Prepare a sell vs. process further incremental analysis for each possible production outcome

You are a Logistics manager for VKT Corp., and energy extraction and production company. An oil well in the company's portfolio is generating 10,000 barrels of crude oil per day in excess of present sale commitments. The crude oil can be sold as is on the commodities markets, or refined and converted into other products which may be sold for higher prices, and potentially be worth more. You have been assigned to determine the company's best course of action. You are a Logistics manager for VKT Corp., and energy extraction and production company. An oil well in the company's portfolio is generating 10,000 barrels of crude oil per day in excess of present sale commitments. The crude oil can be sold as is on the commodities markets, or refined and converted into other products which may be sold for higher prices, and potentially be worth more. You have been assigned to determine the company's best course of action. VTK's Refining Process and Market Summary Crude Oil The company is producing 10,000 barrels of oil per week in excess of existing commitments. These barrels can be sold as is on the spot market for $59.65 per barrel. (1 barrel = 42 gallons) Refining Refining the crude oil requires heating and distilling it at a cost of $5,600 per week for the entire excess production. After basic refining, the crude oil is gone, but there are 46,000 gallons of butane, which can be sold for $1.43 per gallon, 198,000 gallons of naphthalene, which can be sold for $1.56 per gallon, and 60,500 gallons of kerosene, which can be sold for $4.02 per gallon. A vacuum distiller can also be run (at an additional cost of $1,800 per week) that will yield 115,500 gallons of heavy gas oil, for which there is currently no market. This by-product is lost if the vacuum distiller is not run. Further processing All of the butane can be treated to convert it into 44,800 gallons of propane. Propane can be sold for $1.54 per gallon, and the conversion process costs $1,900 per week. All of the naphthalene can be isomerized and blended to convert it into 193,900 gallons of gasoline. Gasoline can be sold for $1.48 per gallon, and the conversion process costs $1,700 per week. Kerosene can be sold for $4.02 per gallon. Alternatively, all of the kerosene and all of the naphthalene can be run through a hydrotreater at a cost of $2,600 per week to produce 257,500 gallons of diesel fuel, which can be sold for $1.99 per gallon. In this case, since the naphthalene is used, no gasoline production is possible. Another use for the kerosene is to run it and the heavy gas oil through a hydrocracker (at a cost of $800 per week) to produce 174,700 gallons of heating oil, which can be sold for $1.34 per gallon. Sell vs. Process Further - Butane/Propane Sell Make butane propane 65,780 68,992 (1,900) 65,780 67,092 Revenues Expenses Net income Change in NI 3,212 (1,900) 1,312