Article at a glance:

Capital discipline for Big Oil

• Since 1998, the oil and gas industry has enjoyed its longest period of value creation in 40 years. Oil executives must now decide whether the industry's economics have changed fundamentally or whether they are now seeing yet another in a long series of bubbles.
• Companies that invest on the assumption of a permanent structural change in the industry's economics run the risk of driving down prices and precipitating a market collapse. If a structural shift really has occurred, however, companies that hold on to their cash or return it to shareholders could miss a rich opportunity.
• Although the industry has historically invested aggressively when prices are high, wise executives will make their plans on the basis of capital discipline, focused M&A, and divestitures. In addition, they should shift their focus away from volume-based metrics and toward measures of true value creation.