From Balloons in Search of Needles, by John Mauldin
I’ve read that over $1.2 trillion of scheduled Big Oil investments have been delayed or taken off the table. The majors have a depletion problem. They have to find new oil, and in size, to be able to make up their losses from reduced production from older fields. While small, independent companies can do very well drilling 10 or 20 wells at reduced costs, the majors need to find huge “plays,” which are typically in inhospitable places and cost more per barrel to pull out of the ground. $50 oil just doesn’t cut it.
Someone is going to eat those losses. Depending who it is and how big they are, we could see some sizable energy industry defaults and bankruptcies over the next year. There’s an outside chance the spillover could affect some hedge funds and make them unwind other positions. That’s how you get a “contagion” going.