Accounting Memo

MEMO R AN D U M

TO: KING SALMAN

FROM: STUDENT NAME HERE

SUBJECT: PRODUCTION RECOMMENDATIONS

DATE: NOVEMBER 18, 2015

Due to the low prices of oil and the high cost of production, the outlook on

breaking even is not promising. As you know King Salman Saudi Arabia is one of

the richest countries in the world. The weakness that we have is our heavy

reliance on the oil market. We are currently bleeding revenue and the rate that

we are cutting through it, we will be drain our reserves by the year 2018. (Wells,

2015) We are currently earning enough to produce, with a production breakeven

price of $21bbl. With over 80 percent of our countries revenue dependent on

exports, something must be done. (Wells, 2015)

My recommendation is that we slow production and start to cut cost of

over 100 billion dollars. This will give us time and help us to stop draining our

reserves. The price of oil and its current uncertainty is nothing to bet on. I

suggest that we slow production and revaluate each quarter. Although we are

seeing a decline in other producers in the oil market. Some companies have

even gone bankrupt. Shrinking our overall competition. The uncertainty of the

market is what makes us vulnerable for potential future problems. Although we

do have high reserves that other countries do not, we must start planning ahead

for the future. We must also start to look at other outlooks on the future of the oil

markets. Saudi Arabia for years has been the leader in controlling the oil market.

2

When we move they move, in respect. We need to look at possible outcome as if

we where not the leader in the oil market. If oil prices don’t rise above our

breakeven point with the next three years we will have completely depleted our

budget and will no longer be able to depend solely on oil exports to fund our

government. I understand that we are trying to prove a point and weed out the

competition in the market, but we must start to think of future plans. The plan of

cutting others out of the market could backfire and cause other to establish

themselves, making it harder in the future us to control the market. (Moshinsky,

2015) Cutting production would allow for the price of oil to rise and reestablish

some of the reserves that we have lost. It would also allow us to be able to help

stop selling bonds, which is something that we could us in the future. In my final

remarks I continue to urge you to slow production and look at the future.

Continuing to try to squeeze out our competition could cause long lasting affects.

Who is to say that we will have control of the market in 3 years. (Cunningham,

2915) I understand by doing this we will open the doors for others to establish

themselves, but I think that we are better off staying strong. We are the leader in

oil, but we are also dependent on exports. If some of our leading importing

countries fell on hard time we could see an additional decline, hurting us even

more.

So as I close my recommendation is to slow production and let the price of

oil rise and allow for our reserves to be replenished. I will be glad to discuss this

recommendation with you further at a later time.

3

i

WORKS CITED

Cunningham, N. (2915, August 26). Why Saudi Arabia Won’t Cut Oil Production. Retrieved from http://oilprice.com/Energy/Energy-General/Why-Saudi-Arabia-Wont-Cut-Oil-Production.html Moshinsky, B. (2015, November 9th). Saudi Arabia's mission to blow everyone out of the oil market isn't over yet. Retrieved from http://www.businessinsider.com/saudi-arabia-has-no-plans-to-cut-oil-production-2015- 11?r=UK&IR=T Wells, N. (2015, August 26). Saudi Arabia hangs on with cheap oil—but for how long? Retrieved from http://www.cnbc.com/2015/08/26/saudi-arabia-hangs-on-with-cheap-oil-but-for-how-long.html

4