Is this possible?

[kerryxeg]

The boom and bust cycle is an interesting topic in itself. I've spoken to people who are very knowledgable on the subject and are basically employed to mitigate the effect. In short it is related to the industry cycle process, the global nature of the hydrocarbon supply and demand market and basic economics. The industry actually does quite a lot to manage the peaks and troughs. For example many producers are also refiners.

When you do field economics before sanctioning a project, it is normally tested with some very pessimistic forecasts. Smaller companies tend to be less pessimistic than the bigger companies ie. Are willing to take on more risk or live with a lower return. We have seen that in the North Sea as the bigger companies have moved out and been replaced.

Boom and bust exists in most commodity markets but the oil industry is more extreme due to the cycle times and the level of investment required. The impact is further ranging because a large percentage of any development cost is spent via rental services such as rigs and service companies. This results in higher costs when times are good and supply is short and maximum flexibility ie no cost to the operator when cash is short and developments are not required. The cycle time of several years acts to amplify the impact on the rig market in particular, due to over supply coming off a peak and lack of demand as longer term commitments are used in preference to new contracts.

The industry does quite a lot to mitigate the boom bust cycle, but it is a very competitive market, even in boom times an operators share price will be base on their relative metrics to competitors, not just return on investment, production etc. if an operator doesn't get the balance right, they will end up being taken over by someone who can afford to invest or can manage the assets better.

The mining industry is quite similar in terms of commodity fluctuation, and I suspect it has a similar but less obvious impact on suppliers. Milk is a good example of an industry with short cycle time and continuos low prices. I'd like to see farmers get more for milk, and I'd like to pay less for fuel, but I am always amazed that both cost a similar price to produce. I'm not going to start on bottled water......... It's a funny world.

[campbell]

BP shedding 600 in UK.

Petrofac losing 160 too I think.

http://www.bbc.co.uk/news/uk-scotland-s ... s-35291874