Sentieo: a better way to perform due diligence

Since January 2015, I’ve been using a research platform called Sentieo (website).  The main attraction of Sentieo is “Document Search”, a tool that searches through EDGAR filings, investor presentations, and conference call transcripts at the same time.  It allows me to find key pieces of information that I otherwise would not find.

For short selling, Sentieo is incredibly useful since almost all of my short selling involves tracking down scumbags.  Much of my work is spent searching through SEC filings for names of people, company names, and addresses.

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Ways to inflate/deflate oil and gas reserves – Part 2

In the past, Arthur Berman and his colleague Lynn Pittinger wrote about shale reserve estimates at The Oil Drum.  The 2011 post “U.S. Shale Gas: Less Abundance, Higher Cost” pointed out potential pitfalls from using analogy wells to determine decline curves.

Type curves that are commonly used to support strong hyperbolic flattening are misleading because they incorporate survivorship bias and rate increases from re-stimulations that require additional capital investment.

Ways to inflate/deflate oil and gas reserves

Here are some ways to do it:

1. 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.
2. 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.
3. 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.
4. 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.)
5. 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.

EDGAR tips and tricks

1. To get into EDGAR faster, use Firefox’s bookmarks or Chrome’s custom search engines.
2. In EDGAR, quickly filter filing types by using the “Filing Type” textbox.

Saving time with Gurufocus and Google Sheets. Plus, the usefulness of Free Cash Flow.

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

Residential solar makes little sense

Residential solar makes little sense compared to larger forms of solar energy such as utility-scale solar (building solar farms in non-urban areas) and commercial solar (solar panels on the roof of commercial buildings).  The economics are inferior for various reasons:

1. Economies of scale in labour costs (engineering, installation) and in equipment costs.
2. Larger scale solar tends to place solar panels in areas with the best sunlight conditions and other economic factors.  Some residential roofs are obscured by trees or are not strong enough to support solar panels.  There are some frictional costs when people waste time figuring out that a particular residential roof is not a good place to place solar panels on (e.g. customer service, engineering).

Larger scale solar projects have inherent advantages over residential solar.

Ken Peak Contango presentations

Kenneth Peak is the former CEO of Contango Oil & Gas (MCF) who passed away in 2013.  Here is a collection of investor presentations that were taken down from the contango.com website:

Ken Peak MCF presentations (36MB Zip file on Dropbox)