Oil & Breakeven
The oil prices are constantly falling as the cost of oil production is coming down. The fall in oil prices has impacted negatively on Saudi Arabia economy as it tries to wage war on price control. Drastic changes must be put in place soon if Saudi Arabia has to remain as the oil-producing giant.
The following memo was written by a financial advisor to the Saudi Arabian King advising him on the ways of how to make more from oil despite the financial constraints affecting his country.
SUBJECT:Increasing oil profits
DATE:3rd Nov 2015
The purpose of this memo is to give financial on the ways to increase income from the oil and to give recommendations on the quantity of production of oil under the financial constraints.
This memo outlines the problem facing oil production in the Middle East countries, most specific to Saudi Arabia. It gives alternatives to oil production and ways of reducing the cost of oil production in the country. Recommendations on the best production modalities to be undertaken are also given.
Saudi Arabia is facing oil crisis as the constant fall in oil prices is gnawing at it economy as it depends entirely on oil production. Saudi Arabia has been trying to kick the American oil producers out of the market by flooding the market with cheap oil but this has not yielded fruits as the cost of oil production is alarmingly high.
On a move to save the struggling economy, Saudi Arabia has increased the crude oil by $1 per barrel, a move that is likely to drive potential customers away to cheaper producing countries. India, which was a major importer of Saudi oil, is now turning to Nigeria and Venezuela for cheaper oil. This has further impacted negatively on Saudi Arabia’s economy an impression that the country might be on its way to losing its own battle on oil price regulation.
Saudi Arabia’s policy of high levels of oil production has rendered most oil producing countries in the North America bankrupt, but this has led to this companies being acquired cheaply by giant producers hence making available cheaper production grounds for these companies hence flooding the oil market. This has led to falling off the oil prices beyond Saudi Arabia’s expectations.
Saudi Arabia is likely to lose in the oil market soon unless drastic changes are made on its policies and modalities of oil production.
High levels of production will impact more negatively on the economy of the country. Alternative oil production measures must be taken to leap more from the available wells and avoid drilling more wells which have been proofed to be costly.
Use of advanced technology has been seen to reduce production costs in oil. Saudi Arabia should embrace advanced technology in oil production to cut down on the production costs so as to gain more from oil. Using one site to drill multiple wells incur minimum costs with much more production. This method should be adopted by the country and do away with old production methods.
Investing in alternative sources of energy and oil products is more profitable. Natural gas and other energy sources have not flooded the market and the country can make a great leap by investing in this market.
I recommend that that Saudi Arabia should cut on oil drilling and embark on new technology in producing more oil from the existing wells. I also recommend on producing new products from oil such as gas to increase income from oil production. Restructuring oil producing policies is recommended to ensure proper and up to date policies that adapt new technology in oil production.