You have no idea what it takes to start and grow an oil company. To get the funding to buy leases etc. To get the funding to get rigs. You’re just being naive to suggest that smaller oil companies can go out of business and then others will just replace them once the price comes back. A small producer may take years to get to the point they are before your bankrupt scenario. It ain’t like owning a fence building company or something.
You are right that I don’t know what it takes to start an oil company, but when I look out as an investor, I see small companies that started up around 2009-2011. I haven’t done a survey, but I would think there are many companies that started around that time. I doubt anyone but the biggest could survive the downward slide since the 70s. So, clearly there are people who take the risk when they see an opportunity.