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With scant assurance that oil prices will rebound, the world’s oil majors are retreating from big projects and divesting from their oil and gas reserves.

In July, British oil giant BP sold its stake in Prudhoe Bay to Texas-based energy firm Hilcorp. Although the sprawling region remains one of the most productive oilfields in American history, and BP had been operating there since 1977, the supermajor even offered the smaller firm a loan to help ensure the deal’s closing. BP is no outlier, as big oil and gas firms are increasingly looking to sell off their resources and cut down on investments.

Oil industry profits have been dealt a blow by COVID-19 lockdowns, but even before this, investors were growing uncertain about big projects. The pandemic brought visions of stranded assets into sharper focus. Both BP and Royal Dutch Shell said last month that they would take write-downs on assets of up to $17.5 billion and $22 billion, respectively. The goal of most oil majors now is to hold only the cheapest, cleanest reserves, capable of withstanding price swings and climate regulations.

Lately the price of Brent crude has hovered at just over $40 a barrel. This makes about half the world’s oil reserves too costly to produce, The Economist reports. How much oil prices will rebound once demand picks up is a matter of debate. America’s ExxonMobil, for one, is holding to its belief in oil and gas and has no plans for write-downs. BP and Shell, on the other hand, have revised their forecasts for the price of Brent downwards. Shell puts it at $40 a barrel in 2021.

The outlook is a bit different for state-owned oil firms, whose prices are high enough to justify drilling, but still too low to balance national budgets. In many places, production costs are simply not worth the expected returns. Even with Brent at a more optimistic $60 a barrel, only 42% of reserves in Canada can be produced, for example. At $40, this drops to 16%.

The oil majors have been successful in cutting costs: For ExxonMobil, Shell, Total, Chevron and BP, the average oil price needed to cover capital spending and dividends in 2019 was less than half what it was in 2013, according to Goldman Sachs. Some of the giants are also slowly shifting to cleaner energy as environmental restrictions loom.

For big oil the need remains to focus on the most promising, least-risky projects, and to shed the rest. The trouble is, it can be difficult to calculate risk amidst change, and fruitless to sell when demand is uncertain. The market is also crowded. Excluding shale and oil sands, Rystad estimates that reserves equivalent to 12.5 billion barrels of oil were up for grabs in June.

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