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Permalink Reply by Dan on December 19, 2012 at 12:58pm

I was in Alaska in the mid 90's when oil had hit it's 2nd low that decade.  The state anounced the stop of their reverse tax (paying the residents, not taxing them).  Not a happy time in Alaska.  If I remember correctly it droped to $12.80 a barrel and a gallon of gasoline here in the tri-state was $0.99.     

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Permalink Reply by Brian Powers on December 20, 2012 at 3:04am

pumpjack -

When I joined the industry in 1982, oil was about $30.00/bbl. Over my 30 years in the patch, I saw oil drop to ±$9.00/bbl after the '86 crash and peak at ±$145.00/bbl in 2008

 

Short term dips and peaks in prices are common. The economic cycle for most oil/gas development projects exist over years, not well to well. Full project cycle economic simulations are performed assuming variations in product prices, material costs, rigs/services costs, material costs, etc,reserve and production rate sensitivities, etc.  as well as variations in the cost of capital (interest rates) for companies who do not self finance.

 

In my experience, short term price dips do not cause a reduction in activity, unless the annual budget is already stressed, the teams are continuing to demonstrate a lack of learning or are compromising safety, etc.

Many of our contracts were long term and we were on the hook for services whether used or not. Notification periods were required to suspend or cancel contracts.

Brian

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Permalink Reply by Jim Litwinowicz on December 20, 2012 at 4:02am

The oil boom/bust cycle has been around since the oil industry started.  Its such a well know phenomenon that it is one of the basics taught in Econ 101. It is the epitome of supply and demand economics. When everyone is convinced that oil will not fall, they over produce ....and it falls.

To quote Heart....stay 'tooned!

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