Business Case 2 – Oil & Breakeven (Assignment)

QUESTION

Case 2 – Oil & BreakevenRead the article “Diverse Opportunities and Risks”.Other information that may be helpful:, Note:1) The nominal cost of oil production for Saudi Arabia – $21/bbl; Middle East – $24/bbl; North America – average $60/bbl with a range of $28/bbl to $85/bbl.2) Saudi Arabia has little extra capacity.3) There is far more oil in the rest of the world than there is in the Middle East. It is more expensive to produce, but the cost is getting lower due to more efficient operations.4) Assume that Saudi Arabia no longer has total control of oil prices.6) The price of a barrel of oil was $45.89 on Oct 20, 2015.7) The price of oil had been above $100/bbl for a number of years. The one-year forecast was $52/bbl on Oct 20, 2015.8) The breakeven amounts shown in the article are not the breakeven point to produce, but the breakeven needed to balance their budget.5) External debt is debt owed to non-residents.You are an advisor to Saudi Arabia. Using what you know about breakeven, write a memo to the King Salman describing ways to make more from their oil given the constraints above. Make a recommendation on whether or not they should produce all they can now or to cut back.The banks in the article are telling the Middle East oil producers to diversify. You do not need to discuss that part of the article. You also do not need to discuss the possibility of reducing their fiscal budgets.Note: There is no right or wrong answer to this assignment, but your argument should make sense. You can use other sources for your argument, but you must cite them.Your report should be aminimum of 2 pagesinmemorandum form. Docstoc.com gives instructions on how to write a memo and other business correspondence. Memo templates are also available in Word (while in Word click on F1 and search for memo). Always start with an introduction to the topic of the memo and a little background. When using a template, delete any line items such as CC you are not using.The memo must include the following components:1) Identify the problem of opportunity. (This is true even if you have discussed the topic with the person you are sending the memo to).2) Compare alternatives using financial and non-financial information. Financial information does not need to include actual dollar amounts, it could be savings etc.3) Develop and present an argument.4) Formulate a recommendation. Consider implications and consequences of the recommendation.

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