The oil industry may be in the midst of entering a new phase of high costs and slower growth. New oil discoveries are harder to come by, and the scramble to replace depleting production is costing more and more. The days of the large discovery that is easy to tap into are gone. Now, the industry has to go to the ends of the earth to get more oil. And for years, the majors were happy to do so – capital expenditures rose significantly over the last decade for most of the largest oil companies. But the main problem? Production for many of them has not increased in a corresponding fashion.

Now, instead of blowing evermore cash on boosting booked reserves, several oil companies are pulling back in order to shore up profitability. That means passing on huge projects, divesting from underperforming ones, and focusing on core assets. Much of the cash raised will then be returned to shareholders in buybacks or dividends to prop up their stock prices. This shift to a conservative approach was evident in the most recent earnings season.

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Shell made the most headlines by scrapping its Arctic program (for 2014 at least), selling off a $1.1 billion stake in the Wheatstone LNG project in Australia, and selling $1 billion of assets in an offshore oil project in Brazil. Last year it wrote down $2 billion for a gas-to-liquids facility in Louisiana. Most recently, Shell informed Canadian regulators that it will stop work on a proposed oil sands mine in Alberta as it reevaluates “the timing of various asset developments with a focus on maintaining a competitive business and successful delivery of near-term growth projects.” It also announced plans to sell off assets in the North Sea. All told, Shell plans on divesting $15 billion over the next two years. This is because production slipped 5% over the last year despite huge spending.

Chevron is also divesting some assets to improve its balance sheet, although not to the degree of Shell. Its oil production declined 3.5% in 2013 compared to the year before, and it posted negative free cash flow for the year. It’s cutting its spending by 5% to reduce cash flow pressure. CEO John Watson said that 2014 will be its peak year for its LNG spending after two major Australian projects near completion. But, despite the trouble, Chevron is still investing $40 billion in 2014 in an effort to increase oil and gas production by 25% by 2017.

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BP wrapped up a massive divestiture plan last year, to the tune of $38 billion. Its situation is unique in that its overwhelming motivation was to pay for the historic Macondo well blow out in 2010 and all the legal mess that followed. Yet, BP may continue shedding assets to raise cash and cut costs. Fuel Fix reports that BP may sell an additional $10 billion in assets by 2015. The asset sales cut production for the oil giant, which fell 1.9% in 2013. BP also expects production in 2014 to continue to fall. It posted a 30% decline in fourth quarter profit, although BP’s CEO thinks its remaining assets are in good shape.

In this new era of difficult oil, major oil companies are selling assets in order to operate leaner and smarter. This makes sense. Throwing billions of dollars at projects that fail to live up to their billing is not a recipe for success. The flip side is that the failure to find and book new reserves means that many oil companies face an uncertain future as their current production levels slowly decline and they decline to invest in new fields.

By Nicholas Cunningham of Oilprice.com