Here are some ways to do it:
- Generally, a number of estimation methods are allowed: decline curve analysis (DCA), analogy, reservoir modelling, volumetric, pressure, or some combination of those methods, etc. You can cherry pick among those methods to choose the one that yields outlier numbers. The least time-consuming method is to use DCA, with Arps equations, with a high b-factor and with a low Dmin value.
- For DCA, you can use the analogy method for the underlying assumptions to “supplement” your wells’ production data with historical data that goes further back. Like #1, the optionality in methods allow you to cherry pick.
- You could use the analogy method on wells that have undergone significant capex/opex spending on enhanced oil recovery techniques. However, because you likely do not have access to those wells’ capex+opex figures, you could over/underestimate the economics of your own wells.
- In Canada, you are allowed to use commodity price forecasts that are well above the futures curve. (*Things were very different in the early 2000s.)
- You could book reserves for non-producing wells, e.g. wells that are shut-in and wells that were not completed due to poor economics. Theoretically, these wells could be NPV positive with higher commodity prices.
I’m very uncomfortable with Live Nation’s accounting.
Live Nation does not seem interested in helping investors figure out how much money the company actually makes. One of the unnecessarily tricky areas of Live Nation’s accounting is the interaction between ticketing advances and Adjusted Operating Income (AOI). I would consider all ticketing advances to be operating expenses. However, Live Nation adds a subset of ticketing costs to Adjusted Operating Income since non-recoupable ticket advances are amortized. Management’s definition of AOI seems to be designed to mislead.
Live Nation has various business lines associated with live music and live events. They are pursuing a strategy of vertical integration, trying to find synergies between the various parts of their business. On the concerts business side, the vertical integration strategy has been tried multiple times with little success. Will this time be any different? John Malone seems to think so. Liberty Media has been buying more Live Nation shares.
Let’s start with an overview of the ticketing industry.
Gurufocus is a website that presents historical financial data in one giant table. You can use Google Sheets to pull that data into a spreadsheet and perform your own calculations. This is much faster than going into a 10-K to copy+paste the financial data. Here is my spreadsheet that automatically pulls data from Gurufocus. (EDIT 9/9/2017: unfortunately the spreadsheet does not work very well anymore due to changes to the Gurufocus website.) To use it, sign in to your Google account (registration is free) and then make a copy of the spreadsheet.
Calculations that I like to perform
According to a VPNA (Valeant Pharmaceuticals North America) invoice to R&O, invoices are due in 30 days. See Exhibit E from VPNA’s counterclaim*.
According to the same counterclaim against R&O, “[…] R&O had 45 days in which to pay for the Valeant medications”. See page 9 of “VRX Counterclaim.pdf” available here.
So is it 30 or 45? If it is 30, then VPNA may lose a lot of credibility in court. As well, the timing affects the timeline of events. R&O (or Philidor?) stopped sending out drugs on August 31, the same day that Russell Reitz’s lawyer wrote a scathing letter to Isolani. From the VPNA version of events, August 31 is 45+1 days after the last payment was received from R&O. If VPNA’s credit terms are 30 days, then it is curious that the company continued to send drugs to R&O (or Philidor?) even after its credit terms were breached. Recall that VPNA’s own Exhibit E states “TERMS: Due in 30 Days”.
EDIT (11/4/2015): This post has been edited extensively because I didn’t realize that the example invoice from my original post was from VPNA’s own counterclaim.
Somewhere around July 27, 2015, Isolani became aware that Russell Reitz was withholding reimbursement checks from R&O’s accounts. You might think that this would force the business to halt operations. An Isolani court filing (page 8) against Reitz states:
As a result of Reitz’s and R&O’s material breaches of the MSA, Isolani will be forced to shut down operations at the Pharmacy within the next 10 days.
In fact, operations did not shut down. Documents filed with the court suggest that Philidor continued to ship out drugs on R&O’s behalf until August 31, 2015.
I find this very strange. Why send out drugs when it is highly uncertain as to whether or not your company will be paid?