloom & doom as the oil industry reels from low prices caused by supply glut caused in part by a big slow-down in the global economy coupled with the refusal of any producing bloc to agree to cut back.
The details are much more complicated than that but in general that's a pretty accurate overview of what's going on right now.
At this point you might as "We're still drilling?" and the answer to that is "Yes, we are." Although it's at much lower levels than it was in a high-price environment. There are many reasons why a company might still be increasing production during a price environment such as this, lease obligations, sunk costs, contracts, marketing obligations, pipeline obligations etc. but a large part of it is that continued growth acts as a hedge to bottoming stock prices.
In short, market analysts expect companies to increase production at certain rates. Failure to hit these rates is generally seen as a "bad thing" in terms of market share and can result in the price of a company's stock free-falling.
The problem, as I see it, is when the cash-flow needed to continue development develops a conflict with the cash-flows needed to continue dividends to shareholders. Some companies will kill the dividend, some companies with kill growth. Both options will have a negative drag on stock price initially, but I believe that stopping development would be more beneficial to the long-term health of the market than would ending the dividend.
Granted, there is some development that companies cannot avoid. For example, most processing contracts with plants come with minimum volume requirements that the plants need to maintain efficiencies, the same goes for transportation contracts and pipelines. The operators of both the pipelines and the plants don't want to see their volumes reduced because it hurts their profit margins (their profit is based mainly on fees and tariffs, not on commodity price [plants are more sensitive to price fluctuations than pipelines, due to processing allowances etc.]). Because of this they have no incentive to work with producers to cut down on volumes.
Royalty owners (private) want to see more production as well. Already most private royalty owners are seeing their checks cut by almost 2/3rds from 2013/2014 levels. For most seniors living on a fixed income this is quite the shock to the system. The only way to hedge against this is for companies to continue drilling on their leases. However, owners of non-developed leases should be OK with companies waiting until higher margins can be found.
Finally, governments (yes, even the Federal Government) are pushing for increased production. State and Federal coffers are losing revenue to the point that they're seeking to re-write the rules to punish companies during market downturns and hedge their revenue from price fluctuations. In short, the Government still thinks that oil and gas royalties are annuities. As such they're writing new rules and leases (including Texas FWIW) which could serve to further retard exploration on government lands even IF the price returns to $50-$60/Bbl since they would make other opportunities more profitable.
I've said before that the companies who did not take on a lot of debt, and who had discipline when signing leases and agreements would have the flexibility to ride this out. Those companies who lost sight of fundamentals, or who bought high and at poor terms to get into rich areas, will shortly be paying the price. For all of the talk of bankruptcies etc. what you're more likely to see is a wave of mergers and acquisitions now that so-called "big oil" has purged it's balance sheets of non-core assets.
Yes, this will mean a loss of jobs, damage to the local real-estate markets as homes are lost and offices consolidate, but it will also mean a stronger, leaner Oil and Gas industry on the other side. While this also means that Houston Region is in for some tough times, it could be doubly tough for the City of Houston as more and more companies seek to operate in the much-cheaper suburbs.
Oil and Gas companies are currently bringing their costs in-line with a protracted low-price environment, something they have the ability to do right now because they DID learn their lessons from previous boom/bust cycles. The companies that didn't learn will soon be gone, their assets purchased by the survivors.
Remember that when you read the gloom and doom stories and the chastisements that another boom was "pissed away" because it wasn't. Anyone suggesting otherwise is telling you a lie.
*Note: As I've stated many times before: I am employed by an Oil and Gas firm in Houston. Some might call this bias, I would suggest that it's insight.
