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shvetsov2005 · Joined: 30 Nov 2005 Posts: 115

Clearly, the industry faces more uncertainty than it has at any time in the past decade. This uncertainty�and the accompanying volatility�will probably continue for some time. Given these conditions, there are three possible outcomes. In the first, capital discipline could slip in the core business while investment in alternative technologies increased. The result would be excess capacity and below-cost-of-capital returns across the value chain.

Could you explain in simple words what do they mean by:"capital discipline could slip in the core business while investment in alternative technologies increased" and "below-cost-of-capital returns "?

Alexander

ClarissaMach · Posted: Fri Jun 02, 2006 9:55 am Post subject:

Are you trying to translate that article "Capital discipline for Big Oil"?

I'll read and try to understand!

(By the way, China has just made some deals with Brazil concerning oil, did you know that?).

Clarissa Alves Machado.

shvetsov2005 · Joined: 30 Nov 2005 Posts: 115

No, I don't translate "Capital discipline for Big Oil". That's analysis from a counsulting company on sky-rocketing oil prices taken from its website. I am not familiar with expression "capital discipline" and don't know the econimic meaning of "below-cost-of-capital returns".

ClarissaMach · Posted: Mon Jun 05, 2006 12:13 pm Post subject:

Well, shvetsov2005, I asked that because when I read your post, I had a feeling that that phrase belonged to an academic article. So, I looked for it on google and I found the article "Capital discipline for the Big Oil".

I'm not totally sure, but from the context of the article, I believe that "capital discipline" is related to long-term investments. The article's autor criticize the fact that the Big Oil Industry usually makes huge investments during times when the price of the oil barrel goes up.

The problem is that the price of the oil barrel is always shifting; for this reason, the article's author believes that the Big Oil Industry should "discipline" its investments. That's what he calls "capital discipline".

About "below-the-cost-of-capital returns", I believe he's talking about investments whose returns are below the cost of investing... i.e, once more he's criticizing the fact that the investments made during "the good times" aren't worth at all.

Clarissa Alves Machado.